Many things are easier to get into than out of. Companies are in that list – it is easy to form them, but difficult to demolish. It is qui...
Many things are easier to get into than out of. Companies are in that list – it is easy to form them, but difficult to demolish. It is quite common for entities to form companies that were formed for a once-conceived business, but that never took off and therefore, the company remains unused. Or it may be that the business ceased quite some time back and the company is lying like a shell entity over the years. This is what is known as “defunct company”.
After commencement of Companies Act, 2013 from 01st April, 2014 compliance requirement of companies has been increased. Therefore it’s difficult for the Non-working Private Company to continue with Status of Active Company, because maintenance of company is expensive under companies Act, 2013 comparison to Companies Act, 1956.
If the companies are non-working than Companies two options to save cost:
1. Strike off Company (Under Section-560 of Companies Act, 1956 with FTE scheme)
2. Dormant Status of Company (Under Section- 455 of Companies Act-2013.
Fast Track Exit: Fast Track Exit (FTE)mode is introduced by Ministry of Corporate Affairs for giving opportunity to non-operating companies for getting their names struck off from the records of Ministry of Corporate Affairs. Fast Track Exit mode is an easy mode of closing non-operating companies at cheaper cost with lesser formalities under section 560.
Dormant Company: Section-455 of Companies Act, 2013 talks about a New Provision Calls “DORMANT COMPANY”. This concept was not there in Companies Act, 2013. Another Name of this concept by Professionals is “ASSET SHIELDING CONCEPT UNDER COMPANIES ACT 2013”. A Dormant Company offers excellent advantage to the promoters who want to hold an asset or intellectual property under the corporate shield for its usage at a later stage.
Checks for FTE: This scheme come into force by circular No. 36/2011 dated: 07th June, 2011. This scheme is effective from 03rd July, 2011.
A. Company has not commenced any business activity or operation since incorporation; or
B. Company is not carrying over any business activity or operation for last one year before making the application of FTE.
C. Assets & Liabilities of company are nil.
D. Documents require for FTE & require to attach in form:
- i. An affidavit (on Stamp Paper as per Stamp Act of State and duly notarized) from the all director (Mentioned company has not carried on any business since incorporation or that the company did some business for a period up to a date and then discontinued its operations, as the case may, be)
- ii. Am Indemnity Bond (on Stamp Paper as per Stamp Act of State and duly notarized), duly notarized by every director (Mentioned any losses, claim and liabilities on the company, will be met in full by every director)
- iii. A Statement of Account as on date not prior to more than one month preceding the date of filling of application in Form FTE, duly certified by Statutory Auditor or Chartered Accountant Whole time Practice.
- iv. Copy of Board Resolution authorizing directors to file application
Procedure for FTE:
After above mention checks and preparation of above mentioned documents company can apply for FTE with ROC.
A. A Company eligible to apply for striking off its name needs to apply to Registrar of Companies in Form FTE.
B. The Form FTE, should be filed electronically on the Ministry of Corporate Affairs portal namely www.mca.gov.in and by making payment of Rs. 5000/- as the ROC fees;
C. Form FTE, shall be certified by a Chartered Accountant in whole time practice or Company Secretary in whole time practice or Cost Accountant in whole time practice;
D. The Registrar of companies shall put the name of applicant(s) and date of making the application(s) under Fast Track Exit mode, on daily basis, on the MCA portal www.mca.gov.in, giving thirty days time for raising objection, if any, by the stakeholders to the concerned Registrar;
E. The Registrar of Companies immediately after passing of time given in above Para and on being satisfied that the case is otherwise in order, shall strike its name off the Register and shall send notice under Section 560(5) of the Companies Act, 1956 for publication in the Official Gazette and the applicant company under this Scheme shall stand dissolved from the date of publication of the notice in the Official Gazette.
F. As per CLLS Scheme: The defaulting inactive companies, while filing due documents under CLLS-2014 can, simultaneously apply for striking off the name of company by filling e-form FTE at 25% of the fee payable on form FTE. (But practically I filled the form fee is coming Rs. 5000 not 25%)
Few other Checks for FTE: Get the complete scheme on
1. Any defunct company (Described below) which has active status or identified as dormant by the Ministry of Corporate Affairs, may apply for getting its name struck off from the Register of Companies.
2. Any defunct company which is a Government company is to submit a ‘No Objection Certificate’ issued by concerned administrative Ministry or Department or State Government along with the application.
3. In case of foreign nationals and NRIs, indemnity bond and affidavit may be notarized as per the respective country’s law.
4. Litigation: Fast track exit mode does not mention anywhere that a Company against which litigation is pending cannot apply for striking off the name of the Company from the Register maintained by the ROC. Hence, a Company against which litigation is pending can apply under fast track mode. Further, details of pending litigations are required to be filled up in e-form FTE which has a reference in affidavit format too. Any pending litigations involving the company should be disclosed while applying under this Scheme;
5. NOC is not required from Income Tax / Sales Tax / Central Excise / other Govt authorities. But all directors need to confirm that there are no dues pending against Company with any such
authorities. And MCA will send letter confirming that Income Tax has no objection for striking off the name of the said Company.
Defunct Company: For the purpose of the scheme “defunct company” shall mean a company which has-
· Nil asset and nil liability
· Not commenced any business or activity since incorporation
· Not been carrying any business operation since last one year before making an application under Fast Track Exit Scheme.
