Companies Act 2013 – Annual Returns

INTRODUCTION:

Section 159,160,161,162 & Schedule V deals with the Annual Return & related Provisions under Companies Act, 1956. But in Companies Act, 2013 all these Sections are combined together in one Section namely – 92.

Annual return is a yearly statement, required to be filed by every company irrespective of their nature, i.e. private, public, listed, unlisted, or status, i.e. active, dormant or under amalgamation. It is perhaps the most important document required to be filed by every company with the Registrar of Companies. Apart from the Financial Statements, this is the only document to be compulsorily filed with the Registrar every year irrespective of any events / happenings in the company.

It is not a tax return: it is simply a corporate law requirement and every company is legally obligated to file this return with Registrar of Companies (ROC).

Section 92 of the Companies Act, 2013 requires every company to prepare an annual return, a comprehensive document which contains information of a company relating to its share capital, indebtedness, directors, shareholders, changes in directorships corporate governance disclosures etc.

The Companies Act, 2013, a historic legislation which intends to improve corporate governance and empower shareholders. The Act has incorporated a framework which is based on self-regulation but with enhanced disclosures and accountability on the part of companies and their managements.

The Ministry of Corporate Affairs vide General Circular 8/2014 dated 04th April 2014 clarified that annual return in terms of section 92 of the Companies Act, 2013 will be in form MGT 7 and will be applicable for financial years commencing on or after 1st April, 2014

Annual return is the snapshot of certain company information as they stood on the close of the financial year. Section 92 of the Companies Act, 2013 deals with Annual Return of the Company.

Annual return in a layman’s term means a return which a company is required to file annually and further it is a snapshot of company information as they stood on the close of the financial year. Section 92 of the Companies Act, 2013 and the Companies (Management and Administration) Rules, 2014 deals with filling of Annual Return of a Company

The basic purpose of filing annual return with the Registrar of Companies (‘ROC’) is to provide the annual information about the Company to the ROC and its members about the Company’s general  compliances.

Companies Act, 2013 has come to force from 1st April, 2014 and after that the rules and regulations have been changed a number of times. In view of the Companies Act, 2013, list of annual compliances for companies incorporated in India has widened. For various events, lot of filing is required to be undertaken with Registrar of Companies. Some of the compliances are event dependent whereas other compliances are periodic. While carrying out details, Section 8 companies have been ignored (though section 8 companies can also be incorporated as private company whether limited by guarantee or by shares.

ANNUAL COMPLIANCE

FILING BASED COMPLIANCE

  • Section 92 (Annual Return)- Every Company shall prepare its Annual Return in Form MGT-7 within 60 days of holding Annual General Meeting.

Signing Provision- Annual Return shall be digitally signed by a Director and the Company Secretary; or where there is no Company Secretary by a Company secretary in Practice.

If paid up capital is more than Rs. 10 crore or turnover is more than Rs. 50 crore a copy of Form MGT-8 (Certificate by Practicing Professional) is required to be annexed in Form MGT-7.

An Extract of Annual Return (Form MGT-9) shall form part of board’s Report.

  • Section 137( Copy of financial Statements to be filed with Registrar)- A copy of financial statements, including CFS, if any along with all the necessary annexures such as-

-Auditor’s Report;

-Director’s Report along with Form MGT-9 (Extract of Annual Return),

-CSR Policy, if any

-Form AOC-1, Statement containing salient features of the financial statement of subsidiaries/associate companies/joint ventures, if any

shall be filed with the Registrar in Form AOC-4 or Form AOC-4 XBRL as the case may be, within 30 days of the AGM.

Holding company is also required to file consolidated financial statements in Form AOC-4 CFS

  • Section 139 (Appointment of Auditor) – Every company shall appoint statutory auditor for a period of 5 years and intimate the registrar in Form ADT-1.
  • In the subsequent AGM shareholders will ratify the appointment of Auditor, hence no need to file Form ADT-1
  • Section 170 (Registers of directors and Key Managerial Personnel and their shareholding)- A Return containing particulars of appointment or any change in director and Key Managerial Personnel shall be filed with Registrar within thirty (30) days of appointment or change in Form DIR-12.
  • Section 148 (Central Government to specify audit of items of cost in respect of certain Companies) Cost audit is applicable on class of companies (http://www.mca.gov.in/Ministry/pdf/rules_2_30062014.pdf) as specified by the central Government. The Audit shall be conducted by a Cost Accountant in Practice who shall be appointed by Board on such remuneration as may be decided by board and ratified by shareholders subsequently.

