Govt to erase 60K cos from records

During October, more than 8,000 firms were added to the list of companies that are being struck off for not doing any economic activity and for defaulting on filing statutory documents. If there is no economic activity, companies have the option to secure dormant status and avoid getting removed from official records.

The figures show the extent of businesses that remain defunct even as 10,000- 14,000 new companies are incorporated every month.

As per information from the ministry, over 432,000 companies have been removed from official records in the last five years. In FY22 alone, over 49,900 companies were struck off for defaulting on filing statutory documents for two consecutive years.

Companies are removed from official records either on request by the company or by the Registrar of Companies (RoC) on its own accord. Grounds for striking off a company includes failure to commence business within a year of incorporation, not carrying on business for continuous two financial years, subscribers not paying share subscription money within 180 days of incorporation and the RoC finding during a physical verification of registered office that a company is not doing any business.

At the end of October, there were nearly 1.5 million active companies and over 2,400 companies have secured dormant status. In October, 10,725 companies were formed with over ₹1,200 crore authorized capital. Maharashtra saw the highest number of new companies incorporated, followed by Uttar Pradesh and Delhi. In November, over 12,800 companies and over 3,750 limited liability partnerships (LLPs) were set up.

Companies not carrying on any economic activity and default on statutory filings are different from those entities usually referred to as ‘shell companies’ that are used by wrongdoers for financial crimes like generating black money and money laundering. These entities usually comply with their statutory filing requirements, but come under regulatory radar as their transactions lack substance or economic rationale.

The authorities give an opportunity for the company to explain the default in filing the documents and if no response is received or if it is not satisfactory, the process of removing the company from records is initiated. In 2020, the government had offered a ‘fresh start scheme’ to businesses to make good any filing related defaults and to make a fresh start as a fully compliant company.