Process to Convert a Dormant Company into Active Company (Section 455, Companies Act, 2013)
In today’s dynamic business environment, companies often opt for dormant status when there are no significant financial transactions or operational activities. However, when the company intends to resume business, it becomes essential to convert its status from Dormant to Active.
This article explains the legal provisions, procedure, and compliance requirements for activating a dormant company under the Companies Act, 2013.
Understanding Dormant vs Active Company
A Dormant Company is one that is formed for a future project or holds assets/intellectual property but has no significant accounting transactions.
An Active Company, on the other hand, is engaged in business operations or intends to carry out commercial activities.
Legal Provisions Applicable
The conversion process is governed by:
- Section 455 of the Companies Act, 2013
- Rule 8 of the Companies (Miscellaneous) Rules, 2014
Key Rule:
- Ensure authenticity of documents certified by CAs
- Backdated UDIN generation is strictly not allowed
When is Conversion to Active Status Required?
A dormant company must apply for active status in the following situations:
- When it intends to start business operations
- When it enters into financial transactions
- When any event occurs that violates dormant status conditions
Important: The application must be filed within 7 days of such triggering event.
Forms Required for Activation
To convert a dormant company into an active company, the following forms are required:
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- Form MSC-4 – Application for active status
- Form MSC-3 – Annual return of dormant company
- Form MSC-5 – Certificate issued by ROC granting active status
Step-by-Step Process to Convert Dormant Company into Active
1. Board Meeting
- Convene a Board Meeting
- Pass a resolution approving conversion into an active company
2. Filing of Application
- File Form MSC-4 with ROC
- Attach MSC-3 (Annual Return) for the relevant financial year
3. Verification by ROC
- Registrar examines the application and documents
Approval Certificate
- ROC issues Form MSC-5, confirming active status
Important Compliance Points
- Filing must be done promptly within 7 days of triggering event
- Ensure no pending compliances before filing
- Maintain proper documentation and board approvals
Consequences of Non-Compliance
Failure to comply may lead to serious consequences:
- ROC may initiate inquiry under Section 206
- Company may be treated as active with penalties
- If dormant for 5 consecutive years, ROC may initiate strike-off proceedings
Can ROC Change Status Suo Moto?
Yes. If the Registrar finds that the company is operational:
- It can remove the company from dormant status
- Reclassify it as active company
- Provide an opportunity of being heard before action
Key FAQs
1. Is shareholder approval required?
Generally, Board approval is sufficient, unless Articles require otherwise.
2. What if company starts business without applying?
ROC may initiate inquiry and impose penalties.
3. What happens if application is delayed?
Delay may result in non-compliance and penal consequences.
Planning to activate your dormant company?
At Vizttax, we provide end-to-end assistance in:
- Conversion of Dormant Company to Active
- ROC Filings & Compliance
- Corporate Advisory Services