A firm or Limited Liability Partnership (LLP) that is inactive and not doing any business operations but is still registered as a result is said to be in dormant state. Under Indian company law, this status is officially acknowledged and allows the companies to continue to be officially recognized even while they are not conducting businesses. It may additionally suggest that the company is not submitting financial reports or that, during a certain time period, it has neither cash nor obligations. To preserve the status and satisfy the legal requirements, it is crucial to adhere to the required procedures.
Remember that dormant companies or LLPs must file yearly returns and financial statements in a simplified manner, depending on their status.
If a business or LLP becomes dormant for an extended period of time and fails to file the relevant papers, the ROC can take it off its official records.
Dormant status filing:
Dormant status filing is a method of officially declaring a firm dormant to the correct regulatory authorities. This is often done when a company is not doing operations or generating income but still want to keep its legal status.
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Purpose of Dormant status:
- The goal of dormant status is to help businesses and limited liability partnerships (LLPs)
- LLPs planning to restart in the future but do not want to deal with the burden of shutting down the entity completely.
- It allows organizations to maintain their legal identity and can be restored as needed without having to go through the incorporation process once more.
What Causes an LLC or Company to Go Dormant?
By registering with the Ministry of Corporate Affairs (MCA) or the Registrar of Companies (ROC), a company or limited liability partnership (LLP) may be certified by dormant. Companies and limited liability partnerships (LLPs) in India may be considered as dormant in the following situations:
1. The corporation or limited liability partnership does not currently operate and has not done any activity for a period of time.
2. The business/LLP is currently wrapping up, but it hasn’t finished yet.
3. Despite the entity is yet to launch operations, it is maintained for a specified future business purpose.
Benefits of Dormant Status:
1. Preventing Striking Off: The ROC has the authority to strike a business or limited liability partnership (LLP) off the Register if it fails to submit the annual reports or financial statements for a certain amount of time. This is impossible to accomplish in a dormant state.
2. Less regulatory compliance: Compared to active organizations, dormant companies are subject to fewer regulatory requirements. They might not be required to hold yearly meetings or supply regular financial statements. Still, they have to fulfil some legal requirements, such as submitting an annual return (Form 11 in the case of an LLP).
3. Preserving Legal Existence: Organizations or limited liability partnerships (LLPs) who wish to preserve their legal standing but are not yet prepared to begin activities may apply for dormant status. This maintains their good standing without requiring the legal entity to be destroyed completely.
4. Future Business reopening: Without having to re-incorporate or go through the process of creating a new business, a dormant entity may at any point begin activities again. If the business is being stopped temporarily but will eventually reopen, this can be especially helpful.
How to apply for Dormant Status:
1. Eligibility criteria for Dormant Status.
2. File a request with the Ministry of Corporate Affairs (MCA).
3. Consequences of Dormancy.
4. Cancellation of Dormant Status.
For companies: A corporation can request for inactive status with the Registrar of Companies (ROC) by submitting Form MSC-1 (for companies registered under the Companies Act of 2013). The corporation must approve a board resolution and submit Form MSC-1, along with the reasons looking for inactive status.
For the LLP: If an LLP stop running business operations for a specified period of time, they can apply for dormant status by filing Form 24 to the MCA.
FAQs for Dormant Status?
The registered business which are not actively trading or making money right now is known as a dormant company. These companies tend to be kept preserved for possible future uses or to protect their brand.
Yes, if a business stops doing trading, It doesn’t make any big transactions, and meets the standards for dormancy to forward by local business laws, it can become dormant.
To reactivate a dormant company, you have to submit an application to the relevant government, update the financial statements, pay fees, follow the rules and regulations, and resume business operations.
A company can apply for dormant status to decrease legal expenses, avoid tax burdens, to maintain its brand, and preserve resources while removing activities but not merging.
A dead firm must file yearly reports, financial statements, legal registers, hold board meetings, file income tax returns, and make any required regulatory reports.
A dormant company may conduct limited operations such as filing fees, legal payments, and
maintenance of expenses, but it cannot engage in trading or profit-generating operations
A dormant company must hold board meetings even if required by its articles or local laws, but otherwise, compliance is limited unless operations are restarted.
A Dormant company that fails to meet annual standards can face penalties such as fines, late fees, compulsory strike-off by the government, and even directors suspension.
A Dormant company can still submit annual returns, but it often has lower tax requirements, no taxation responsibility, and it is required to inform the government of its dormancy.
Not all companies are eligible for dormant status. Only those companies are eligible who are with no significant accounting transactions and who meet legal criteria can apply for dormant status.