Intimation of appointment of cost auditor by the company to Central Government be made in Form CRA-2

NON-FILING BASED COMPLIANCE

Following compliances are required to be done and kept as the records with the Company for future reference.

  • Sec 184 (1), Rule 9 Chapter XII (Disclosure of Interest by Directors) Every Director shall disclose his interest in any company, body corporate, firms or other association of individuals by giving a notice in writing in Form MBP-1 in First meeting of BOD in each financial year and whenever there is any change in his interest or at the time of getting inducted as director on the Board.
  • Section 88 (Registers to be maintained)- Following registers are to be maintained by a private company-
  1. MGT-1-Register of members including details of shareholding and share transfer details;
  2. MGT-2- Register of Debenture holders/ other than security holders;
  3. Register of directors and Key Managerial Personnel ;
  4. MBP-2-Register of loans, guarantee, security and acquisition made by the company;
  5. MBP-3- Register of investments not held in its own name by the company;
  6. MBP-4-Contracts or agreements with any related party under section 188 or in which any director is concerned or interested under sub- section (2) of section 184;
  7. MBP-4(2)- Register of contracts with related party and contracts and Bodies etc. in which directors are interested;
  8. Register of details of securities held by Directors and Key Management Personnel;
  9. CHG-7- Register of Charges
  • Section 139 (Appointment of Auditor) – Every company need to correspond with Auditor at the time of his appointment or ratification of his continuation. Usually the correspondence between the company and auditors is as under:

(a) At the time of appointment:

  • Letter by the company seeking consent, qualification and eligibility of the auditor;
  • Receipt of Consent to act as Auditor and Eligibility certificate from auditor;
  • Intimation to auditor after conclusion of AGM about his appointment and remuneration

(b) At the time of ratification:

  • Letter by the company seeking consent, qualification and eligibility of the auditor about his continuation as Statutory Auditor;
  • Receipt of Consent to act as Auditor and Eligibility certificate from auditor;
  • Intimation to auditor after conclusion of AGM about his ratification and remuneration
  • Section 134 (Director’s Report) – Private company is required to prepare its Director’s Report as per the provisions of section 134 of the Act.

Signing Provision- Board’s report and any annexures thereto shall be signed by the ‘Chairperson’ authorized by the board, and at lease by two directors where he is not authorized.

  • Section 101 & SS-II (Notice of General Meeting)- At least twenty-one(21) days notice of every general meeting shall be given to –
  1. Every member of the company, legal representative of any deceased member or the assignee of an insolvent member;
  2. The auditor of the company;
  3. Every director of the company

specifying the place, date, date and hour of the meeting and shall contain a statement of the business to be transacted at the meeting.

  • Section 136 (Right of the member to have copies of audited financial statement)- Company shall send to every member of the company copy of financial statement, including CFS, if any, auditor’s report, director’s report, not less than 21 days before the date of its Annual General Meeting.
  • Section 173 & SS-1 (Board Meetings)- Every Company shall hold at least four meetings of BOD every year in such a manner that not more than 120 days shall intervene between two consecutive meetings.
  1. Company shall hold at least one meeting in every calendar quarter.
  2. Notice in writing of every Meeting shall be given to every Director by hand or by speed post or by registered post or by courier or by facsimile or by e-mail or by any other electronic means.
  • Section 118 & Rule 25 of Chapter VII and SS-3 (Minutes of Proceedings of General Meeting, meeting of Board of Board of Directors and other meeting and resolution passed by postal ballot)- A distinct minute book shall be maintained for each type of meeting namely:-
  1.  General meetings of the members;
  2. Meetings of creditors;
  3. Meetings of the board; and
  4. Meetings of each of the committees of the board
  • Minutes should begin with the number and type of the Meeting, name of the company, day, date, venue, time of commencement and conclusion.
  • Each item of business taken up at the Meeting should be appropriately numbered.
  • Minutes, once entered in the Minutes Book, should not be altered.
  • Minutes of all Meetings should be preserved permanently.

(a) At the time of ratification of remuneration by members:

  • Intimation to auditor after conclusion of meeting of members about ratification of his remuneration
  • ANNUAL COMPLIANCE NOT REQUIRED BY PRIVATE COMPANY
  • Section 121 (Report on AGM) – This section is not applicable on Private Companies and applicable only on Listed companies.
  • Section 204 (Secretarial Audit)- Private companies are not required to comply with the requirements of secretarial audit as Secretarial Audit is applicable on listed companies and public companies having paid up share capital of Rs.50 crore or more or turnover Rs. 250 crore or more.
  • Approval of Accounts by Board- Private Companies are not required to file Form MGT-14 in respect of Approval of accounts by board vide Notification dated 05 June, 2015.

