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Private Limited Companies – Annual Returns under Companies Act, 2013

Next in our series of blogs on corporate compliances, let’s talk all about annual returns under Companies Act, 2013.

As a director, since you are responsible to sign the annual returns and confirm the accuracy of information filed with the Registrar of Companies (ROC), it’s important for you to understand the contents of the form, and the nature of information you’re disclosing to the authorities.

What is an annual return? What information is disclosed in the annual returns?

An annual return is critical as data of the company is reported to the ROC. It must be filed every financial year.

The Companies Act mandates that a company file annual returns within 60 days from the date of its AGM. The return is filed digitally in Form MGT-7. A small company shall file its return in Form MGT-7A. 

A great deal of information is filed in the annual return. All data must be updated, as on the last day of the relevant financial year. Information filed includes the following and can be broadly classified as below :

1. Company details

The registered office address, email, CIN, description of the company’s main business activity, whether the company is private, limited by shares, guarantee, has share capital, etc.

2. Corporate governance

  •  Number of board and committee meetings (Remuneration committee, audit committee, advisory committee etc) held during the year
  • Composition of the board of directors, appointment, resignation, or change in designation
  • Number of promoters and the management team. 
  • Management Team and their remuneration
  • Board resolution passed adopting the financial statement in the annual general meeting

3. Financial structure

  • The net worth (value) of the company on the last day of the financial year
  • Revenue/turnover of the company
  • Details of any indebtedness- outstanding loans or debentures on the last date of the financial year. 

It’s important to ensure that the financial details disclosed in the annual returns are consistent with the financial statements filed in Form AOC-4. As a director, since you are responsible to affix your signature on both AOC-4 and MGT-7, if there are any discrepancies of data between both forms, then you will be held responsible. Hence always ensure consistency. 

4. Shareholding pattern

  •  Who holds how much (percentage) of equity and preference shares
  •  Shares held by the company’s directors, promoters, foreign institutional investors. It is extremely important to know who the promoters of the company are
  • Break-up of the paid-up share capital
  • Type and class of securities issued
  • Percentage of shares held by subsidiary or associate company (if any)
  • Transfers of shares from an existing shareholder to another shareholder in the company or a new buyer.

5. Stock restructure

Details of transactions that result in any increase or decrease in the number of equity shares (outstanding shares) during the financial year. Such transactions may be:

  •       Public issue of shares
  •       Rights issue
  •       Private placement
  •       Bonus issue
  •       Issue of stock options to employees[SV6] 
  •       Issue of sweat equity shares
  •       Conversion
  •       Stock consolidation
  •       Stock split

Where will you find the information needed to fill Form MGT-7?

Every company must maintain several documents, registers, and forms to record details of its activities in different forms.  These books and registers are evidence of matters discussed, resolutions passed, forms filed, and other activities undertaken in a year. They form the basis of information filed in the annual returns.

Important amongst them are:

  • Register of Members– Details of members holding equity and preference shares
  • Register of Directors and their shareholding– Name, nationality, contact details, shareholding percentage
  •  Register of Debenture and other security holders– Details of members holding security other than equity.
  •  Minutes book– Summary and record of the agenda, points discussed, resolution passed,  participants in the meeting etc. 
  •  Record of Private Placement (PAS-5)– If the company has made an issuance of shares to a specific group of people during the financial year, the details of the private placement must be recorded in Form PAS-5.
  • List of allottees Form PAS-3– Details of type, number of securities allotted to investors in return for their investments.
  •  AOC-4– Financial statements filed with the ROC.
  • Notice of Board meetings, annual general meetings, extraordinary general meetings, creditors meetings and debenture holders meetings held in the year

Failure to record and keep updated information in the books/registers can result in the company paying huge penalties.

What documents must be annexed to Form MGT-7?

The following documents must be filed along with the annual return in Form MGT-7:

  • List of equity and debenture holders as on the last day of the financial year.
  • Details of share transfers made in the financial year
  • Approval letter for extension of AGM – if the company is unable to hold the AGM within the specified date, permission must be sought from the ROC. For this, an extension letter must be filed, stating the reasons on why there will be a delay and the time by when the AGM will be conducted. 
  • If your company has a turnover of more than INR 50 crores or a paid-up capital of more than INR 10 crores, a company secretary in whole-time practice must provide a certificate in Form MGT-8. This is annexed with Form MGT-7A.

In the recent past, there have been several instances of the authorities taking strict action against companies who have not filed annual returns. Many companies have been struck off from the register of companies that the ROC maintains for non-compliance. Directors have also been disqualified and or penalised.

As a director, you have the primary responsibility to authenticate the information in the filings and sign the forms. Always ensure that the information is recorded accurately from time to time and is consistent across all documents filed with the authorities. 

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