Legal Compliance for a dormant company and role of auditor

In our last article we have discussed how a company can get status dormant. In this article we will be discussing legal compliance under Companies Act 2013 that a company has to comply after getting status dormant.

Dormant company compliance

After analyzing Companies Act 2013, we found out that a dormant company has to comply following things after the status change;

Annual Return Filing

To remain its status as dormant, the company is required to file “return of dormant company” every year indicating the financial position duly audited by a chartered accountant in practice in form MSC-3 along with such annual fee within a period of 30 days from the end of each financial year.

MSC-3 will include information on financial position, details of board meetings, changes in management, accounting transactions during the financial year, share allotment and share holding pattern. Form MSC-3 has to be attached with statement of financial position duly audited by a chartered accountant in practice. This means, on or before 30th April, you need to file MSC-3 with attachments.

According to section 2(40) of Companies Act 2013, a dormant company is exempted to enclose cash flow statements in its financial statements.

Minimum Number of Directors

A Dormant company to retain its status is required to have minimum number of directors as prescribed in the Companies Act 2013.

This means, a dormant company shall have a minimum number of 3 directors in case of a public limited, 2 directors in case of a private limited and 1 director in case of a OPC.

In case of change in director, e-form DIR-12 has to be filed with MCA.

Number of Board Meetings

A Dormant Company is required to convey at least one meeting of the Board of Directors in each half of a calendar year and the gap between two meetings should not be less than 90 days [Section 173(5)]. This means, dormant company can hold two board meetings in a year.

Role of Auditor and Applicability of Rotation of auditors

As per Companies Act 2013, while applying for status dormant, company is required to attach auditor’s certificate called statement of affairs in Form No MSC-1. This statement of affair should be prepared from the close of the last financial year till the date of application. Statement of affairs can also be certified by any other chartered accountant in practice.

MSC-1 is also required to be digitally signed by a chartered accountant or company secretary or cost accountant in practice.

As discussed above, after getting status dormant, company is required to file MSC-3 every year. MSC-3 should be attached with statement of financial position audited by a chartered accountant. It has to be issued within 30 days of the close of financial year. Form MSC-3 has to be certified by a chartered accountant or company secretary or cost accountant in practice.

Dormant companies are out of the 20 companies audit ceiling limit applicability to auditor and as per rule 6 of Companies (Miscellaneous) rules, 2014, provisions of the act in relation to the rotation of auditors shall not apply.

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