SECTION 8 COMPANIES REGISTERD AS PRIVATE LIMITED COMPANY All the compliances are same in case of Section 8 Company except the followings:

  • Section 8 Companies should prepare Income and Expenditure Account instead of Profit and Loss Account as per clause (ii) of sub-section 40 of Section 2 of Companies Act, 2013
  • Section 8 company can call its Annual General Meeting by giving a fourteen days notice.

MASTER ALERTS-

While completing annual compliances, one should carefully go through the followings facts as each one of them may have serious repercussions in terms of penalties and lapses:

  • Subsidiary, Joint Venture and Associate Companies: While preparing Annual Filing Document Company should judiciously analyze its investment/ shareholding in other companies so as to determine the relationship as subsidiary, joint venture and associate companies.

Details of financial position of Subsidiary Company is required to be given in Form AOC-1 (Part-A)

Details of financial position of Joint Venture and Associate Companies is required to be given in Form AOC-1 (Part-B)

  • Holding Company: While preparing Annual documents care should be taken and details of Holding company is required to be mentioned wherever applicable.

Holding company is required to file consolidated financial statements in Form AOC-4 CFS

  • Related Party Transactions and their limits for next year: Disclosure regarding related party transaction undertaken during the year is required to be made in Form AOC-2.

For taking approval from shareholders for related party transaction to be undertaken in next year a resolution alongwith explanatory statement is required to be included in Notice of Annual General Meeting indicating name of related party, nature of relationship and amount of transaction.

  • Directors appointed during the year as Additional Directors: Directors who were appointed as additional directors during previous financial year deemed to have vacated their office at the Annual general Meeting held after their appointment, so their appointment need to be regularized by including the resolution of Regularization of Director in Notice of Annual General Meeting alongwith explanatory statement and approve the same by shareholders.

Form DIR-12 is required to be filed with registrar for Regularization of Additional Director.

Some Important definitions-

  • Associate- In relation to another company, means a company in which that other company has a significant influence, but which is not s subsidiary company of the company having such influence and includes a joint venture company
  • Subsidiary- Subsidiary company or subsidiary in relation to any other company (that is to say the holding company), means a company in which the holding company-
  1. Controls the composition of the Board of directors; or
  2. Exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies.

B. TIME PERIOD:

Earlier in the Companies act, 1956 Annual return was prepared for the period from the date of last AGM to date of current AGM. But there is a major change under Companies Act, 2013 i.e. now Companies are required to prepare Annual Return for the financial year i.e. 1st April to 31st March.

C. ANNUAL RETURN OF FOREIGN COMPANY:

As per section 384(2), the provisions of section 92 shall also apply to a foreign company, subject to such exceptions, modifications and adaptations as may be made therein by rules. Rule 7 of the Companies (Registration of Foreign Companies) Rules, 2014 provides that every foreign company shall prepare and file, within a period of sixty days from the last day of its financial year, to the Registrar annual return in Form FC.4 along with fee, containing the particulars as they stood on the close of the financial year

D. EXTRACT OF ANNUAL RETURN:

As per sub-section (3) of section 92, the companies are also required to prepare extract of Annual Return in Form No. MGT-9 which shall form part of Board’s Report.

E. PENALTY:

If a company fails to file its annual return under section 92, before the expiry of the period specified under section 403 with additional fee, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lacs rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than fifty thousand rupees but which may extend to five lacs Rupees, or with both.(Section 92).

F. FILING OF ANNUAL RETURN WITH THE REGISTRAR (SECTION 92(4)

The return has to be filed with the Registrar of Companies within 60 days from the date of Annual General Meeting. If the Annual General Meeting is not held in any year, the return has to be filed within 60 days from the date on which Annual General Meeting should have been held together with the statement specifying the reasons for not holding the Annual General Meeting, on payment of such fee or additional fee as prescribed (Rule 12 of the Companies (Registration Offices and Fees) Rules, 2014.