FAQ’S of FTE:
1. The defaulting companies can apply under FTE.
Solu: Defaulting companies are identified as companies which have not filed their statutory documents, i.e. balance sheet and annual return for any of the financial year 2006-07, 2007-08, 2009-10, 2010-2011, 2011-2012, 2012-2013, and 2013-2014. Directors of such defaulting companies are debarred from filing any document until the default is made good. Such defaulting companies can apply under FTE.
2. How to Apply for FTE?
Sol: Any defunct company desirous of getting its name strike off the Register under Section 560 of the Companies Act, 1956 shall make an application in the Form FTE, annexed electronically on the Ministry of Corporate Affairs portal namely www.mca.gov.in accompanied by filing fee of C 5,000/-;
3. Which Companies cannot apply under fast track exit mode?
Sol: Following Companies cannot apply under fast track exit mode:-
ü Listed Companies
ü De-listed Companies due to non- compliance of Listing Agreement or any other statutory Laws
ü Section 25 Companies
ü Vanishing companies
ü Companies where investigation / inspection ordered and yet to be taken up or pending
ü Companies where order u/s 234 has been issued by ROC and reply is pending
ü Companies where prosecution for a non-compoundable offence is pending in court
ü Companies accepted deposits which are outstanding or default in repayment
ü Company having secured loan
ü Company having management dispute
ü Company for which filing of docs have been stayed by court or CLB or CG or any other competent authority
ü Company having dues of Income tax / sales tax / central excise / banks / financial institutions / CG / SG / other local authorities
ü Companies not having active / dormant status on MCA portal
4. Can an inoperative company with assets and liabilities apply under FTE?
Sol: The FTE scheme talks about a defunct company to mean a company with nil asset and nil liability. Though proviso (a) to section 560 (5) states that liability, if any of the director shall continue, but the scheme deals with a defunct company with nil asset and nil liability. This reflects that zero asset-liability is a condition precedent to the application under the present scheme.
Dormant Company: This Cover under Section-455 of Companies Act, 2013 comes into effect from 01st April, 2014.
Lets emphasis on Definition of Dormant Company:
Dormant Company means a company
1. If a company is formed and registered under the Act for a future project and has no significant accounting transaction or
2. If a company is formed and registered under the Act to hold assets and has no significant accounting transaction or
3. If a company is formed and registered under the Act for Intellectual property and has no significant accounting transaction such a company OR
4. An Inactive company may make an application in such manner as may be prescribed for obtaining the status of dormant company.
Now Lets Discuss Inactive Company:
Inactive company means a company which:
- Ø has not been Carrying on Any Business, or
- Ø has not been Carrying on operation or
- Ø has not made any Significant Accounting Transaction During The Last Two Financial Years, or
- Ø has not filed Financial Statements and Annual Returns during the LAST TWO FINANCIAL YEARS.
Now Lets Discuss Significant Accounting Transaction
“Significant Accounting Transaction” means any transaction other than-
- Ø Payment of Fees by a company to the Registrar;
- Ø Payments made by it to fulfill the requirements of this Act or any other law;
- Ø Allotment of shares to fulfill the requirements of this Act; and
- Ø Payments for maintenance of its office and records.
Checks for Dormant Company:
- Company incorporates for a future project or to hold an asset or intellectual property and has no significant accounting transaction. Or;
- A Company is inactive company (as per Definition given above)
- Documents require for Dormant & require to attach in form:
- a. CTC of Board Resolution.
- b. CTC of Special Resolution.
- c. Auditor’s Certificate.
- d. Statement of Affairs duly certified by Chartered Accountant or Auditor(s) of the company.
- e. Latest Financial Statement and Annual Return of the Company is mandatory to attach In Case The Same Is Filed To Registrar.
- f. Certificate regarding no dispute in the management or ownership
- g. Consent of lender, if any loan is outstanding.
Few other Checks for Dormant Status: As per Section 455(1) Explanation (ii).
This Section comes into effect from 01st April, 2014.
- A. No inspection, inquiry or investigation has been ordered or taken up or carried out against the company;
- B. The company is neither having any public deposits which are outstanding nor is the company in default in payment thereof or interest thereon;
- C. No prosecution has been initiated or pending against the company under any law;
- D. The company has not defaulted in the payment of workmen’s dues;
- E. The company does not have any outstanding statutory taxes, dues, duties etc. payable to the Central Government or any State Government or local authorities etc.;
- F. The application has not been made with an objective to deceive the creditors or to defraud any other person;
- G. The securities of the company are not listed on any stock exchange within or outside India;
- H. The company is not having any outstanding loan, whether Secured and Unsecured- But if company has any Outstanding Unsecured Loan then the company may apply for status of DORMANT only after obtaining NOC from the lender. Such NOC required to be attached in the Form which requires filing with ROC.
- I. There is No Dispute in the Management or Ownership of The Company; A certificate in this regard required to taken from Management. Such Certificate required to be attached in the Form which requires filing with ROC.
FAQ’S of Dormant Company:
1. A company which is in existence from the period less than 2 year can go for Status of Dormant?
View: Yes As per Definition of Inactive Company given above [Section 455(1) explanation (I)
Means a company which not carrying any business or operation.
2. What is the procedure to get Status of Active company.
View: If company wants to get Active status to be file e-form MSC-4 with ROC, then gets active company status.
3. Transaction which a company can do during Dormant Status.
- Payment of fees by a company to the Registrar;
- Payments made by it to fulfill the requirements of this Act or any other Law;
- Allotment of shares to fulfill the requirements of this Act; and
- Payments for maintenance of its office and records.
(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at firstname.lastname@example.org Mob: +91-8130757966)