Read the following paragraph and answer the five questions that follow: Section 455 of Indian Companies Act, 2013 talks about a New Provision Calls "DORMANT COMPANY. This concept was not there in Companies Act, 1956. 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. For instance: if a promoter wants to buy lands now for its future project at a comparatively lesser price, he may do the same through dormant company so that he can use the land for its future project. Thus, dormant company status is a new phenomenon in the Companies Act 2013 and is an excellent tool for keeping assets in the company for its future usage. A dormant company may be either a public company or a private company or a one person company. Certain companies, due to the nature of their business, may not be able to start any business, for a long time from the date of incorporation as for instance any business for creation of intellectual property or for a future project and has no significant accounting transaction. Such a company may be an "Inactive company". Construction Companies/Real Estate Companies/Incorporate New Companies to hold land/properties for future projects. This concept is beneficial for them. By this concept, they can Incorporate Company and purchase property/land in that company and get status of Dormant Company. If a company gets status of dormant company, there are less compliance in dormant company in comparison of active company. It will help to save cost of compliances for inactive companies.
Dormant company offers excellent advantage to which one of the following?
Promoters
Understanding Dormant Companies and Their Advantages
This question asks us to identify who primarily benefits from a dormant company status, based on the provided paragraph explaining Section 455 of the Indian Companies Act, 2013.
What is a Dormant Company?
According to Section 455 of the Indian Companies Act, 2013, an "Inactive company" can apply for the status of a "Dormant Company". An inactive company is one that is formed for a future project or to hold an asset or intellectual property and has had no significant accounting transaction for the last two financial years, or has not filed financial statements and annual returns during the last two financial years.
The concept of a dormant company is new in the Companies Act, 2013 and was not present in the earlier Companies Act, 1956.
Advantages of a Dormant Company Status
The paragraph highlights several advantages of obtaining a dormant company status:
- It allows promoters to hold assets or intellectual property under a corporate structure for future use.
- It is beneficial for companies involved in future projects, such as real estate or construction companies that acquire land now for later development.
- It leads to reduced compliance requirements compared to an active company, which helps save costs for inactive companies.
Who Benefits Most? Analyzing the Text
Let's look closely at the specific sentence in the paragraph that directly addresses the advantage:
"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."
The paragraph explicitly states that the excellent advantage is offered to the "promoters". It explains that promoters can use this status to hold assets like land for future projects, benefiting from potentially lower current prices and reduced compliance costs while the asset is held.
Examining the Options
Based on the text, let's consider the given options:
- Bankers: The text does not mention any specific advantage of dormant companies for bankers.
- Creditors: The text does not discuss benefits for creditors.
- Shareholders: While shareholders generally benefit from the success of the company, the primary advantage highlighted in the text is for those establishing and managing the company's assets for future plans. The text specifically names "promoters".
- Promoters: The paragraph explicitly states that dormant companies offer excellent advantage to promoters for holding assets or intellectual property for future use.
Therefore, according to the provided paragraph, dormant companies offer an excellent advantage to promoters.
| Feature | Advantage Mentioned | Beneficiary Highlighted |
|---|---|---|
| Holding assets/IP for future use | Excellent advantage | Promoters |
| Future projects (e.g., land for construction) | Excellent tool / beneficial | Implied Promoters/Company managing asset |
| Less compliance | Helps save cost | Company (ultimately benefits owners/promoters) |
The text clearly and directly links the primary "excellent advantage" of holding assets for future use to the promoters. While the cost savings from less compliance also benefit the company and indirectly its owners, the most prominent advantage mentioned specifically benefiting a group is for promoters managing future plans.
Conclusion
Based on the detailed explanation in the paragraph regarding Section 455 of the Indian Companies Act, 2013, the excellent advantage provided by a dormant company status is explicitly for promoters who wish to safeguard assets or intellectual property for future use.
Revision Table: Key Concepts of Dormant Company Status
| Concept | Description (from text) | Relevant Section |
|---|---|---|
| Dormant Company | New provision in Companies Act, 2013. Status for Inactive companies. | Section 455 |
| Inactive Company | Company for future project/holding asset/IP, no significant accounting transaction, or not filed returns for 2 years. | Basis for Dormant status |
| Advantage | Hold asset/IP for future use, less compliance, saves cost. | Key benefit |
| Beneficiary | Promoters | Primary Advantage Receiver |
Additional Information: Exploring Dormant Companies Further
Beyond the points mentioned in the paragraph, understanding dormant companies involves a few more details:
- Significant Accounting Transaction: This term generally excludes transactions related to payments made to the Registrar of Companies or other authorities, payments for allotment of shares to fulfill requirements of the Act, payments made for maintenance of its office and records, and payments for any permits required to operate. The idea is that the company is not actively engaged in business operations.
- Application Process: A company must apply to the Registrar of Companies (RoC) in a specific form (eForm MSC-1) to obtain dormant status. The RoC, if satisfied, issues a certificate.
- Compliance Savings: Dormant companies have significantly reduced compliance requirements, such as filing simplified annual returns. This reduces administrative burden and costs.
- Future Project vs. Asset Holding: The Act caters to two main scenarios for inactive companies – one where the company is formed for a future business operation (future project) and another where it is formed primarily to hold assets or intellectual property without immediate business activity.
- Company Type: As mentioned in the text, a dormant company can be a public company, a private company, or even a One Person Company (OPC).
This status is particularly useful for companies that have a long-term vision but are not yet operational, allowing them to maintain their corporate identity and hold crucial assets or IP rights securely and cost-effectively until the project is ready to commence.
Important Questions from The Companies Act, 2013
Match List I with List II:
List- I
List – II
A.
Appointment of auditors by CAG (I)
Section 139 (5) B.
Qualifications and disqualifications of auditors (II)
Section 141 C.
Powers-and duties of auditors (III)
Section 142 D.
Remuneration of auditors (IV)
Section 143
Choose the correct answer from the options given below -Which one of the following nature of business is suitable to a Dormant company?
Which of the following companies do not fall under a purview of Dormant company?
(A) Private company
(B) One person company
(C) Limited and unlimited liability companies
(D) Public company
(E) Government company
Choose the most appropriate answer from the options given below:
Given below are two statements: One is labelled as Assertion A and the other is labelled as Reason R.
Assertion (A): Provision is made to obtain the status of a ‘dormant company for a inactive company that doesn't trade.
Reasons (R): Dormant company doesn't trade but has significant accounting transaction.
In the light of the above statements, choose the most appropriate answer from the options given below -
Given below are two statements : One is labelled as Assertion A and the other is labelled as Reason R.
Assertion (A): If a company gets status of a dormant company, then it is subject to less compliance in comparison to active company.
Reasons (R) : It will help to save of compliances for Inactive companies when they become dormant company under section 455 of the Companies Act, 2013 as compared to the Companies Act. 1956.
In the light of the above statements, choose the most appropriate answer from the options given below :