Other Event Based Filings

Besides Annual Filings, there are various other compliances which need to be done as and when any event takes place in the Company. Instances of such events are:

  • Change in Authorised or Paid up Capital of the Company.
  • Allotment of new shares or transfer of shares
  • Giving Loans to other Companies.
  • Giving Loans to Directors
  • Appointment of Managing or whole time Director and payment of remuneration.
  • Loans to Directors
  • Opening or closing of bank accounts or change in signatories of Bank account.
  • Appointment or change of the Statutory Auditors of the Company.

Different forms are required to be filed with the Registrar for all such events within specified time periods. In case, the same is not done, additional fees or penalty might be levied. Hence, it is necessary that such compliances are met on time.

Other Key Points

The private limited company can be formed by minimum 2 persons whereas, there are 50 maximum shareholders. And those persons must be friends or relatives.

  • The minimum paid up capital should be at Rs. 1 lakh.
  • However, if the paid up capital is above Rs 10 lakhs, no third party loan from private lenders could be collected except the shareholders, directors and their relatives.
  • If the paid up capital is above 5 cr, the internal audit, cost audit, and report of company secretary are mandatory. However, those services should be obtained from engaging outside professional agencies.
  • The board of directors of the company is formed with minimum 2 directors and the maximum limit should be governed by the Articles of Association of the company.
  • The directors remuneration can be paid within the limit prescribed by the companies Act however, the rules & regulations thereof should be incorporated in the Articles of Association.
  • The meeting of the Board of Directors must be held once in each quarter. However, it may exceed than that number as per the rules framed in Articles of Association.
  • The company should hold an Annual General Meeting. However, any extraordinary general meeting could be held as per the regulations framed by companies act and incorporated in the Articles of Association.
  • The company could not pay interest or any consideration of any type except dividend on the paid up capital of the shares holders.
  • Normally, the company could raise loans from shareholders and directors, their relatives and the firms and companies in which such shareholders and directors have vested interest. The reasonable interest as per the provisions of Articles of Association could be paid.
  • The company can distribute dividend after paying dividend tax twice a year i.e., interim and final. However, there should be accumulated profit in the form of reserves in the books of the company. Accordingly there should be provision in the Article of Association.
  • The company cannot pay any amount to directors except remuneration. It is a very severe thing to have a debit balance of the directors in the books of accounts of the company who is holding shares 10% or more. In income tax this will be treated as income of the director. Even any firm or company in whom a director is holding more than 20% interest also could not take any loan or advance from the company except any other transaction with specific nature.
  • The company has to file annual return and balance sheet to the registrar of companies before 30th September of every  year. There are no other documents required to be submitted to ROC except in specific circumstances such as, change in RO, change in directors, change in authorized capital, creation of charge of bank or financial institution and the assets of the company etc.
  • In the case of dispute the director can refer the matter to the arbitrator as per the provision of Articles of Association regarding the appointment of arbitrators.
  • However, the aggrieved shareholders can also approach to the company law board from the wind up of the company in severe circumstances. Even the creditors have also right to do so.
  • The rights & duties of the directors are framed & governed by the Articles of association of the company. Therefore, the Articles of Association must be complied very carefully.
  • The company can raise loans from bank or institutions as prescribed by companies Act 1956 and framed accordingly in the Articles of Association.
  • Under old Companies Act (Prevailing Act) and the new company bill which is yet to be come into operation the electronic filing of all the requisite documents and payments to be made electronically thereof had been made compulsory.
  • The share of the private limited company cannot be transferred to anybody else other than the present shareholders and with the sanction of the company in the board meeting. The rules for this are incorporated in the articles of Association.
  • It is not easy to expel or debar any director from the board of directors it can only be happen as per the charges framed on the said director as mentioned in the Companies Act and rules thereof framed in the Articles of Association. Even the shareholders can remove any director in general meeting or extraordinary general meeting.
  • Since the company is an artificial judicial person different from the directors and shareholders therefore, the shareholders and directors have no excess over the assets of the company. Whereas, for the liabilities of the company the director of the company can be held liable jointly or severally.
  • FORSEEABLE FUTURE: Government of India is taking steps for ‘Ease of Doing Business’. This is very easy to predict that annual compliances will also reduce in the span of next two / three years. Entrepreneurs having private limited companies shall neither hurry to convert their existing companies into LLP nor to close down the entity using Simplified Exit Scheme. In foreseeable future they will feel that the private limited company is most suitable form of business organization.
  • VidyaSunil & Associates is into practice of Tax Complaince, Audit, Accounts , Corporate / Business Finance & Outsourced CFO Services.

    Advise for contacting VidyaSunil & Associates;

    E Mail ID : vidyasunilassociates@gmail.com

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