Defunct

A company is described as defunct when it has stopped carrying on business and is no longer operational. However, stopping operations does not automatically complete its legal closure.

• A defunct company may cease business because of insolvency, sustained losses, legal problems, low demand, or operational difficulties.
• Its shares may remain listed temporarily, although trading can be suspended because of non-compliance.
• A company may apply to the Registrar of Companies for removal of its name through Form STK-2.
• The filing fee for Form STK-2 is ₹10,000.

• A dormant company remains legally registered, while a defunct company may be struck off and dissolved.

  
  
  

The word “defunct” describes something that no longer exists, operates, or performs its original function. It may refer to a business, organisation, brand, currency, system, or practice.
In business, a defunct company is one that has stopped conducting commercial activities. This may happen because of bankruptcy, prolonged financial losses, declining demand, legal disputes, regulatory action, or an inability to compete.
A company does not necessarily become legally dissolved on the day it stops operating. It may continue to appear in the records of the Ministry of Corporate Affairs until the Registrar of Companies, commonly called the ROC, removes its name from the register.
Therefore, inactive, defunct, struck off, and dissolved may describe different stages of a company’s status. Investors should check official regulatory and exchange records instead of relying only on whether the business appears operational.
 

A company may stop operating before its securities are formally delisted from a stock exchange. As a result, its shares may continue to appear in an investor’s demat account or exchange records for some time.

Important points include:

• Shares may remain listed temporarily: The securities may remain listed until the exchange and regulators complete the applicable suspension or delisting procedures.
• Trading may be suspended: A stock exchange may suspend trading when a listed company repeatedly fails to meet disclosure, financial reporting, or compliance requirements.
• Liquidity may be extremely low: Finding a buyer may be difficult when the company has stopped operating or trading activity has declined significantly.
• Prices may be unreliable: Limited trading volumes can cause sharp price movements that may not reflect the company’s financial position.
• Shareholder recovery is uncertain: The value received by shareholders depends on the company’s assets, liabilities, insolvency proceedings, and legal status.
• Delisting rules apply: The removal of listed equity shares follows SEBI regulations and the relevant stock exchange procedures.

The terms defunct and delisted do not mean the same thing. A company can stop operating before its shares are delisted.

Similarly, suspension stops trading temporarily or indefinitely, while delisting removes the securities from the exchange. Investors holding such shares should review official company, SEBI, exchange, insolvency, and MCA records before taking any action.

The fast-track exit process allowed inactive companies to remove their names from the register of companies. Today, eligible companies can apply for voluntary strike-off under Section 248 of the Companies Act, 2013 by filing Form STK-2 with the ROC.

The Form STK-2 filing fee is ₹10,000. Before applying, the company must settle its liabilities, obtain the required approvals, and prepare documents such as:

• Board or shareholder resolution
• Indemnity bond
• Directors’ affidavits
• Statement of accounts

• Regulatory approval, where applicable

  
  

The ROC reviews the application, invites objections where required, and publishes the final notice in the Official Gazette. Once the notice is issued, the company is dissolved.

A company may qualify for strike-off if it has not started business within one year of incorporation or has remained inactive for the previous two financial years without applying for dormant status.

Certain regulated companies may also need a no-objection certificate from the relevant authority.

Also read: Preference shares

A dormant company and a defunct company are not the same. A dormant company continues to exist as a registered legal entity, while a defunct company has stopped operating and may eventually be struck off and dissolved.

A dormant company remains registered with the ROC. It may temporarily pause business activity while maintaining its legal status and completing the applicable compliance requirements.

Such a company may be formed for a future project, hold an asset or intellectual property, or remain inactive for a limited period. It can later apply to become active again.

A defunct company, on the other hand, is no longer functioning as a business. Once the ROC removes its name and publishes the final notice, the company stands dissolved under the applicable provisions.

The main differences are:

• Legal existence: A dormant company remains registered, while a defunct company may be struck off and dissolved.
• Business activity: A dormant company is temporarily inactive, while a defunct company has stopped operating.
• Compliance: A dormant company must continue completing applicable filings, while a defunct company must complete closure or strike-off requirements.
• Future operations: A dormant company may become active again. A dissolved company generally requires restoration before it can resume operations.
• ROC status: A dormant company remains on the register, while a defunct company’s name may be removed after the strike-off process.

Striking off a company does not automatically erase every responsibility of its directors, officers, or members. Liabilities may continue to be enforced in certain circumstances.

An eligible person may also apply for restoration of the company’s name through the prescribed legal process.

Also read: IOC in share market

A defunct company has stopped operating, but its legal closure may involve several formal steps. Its shares may remain listed or suspended until the relevant exchange and regulatory procedures are completed. Companies seeking closure must follow the strike-off process under the Companies Act, 2013 and meet the applicable conditions. Investors should also understand the difference between dormant, defunct, suspended, and delisted companies before assessing such shares or relying on the company’s apparent operating status.