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.
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 :
Both (A) and (R) are correct and (R) is the correct explanation of (A)
Analyzing Dormant Company Provisions under Companies Act, 2013
The question asks us to evaluate an assertion and a reason based on the provided paragraph regarding 'Dormant Company' status under Section 455 of the Indian Companies Act, 2013.
Understanding the Statements
- Assertion (A): If a company gets status of a dormant company, then it is subject to less compliance in comparison to active company.
- Reason (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.
Step-by-Step Analysis
Analysis of Assertion (A)
The provided paragraph explicitly states: "If a company gets status of dormant company, there are less compliance in dormant company in comparison of active company." This sentence directly supports the assertion.
Therefore, Assertion (A) is correct.
Analysis of Reason (R)
The paragraph mentions that the 'Dormant Company' concept is a new provision in the Companies Act, 2013, introduced by Section 455, and was not present in the Companies Act, 1956. It also states: "It will help to save cost of compliances for inactive companies." Inactive companies, by becoming dormant under the 2013 Act, can reduce their compliance burden. Since this option didn't exist under the 1956 Act, the compliance requirements for an inactive company would have been higher under the old law compared to the reduced compliance under the new law's dormant status.
Therefore, Reason (R) is correct.
Evaluating if Reason (R) explains Assertion (A)
Assertion (A) states that dormant companies have less compliance. Reason (R) explains that becoming dormant under Section 455 of the Companies Act, 2013 saves compliance costs for inactive companies compared to the Companies Act, 1956. The fact that the dormant status under the 2013 Act provides reduced compliance requirements (leading to cost savings) is the very essence of Assertion (A). Reason (R) provides the context (new provision under 2013 vs. 1956 Act) and the benefit (saving costs for inactive companies) that results from this reduced compliance burden mentioned in (A).
Thus, Reason (R) effectively explains why the dormant status exists and benefits companies through less compliance, thereby serving as a correct explanation for Assertion (A).
Conclusion
Based on the analysis of the provided text:
- Assertion (A) is correct.
- Reason (R) is correct.
- Reason (R) is the correct explanation for Assertion (A).
This aligns with the first option provided.
Revision Table: Key Points on Dormant Companies
| Feature | Description as per Paragraph |
|---|---|
| Governing Section | Section 455 of Indian Companies Act, 2013 |
| Old Law Counterpart | Not present in Companies Act, 1956 |
| Purpose | Hold asset or intellectual property for later use (corporate shield) |
| Examples | Holding land for future project, creating intellectual property |
| Eligible Company Types | Public, Private, One Person Company |
| Key Benefit | Less compliance compared to active companies, saves cost for inactive companies |
Additional Information: Dormant Company Status and Compliance
The status of a Dormant Company is granted by the Registrar of Companies (RoC) under Section 455 of the Companies Act, 2013. Companies can apply for this status if they have been formed for a future project or to hold an asset/intellectual property and have no significant accounting transaction.
The primary advantage, as highlighted in the text, is the significant reduction in compliance requirements. Instead of filing detailed annual returns and holding regular board meetings like active companies, a dormant company has simplified obligations. This includes filing a 'Return of Dormant Company' (Form MSC-3) annually, confirming its status and providing details of any changes in directors or address. This reduced compliance burden makes it cost-effective to maintain companies that are currently inactive but hold valuable assets or are designated for future ventures, without the need for dissolution.
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 -
Dormant company offers excellent advantage to which one of the following?
