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Private Limited Companies- Annual Filings under Companies Act, 2013

Annual filings - Private Companies

It’s that time of the year again! Annual filings give founders the opportunity to up their corporate governance game.

As the founder or director of a startup it’s important that you are prepared for a myriad of things; from choosing your cofounder and funding options, governance, ensuring compliance with regulations to operations of the company. Along with compliance developing a culture of good corporate governance has become the new mantra for organisations across all spectrum.

Importance of Annual Filings

Let’s take a broad look at what a private company has to file every year under the Companies Act, 2013. As a founder/director, it may seem practical for you to outsource compliance-related tasks to a company secretary or a law firm and stay focused on your core tasks. At the end of the day however, you will be signing those forms and documents that have to be filed with the authorities on the company’s behalf, so it’s vital to understand what these filings are, what information they contain, and how they are prepared.

Annual filings should not be seen as just another compliance tick box as they are a compliance health report for an entire year of an organisation.  Founders being the torch bearers of a company’s governance culture should also make ample use of the annual filings to look back and introspect into the level of compliance adherence. In the recent past there have also been ample instances of the regulators coming down harsh by merely reading and understanding the information that has been submitted by the company as a part of their annual compliance filings. Even minor non compliances have proven costly. It becomes so much more crucial to increase the preparedness before the annual filing season.

There are several statutes that companies need to follow in India that could be centre specific, state specific or sector specific (labour laws, environmental laws etc).

Private company’s major annual compliance requirements under the Companies Act, 2013:
Which form and what’s the purpose? When must it be filed? What documents must be submitted?
Form AOC-4 Reporting the company’s annual financial statements Within 30 days from the date of the company’s annual general meeting held in the relevant year
  • Balance sheet
  • Profit and loss account
  • Directors’ report
  • Auditor’s report
  • Notice of AGM
Form MGT-7/ MGT-7A Filing the company’s annual returns Within 60 days from the date of the annual general meeting held in the relevant year List of shareholders and/or debenture holders Form MGT 8: Certificate provided by a practising company secretary about the company’s annual return (only for specific companies) Approval letter (if any) for extension of the AGM Any other optional attachments

(There are several filings that a company must make in the course of the year, the table above mainly addresses the basic/fundamental documents that need to be filed annually in relation to financial, corporate governance and compliance health.)

Why is it important to take annual filings seriously?

Your company’s annual filings contain information that regulatory authorities use to track and understand:

  • Changes in management, shareholding structure, or corporate structure
  • Details of investors
  • Operational aspects
  • True financial position
  • Stability of internal policies
  • Performance and compliance 

While it is important to ensure accuracy of the information and data reported to the regulator it should also be consistent while submitting with different regulators.

Setting up and monitoring good compliance practices

Making all annual filings is compulsory under law and since you as the director will be signing the filings and stand responsible to check the accuracy of the information in the forms, it is essential that you are familiar with the regulations that apply to your business. Also, since you will be governing the company, understanding the basics will help establish internal compliance protocols and policies that are critical for good governance and conduct of smooth business operations.

For example, when investors, potential business collaborators, or merger candidates want to join hands they conduct a due diligence. One key consideration at that time is analysing the company’s internal records, compliances, filings etc. Nobody wants to do business with a company that could bring trouble down the road.

What happens if the company fails to complete annual filings?

All companies must file their annual returns. Failing to do so can result in paying fines or monetary penalties. If the company fails to make its filings for two continuous financial years, then the Registrar has the power to strike the company’s name from the Register of Companies, which means the company will become inactive and will no longer be able to conduct its operations.

How is corporate governance tied into the company’s annual filings?

Corporate governance is a set of practices put in place that give direction to the company’s internal activities. Since the board is responsible to govern the company, corporate governance is closely related to good management and strategic planning, based on integrity and transparency (among other attributes). Following these practices will bring consistency and objectivity in how you conduct and manage the company’s operations.

A good start to corporate governance is to:

  • Record the minutes of all board and shareholders’ meetings
  • Maintain a register of members / shareholders, directors, and managerial personnel
  • Prepare the directors’ report.  This is the most important document as it is a synopsis of the management perspective on the financial performance of the company and also points out major corporate actions undertaken by the company during the previous year. This document is also shared with shareholder
  • Maintain a register of charges and contracts with third parties
  • Record and update shareholding patterns on regular intervals
  • Ensure remuneration paid to directors as mentioned in the financial statements are authorised by necessary resolutions
  • Ensure related party transactions disclosed in the financial statements  are backed by required compliances under Companies Act, 2013
  • Validate share transfers that have happened in the company to ensure proper records are kept.

All the above information is captured in one form or another in the company’s annual filings. With MCA providing access to the company’s public records, interested parties and stakeholders can review these filings (after paying a nominal fee). This will:

  • Monitor the company’s code of conduct.
  • Regulate internal controls
  • Create accountability
  • Give an overall picture of the company’s financial health, performance, growth
  • Increase investors’ confidence in the company  

Being compliant is an ongoing process. As founders/directors, it is important for you to make sure that there are no gaps in the filings made and the information in the forms are true and fair. If you are not vigilant of this, it can result in you getting penalised or even disqualified under the Companies Act, 2013. 

Hence always ensure that you or your team are on top of things and have a set compliance calendar in place so that all filings are made on time.  

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