Dormant Company was a concept introduced in Companies act, 2013. Dormant Company does not have a definite clause. It is the type of company which is not active and made for future perspective. In section 455 section it is mentioned.
In section 455 there are types of company which are formed and registered under this Act for a future project or to hold an asset or intellectual property and it has no significant accounting transaction. An application is made to the registrar in such manner as may be prescribed.
An inactive company is a type which has not been carrying on any business or operation or has not made any significant accounting transaction during the last two financial years. Companies have not filed financial statements and annual returns during the last two financial years. The dormant company also means any active company doing regular business and regular accounting transactions but it fails regarding mandatory annual documents.
Here are some points significant accounting transaction defined in order to clear out any ambiguity
These are the types companies required to have minimum directors which can have two board meeting and file minimum one annual financial document with the Registrar. In some cases the dormant company can have its status as active.
Here are some rules regarding dormant company
MSC 1-Application for seeking-No inspection inquiry, NO prosecution under
Application for obtaining status can only be made after obtaining special resolution approval or issuing a notice to all the shareholders. Public deposit or interest is not there for the company. It has no outstanding loan, secured or unsecured. In case of any unsecured loans then the consent of the lender should be obtained and enclosed along with the form. The dormant company does not have any outstanding tax dues either to central or state government or local authorities. These types companies are not listed company.
MSC 2-Certificate of Registrar
MSC 3- Return of Dormant Company- This indicates the financial position of the company and which shall be duly audited by a chartered accountant in practice.
MSC 4-Application for active status-Company can revert an active status by making another application along with requisite fee.
MSC 5- Certificate of Application Status
There are some rules which state that dormant company cannot remain as a dormant company for more than 5 consecutive financial years. If it remains so, the company will be removed. A maximum number of years company can be dormant is 5 financial years.
Sometimes, Registrar has a doubt that a dormant company has been indulging in business activities and in fact, it is not dormant then he can take necessary action to revert its status to an active company.
Ministry of Corporate affairs is an Indian ministry that is primarily concerned with Companies Act, 2013, Companies Act, 1956, Limited Liability partnership act 2008 and other rules and regulations. The responsibility of this Ministry is regulation of Indian enterprises in Industrial and Services sector.
Companies can be registered in India
Private Limited Company-It is the type of company recommended for Business. The cost of registration of the private limited company is cheaper than other forms of a company. Private limited should have a minimum of 2 members and can have maximum 200 members. In this company liabilities are limited and it has some features of a partnership.
People mostly prefer this of the company for fundraising. The degree of operation and ownership can easily separate in this type of company. Business can be exited without any hassle. In this members are limited to only contribute towards a number of shares.
One Person Company-It is the type of company which can be started by a Single member.OPC is the latest form of company in Companies Act, 2013. One person can become the director as well as the shareholder. Similar to the private limited company as the degree of operation and ownership are on the separate basis.
OPC gives wings in the hand of Sole proprietor to form the company under with full control. It is done without any interference of the third person. This type is easy for an entrepreneur to directly target the market. Fundraising from banks and the financial institution is easy. People who are Indians and resident in India can form OPC.
Public Limited Company-This is a publicly held company. A large amount of capital investment can easily be obtained. These types companies are considered to be a more transparent business model as compared to other business structures. Investors get the choice of transferring their ownership in the company without any hassle by just selling the shares.
Section 8 Company-These companies are basically formed to encourage arts science, sports, education, research, social welfare, religion, charity, etc. These kinds businesses do not play any vital role in profit. Company Intends to prohibit the payment of any dividend to its members. These companies are the non-profit making company.
Section 8 company was incorporated mainly for welfare purposes. Previously, it was defined as Section-25 Company. Due to commencement of Companies act, 2013 it was called as Section-8 Company
Nidhi Company- Nidhi Company comes from the Hindi word ‘Nidhi’ means fund. These are the NonBanking financial corporation. These are also known as mutual benefit funds. Nidhi company is known in the corporate scenario is member benefits company. Companies are formed for the welfare of the members and to increase saving habits.
Other types of Companies
There are some more types companies which can be registered in India.
However the type and size of business, it is valued by its owner(s) and as the business grows, the bigger the value gets and hence higher the protection needed. The owner must understand the vulnerability that comes along with the success of a business, such as with success comes competition, risks, legal obligations, reputation sustenance, vigilant, etc.
An owner must be prepared to face the difficulties that come in building a successful business. There are no strict rules to be followed, however, certain aspects of protecting ones business remain constant in all cases.
