Utilizing Form-38 for Obtaining Inactive Company Status

Introduction

In Pakistan, not all registered companies maintain active business operations. Whether due to a temporary pause, strategic restructuring, or financial constraints, some companies opt to halt operations without undergoing formal winding-up. For such scenarios, the Securities and Exchange Commission of Pakistan (SECP) offers a practical solution: applying for inactive status using Form-38.

This guide provides a comprehensive explanation of how to obtain inactive company status, the legal framework surrounding it, the implications for corporate compliance, and the step-by-step filing process for Form-38. It is essential for company directors, secretaries, legal consultants, and entrepreneurs seeking to suspend operations without dissolution.

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What is Inactive Company Status?

Inactive company status refers to the official recognition by SECP that a company has temporarily ceased to carry on business or operations. It allows the company to remain registered without having to comply with the full range of filing and reporting obligations applicable to active companies.

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Legal Basis: Companies (General Provisions and Forms) Regulations, 2018

The provision for inactive status is granted under Section 426 of the Companies Act, 2017, and governed through Rule 41 of the Companies (General Provisions and Forms) Regulations, 2018.

• The SECP introduced Form-38 for this purpose.

• Once approved, the company is classified as inactive in SECP’s records and public registers.

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Who Can Apply for Inactive Status?

Eligible Entities:

• Private Limited Companies

• Public Unlisted Companies

• Single-Member Companies (SMCs)

Ineligible Entities:

• Companies under investigation or legal proceedings

• Companies with pending defaults or penalties

• Listed companies and regulated entities (e.g., NBFCs, insurance, Modarabas)

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Reasons for Seeking Inactive Status

• Business temporarily discontinued

• Ongoing internal restructuring

• Market or regulatory uncertainties

• Awaiting funding or regulatory approvals

• Avoidance of penalties while business is on hold

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Advantages of Inactive Status

1. Reduced Compliance Burden

Inactive companies are exempted from certain routine filings such as:

• Annual financial statements

• Form-A (Annual Return)

• Auditor appointment (in some cases)

2. Avoidance of Penalties

Companies not carrying out business but failing to file returns may accumulate fines. Inactive status provides a legal shield.

3. Preservation of Corporate Identity

Retains the corporate name, NTN, registration number, and legal standing.

4. Ease of Reactivation

Once ready to resume business, companies can file Form-39 to change status back to active.

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Limitations of Inactive Status

• The company cannot carry out any commercial activity.

• The status must be renewed annually.

• All outstanding liabilities (if any) must still be cleared.

• The company must not have any pending litigation or investigation.

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Step-by-Step Guide to Filing Form-38

Step 1: Prepare Internal Documentation

• Board Resolution to apply for inactive status

• Declaration that the company is not carrying on any business

• Confirmation of no pending dues or litigation

Step 2: Log in to SECP eServices Portal

Visit: https://eservices.secp.gov.pk

Use the company’s valid login credentials.

Step 3: Select “Statutory Filing” and Choose Form-38

Navigate to:

Company Filings → Statutory Returns → Form-38 (Application for Inactive Company Status)

Step 4: Fill Required Details

• Company Name and Incorporation Number

• Date since the company has been inactive

• Reason for becoming inactive

• Statement of no business activity

• Statement of no pending liabilities or litigation

Step 5: Attach Supporting Documents

• Board Resolution authorizing the application

• Affidavit from a director confirming the cessation of business

• Latest financial statements, if available

• Confirmation of no tax/defaults/penalties

Step 6: Pay the Filing Fee

A nominal filing fee (PKR 1,000-3,000) may apply depending on the company’s status.

Payment via:

• Online banking

• Bank challan

• Credit/Debit card (if supported)

Step 7: Submit Application

• Review the application

• Submit electronically

You will receive an acknowledgment email and tracking ID.

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SECP Review Process

Once the Form-38 is submitted:

• SECP will verify the documents and declarations

• In case of missing or incorrect info, a deficiency notice may be issued

• Upon successful verification, SECP issues an approval letter confirming inactive status

The company’s status is updated on SECP’s public register and its eServices profile is flagged as “Inactive”.

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Validity and Renewal of Inactive Status

• The status remains valid for one year from the date of approval

• To maintain inactive status, the company must file renewal annually before the expiration date

• Use Form-38 again for renewal, with updated declarations

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Reactivating an Inactive Company

If the company decides to resume business:

• File Form-39 – Application for Change from Inactive to Active Status

• Provide declaration of intended business activity

• Resume filing of all statutory returns going forward

Once reactivated:

• The company must comply with all regulatory filings (Form A, financials, taxes, etc.)

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Tax Implications of Inactive Status

Inactive companies must:

• File a NIL Income Tax Return with FBR to avoid penalties

• Stay on ATL (Active Taxpayer List) by timely return submission (even if no business)

• Continue to maintain NTN status (unless voluntarily surrendered)

Note: SECP inactivity does not mean exemption from FBR filings unless formally de-registered.

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Penalties for Misuse or Non-Compliance

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Real-Life Use Cases

Case 1: Dormant Startup Preserves Registration

A tech startup ceases operations due to lack of funding. Instead of dissolving, it files Form-38, saving its name and structure for future relaunch.

Case 2: Holding Company Suspends Trading

A holding company with no ongoing projects applies for inactive status. It avoids compliance costs while still maintaining group ownership rights.

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How Sterling.pk Can Help

At Sterling.pk, we provide end-to-end assistance for:

• Filing Form-38 (Inactive Company Status)

• Preparing board resolutions and affidavits

• Renewing inactive status annually

• Filing NIL tax returns with FBR

• Advising on reactivation and restructuring options

Let our compliance experts ensure your company remains legally compliant and penalty-free, even when it’s not in operation.

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FAQs

Q1: Can an inactive company have employees or bank transactions?
No. Once inactive, the company cannot conduct business, including hiring staff or transacting commercially.

Q2: Can an inactive company own assets?
Yes, it can retain assets but must not engage in any active operations.

Q3: Is there a deadline for filing Form-38?
No strict deadline, but it’s advisable to file soon after cessation of operations to avoid compliance fines.

Q4: Can SECP reject the application?
Yes, if false information is provided, or if the company has pending defaults, litigation, or penalties.

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Conclusion

Form-38 provides a valuable mechanism for companies in Pakistan to legally pause operations without facing regulatory penalties. Whether you’re a startup on hold, a family-owned business pausing for transition, or a dormant subsidiary, inactive status allows you to preserve your corporate structure and avoid compliance burdens until you’re ready to resume.

Understanding the process, implications, and renewal requirements is crucial for compliance. Partnering with professionals like Sterling.pk ensures a smooth, error-free filing process, helping you safeguard your company’s future while managing current challenges.