⚠️ Avoid These 5 Common Mistakes in Dormant Status Filing

Businesses often go through ups and downs, and during periods of inactivity, companies may choose to apply for dormant status. In India, the Ministry of Corporate Affairs (MCA) allows companies to remain registered but non-operational, helping them avoid hefty compliance costs. However, filing for dormant status is a legal process, and making mistakes during it can lead to penalties, rejection, or even revival issues later.

In this blog, we’ll walk you through the five most common mistakes companies make when filing for dormant status—and how you can avoid them.

🧐 What Is a Dormant Company?

Under Section 455 of the Companies Act, 2013, a dormant company is one that is:

• Formed for a future project or to hold an asset/intellectual property, or

• Inactive in terms of business operations and financial transactions

Such companies can apply for dormant status via the MCA, provided they meet specific conditions and follow the correct procedure.

❌ Mistake #1: Filing Without Clearing Previous Compliance

One of the biggest blunders is trying to file for dormant status without clearing past compliance requirements. The MCA won’t grant dormant status if:

• Annual Returns (Form MGT-7)

• Financial Statements (Form AOC-4)

• ROC filings
  are pending.

✅ Tip:

Before applying for dormant status (via Form MSC-1), ensure all past returns are up to date. You’ll need a no-default certificate to proceed.

❌ Mistake #2: Not Closing Active Bank Accounts

A company applying for dormant status must not have any active bank transactions during the past two financial years.

Keeping even a zero-balance or inactive account open, or having even a single small transaction (interest credit, bank charges, etc.), can disqualify your application.

✅ Tip:

Before filing, close all bank accounts and obtain confirmation from the bank to support your application.

❌ Mistake #3: Incorrect or Incomplete Form MSC-1 Filing

Form MSC-1 is used to apply for dormant status. Many applications get rejected due to:

• Wrong CIN (Corporate Identification Number)

• Missing board resolution

• Lack of shareholder approval

• Improper digital signature certificate (DSC) use

✅ Tip:

Ensure:

• All board and shareholder resolutions are attached

• DSC is active and matches company records

• Supporting documents are uploaded in the prescribed format

❌ Mistake #4: Not Maintaining Dormant Status Compliance

Once granted dormant status, companies must still file Form MSC-3 annually (Return of Dormant Company) and maintain minimum compliance like:

• Having at least one director

• Maintaining registered office address

• Maintaining records and books of account

Failure to do so may automatically trigger active status or attract penalties.

✅ Tip:

Even as a dormant entity, set reminders for annual filing (MSC-3) and maintain the basic structure of the company.

❌ Mistake #5: Misunderstanding Eligibility Criteria

Not all companies are eligible for dormant status. You cannot apply if:

• There are ongoing business operations

• Legal proceedings or disputes are pending

• There are secured loans that haven’t been repaid or satisfied

• The company is listed or has significant liabilities

✅ Tip:

Review the eligibility checklist in Section 455 before filing. If you're unsure, consult a professional or company secretary to avoid rejection.

📋 Quick Recap: 5 Common Mistakes to Avoid

🧠 Final Thoughts

Dormant status is a helpful option for businesses that are temporarily inactive but want to retain legal existence. However, the process involves more than just submitting a form—it requires proper planning, eligibility checks, and follow-through on post-dormancy compliance.

Avoiding these five common mistakes can help you successfully file for dormant status, reduce future liabilities, and keep your company compliant with Indian laws.