Dormant Corporation Law and Legal Definition

Dormant Corporation refers to a legal corporation that is not currently operating. It is commonly known as inactive corporation. Dormant corporation is also a corporation whose authority to do business has been revoked or suspended either by operation of law. The purpose of dormant corporation is to hide the principal’s identity and to protect the principal from liability.

In In re Seisay, 49 B.R. 354 (S.D.N.Y. 1985), it was held that where no business purpose is involved and the principal motive for the use of a dummy or dormant corporation is to serve as a paper conduit for the transmission of funds from a lender to an individual borrower to pay personal obligations rather than for business purposes. However, the courts have been more cautious in sanctioning the practice of passing funds through a dormant corporation to the ultimate individual user.