Protection against legal threats
Organize your Finances
Protection against technological threats
Protection against reputation threats
Protecting a business can be a task but the efforts will make the success of a business only smoother. If the above major aspects are taken care of, the business is well protected and any hassle on its way of progress can be dealt with ease.
Every entrepreneur will agree that the procedure of incorporating a Company can be tedious and cumbersome despite the necessity of the steps involved. Even though, a Company can now be incorporated online as well as offline, the steps remain the same.
The government of India has taken a significant step in easing the procedure of incorporation of a Company. On the occasion of Gandhi Jayanti, the government launched SPICe that is simplified proforma for incorporating Company electronically.
Ministry of Corporate Affairs has simplified the procedure by introducing filing of pre-dated Memorandum or Articles of Association electronically. It will further simplify the earlier procedure of incorporating a Company using form Inc-29. As per the latest update, earlier forms may be replaced with newer SPICe form Inc-32.
There are certain features of SPICe that are as follows.
This initiative is a bold step and will increase gains with faster review of Memorandum and Articles of Association making SPICe the sole procedure to incorporate a Company in India.
To infuse the more participation of shareholders in the decision making process, e-voting system has also been annexed to the companies’ shareholder meeting.
What we have been observing till commencing the new companies act, 2013 is that shareholders hardly used to come at the General Meeting of the company due to remoteness of the place of the meeting. In this way, shareholders who had majority stake in the companies usually have a say in the decision making process and interest of the minority shareholders had been set aside. Therefore, this e-voting system has been introduced in corporate decision making process.
Let’s first understand the applicability of this e-voting:
E-voting system is not applicable on all the companies. This is a little cumbersome process and expensive as well for small companies. Therefore, only following class of companies are required to follow e-voting system:
This e-voting facility must be communicated by the companies in the notice of annual general meeting (AGM) itself. Notice of AGM shall be sent before 21 days of the meeting, so you have arrange this e voting facility before sending the notice because this notice contains the details about the e-voting and how to use this facility.
What matters shall be included in the Notice of AGM about e-voting
The notice of the meeting shall state that:
Public Notice by way of an advertisement
Content of the advertisement must state:
After observing the law behind the e-voting, one this is clear that now voting system in the company more align to democratic manner and convenient for shareholders to vote remotely.
Nowadays, in the age of start-ups directors are the heroes of the business entity. They are the real players who manage or control the whole of the undertaking efficiently.
Directors are the representatives of the investors and ensures that the company is moving on the right path to achieve its objectives. Before taking any decision they always keep in mind the interest of consumers, employees and investors. For every start-up, board of directors brings supervision to avoid mismanagement.
There are various types of directors which include resident director, executive director, non executive director, independent director, woman director etc. According to Companies Act, 2013 the concept of independent director is very simple. To know more about independent director we need to go through the whole concept.
Independent director are also known as outside director. They are the members of the company’s board of director who was bought in from outside the company. Moreover they are also responsible to improve the performance of the company.
An independent director is a director or member of a board of directors who does not have a material or pecuniary relationship with company or related persons, except sitting fees. In other words, no director qualifies to be an independent unless the Board of Directors determines that he has 'no material relationship' with the listed company, either directly or as a partner, shareholder or officer of an organization that has a relationship with the company.
Appointment of Independent Director
The process of appointment of independent director is very easy. Such appointment is approved at the meeting of the shareholders. According to Companies Act, 2013 appointment of independent director has mandated for all listed public companies.
Appointment of independent director in case of all listed public companies and unlisted public companies are as follows--
In case of listed public companies- at least one-third of the total Directors to be independent.
In case of unlisted public companies- following class of companies shall have at least two directors as independent director-
Term of Appointment
The appointment is for a term of 5 (five) years commencing from the date of appointment and ending (‘Termination Date’) on 6th Annual General Meeting of the Company following the date of appointment. Such appointment may be terminated at any time by the Company in accordance with Companies Act, 2013. To appoint eligible and willing independent director, central government and organisations will maintain a data bank of persons. Further, independent directors can be removed if they fail to attend any board meeting for 12 months period with or without permission from the board.
The time period of the independent director must not exceed two consecutive periods of 5 years each and can be extended for a second term only after passing a special resolution.
Re appointment of independent director
According to Companies Act, 2013 independent director can be re appointed after the expiry of second term but such re appointment can be done only after the expiry of three years.
So, these above are some of the provisions of independent director. These concepts were introduced mainly to ensure transparency in corporate governance and safeguard the autonomy of independent directors.
Independent director always ensure that the management and affairs of the company are conducted in a best way so that organisational objectives can be achieved easily.
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