Introduction:
Annual Return is a document that shows a company’s share capital, indebtedness, directors, shareholders, changes in dictatorships, corporate governance disclosures, etc. Such a return must be signed by Director and Company secretary. In absence of a company secretary, by a company secretary in practice. These are filed in Form MGT-7 as given by the Ministry of Corporate Affairs. It is a document that must be filed with the Registrar of the company, such procedures ensure transparency in the operation of the company.
This article explains the recent amendments made by the Ministry of Corporate Affairs on 5th March 2021. The amendment in the Companies (Amendment) Act, 2017 and the Companies (Management and Administration) Rules, 2014 (“MGT Rules”) has provided for an abridged annual return for small companies and one-person companies. These amendments are related to:
- Publishing of Annual Return on the website of the company
- Abridged Annual Return for Small Companies and One-Person Companies
One Person Company is described under Section 2(62) of Companies Act, 2013 as the company that has only one person as to its member.
Position Before Amendment
Initially, Sec 92 of the Companies Act, 2013 requires every company to file its annual return within 60 days starting from the date when Annual General Meeting is held. Such a return must be filed with the Registrar.
The amendments to the Companies Act and the MGT Rules became effective on March fifth, 2021. Before, there was no separation between annual returns filings for different organizations and one-person organizations/small organizations. According to the MGT Rules, all organizations including small organizations and one-person organizations were needed to record their profits in structure MGT-7.
One more guideline that existed was concerning organizations adding a duplicate of their yearly return in structure MGT-9 in the Board’s report, in situations where organizations didn’t have their site. Prior, every one of the organizations was ordered to reveal their obligation in the yearly report, each monetary year. The obligation of the organization incorporates any commitments or liabilities payable by the organization to any outsider during the monetary year. The obligation testament was to be endorsed by the Company Secretary or the CFO of the organization.
Abridged Annual Return for Small Companies and One-Person Companies
The Government of India, through the MCA, has successfully amended section 92 of the Companies Act, 2013 and inserted an abridged format of annual returns in the MGT Rules by amending Rule 11(1) to make the procedure of filing annual returns for small and one-person companies less cumbersome and more convenient. The central government has prescribed a shortened form of annual returns for small businesses and one-person businesses, mandating that they file annual returns in a different form, MGT 7-A, while other businesses will continue to file reports in form MGT 7. This adjustment went into effect on March 5th, 2021, with immediate impact.
On February 1, 2021, the Finance Minister presented the Union Budget, which included a proposal to change the definition of small businesses by raising the paid-up capital requirement from Rs 50 lakhs to Rs 2 crores and increasing the turnover limit from Rs 2 crores to Rs 20 crores. Small businesses and OPCs, on the other hand, that filed returns in the financial year 2020-2021 were those that fell under the prior criteria. Form MGT 7A was created as a simplified way to file yearly returns for small businesses and sole proprietorships.
Unlike the previous form, this one does not ask for information on holding and subsidiary firms because small businesses are unlikely to have subsidiaries or beholding companies. Certain provisions of the form, such as the break-up of share capital and promoters’ shareholding pattern, details of share/debenture transfers, details of directors of corporations and their presence at the AGM, the date of the AGM, and details of board meetings, do not apply to OPCs. Because most one-person businesses are start-ups, keeping up with severe compliances is an additional load imposed on them, such details are irrelevant.
Another notable difference between MGT-7A and MGT-7 is that the form does not require confirmation by a company secretary when filing returns for small businesses and sole proprietorships. The paperwork, along with the MCA-mandated fees, must be lodged with the Registrar of Companies. Furthermore, the new certification has been added to the form that requires small firms and OPCs to disclose whether or not they have given public invitations to subscribe to their shares. The government has taken a step toward decreasing compliance and streamlining company operations for the MSME sector by adopting form MGT-7A.
Removal of Form MGT-9
The MCA recommended a change to Section 134 (3)(a) through a notification dated July 31, 2018, which eliminated the need for Form MGT-9. Companies could now include the website for the annual report in the Board’s report, thanks to the modification. However, there were discrepancies in the law, since section 92 read with Rule 12 of the MGT Rules, which required an extract of the annual report to be affixed with the Board’s report in Form MGT-9, remained unamended. This discrepancy between the two clauses remained among professionals, causing them to post the annual return’s online link on the company’s website as well as file Form MGT-9. The MCA amended section 92(3) of the Companies Act, 2013, and the MGT Rules with effect from August 28, 2020, to resolve the conflict between the provisions. The amendment required every firm to post a copy of its annual report on its website, with the web address of the same being given in the Board’s report. By changing the MGT guidelines, the MCA has given companies that are unable to place a copy of the website link the option of attaching an excerpt of the annual return to the Board’s report.
Other Amendments
Publishing of annual return on the website of the company
Sec 92(3) of Companies Act, 2013 is amended by the MCA with effect from 28th August 2020. The amendment says that “Every company shall place a copy of the annual return on the websites of the company if any and the web link of such annual return shall be disclosed in the Board’s report.”[1]
Amendment further explained:
- It is explained that assuming the organization has a site, it ought to distribute yearly return in structure MGT 7 on the site and the web connection ought to be uncovered in the board’s report made under section 134.
- Prior it expresses that concentrate of the year brings i.e., back. MGT 9 ought to be essential for the board’s report. Presently it expresses that the yearly return i.e., MGT 7 ought to be distributed on the site assuming any. Presently it tends to be deduced in the manner that FORM MGT 9 is not generally needed to be shaped like a piece of the Boards report.
- It likewise explained that assuming the organization doesn’t have a site, they are not needed to reveal yearly return subtleties in the sheets’ report.
- If the organization have a site, it is important to set up a yearly return in structure MGT 7 preceding the sheets reports are ready and distribute something similar on the site of the organization and the web connection ought to be joined in the sheets report for the reception just as dissemination among the individuals from the organization.
Rule 11(1) Companies (Management and Administration) Rules, 2014
Every corporation must file an annual return in Form No. MGT.7 before this revision. Except for OPC and Small Companies, all companies must file their annual returns on Form No. MGT-7 after this amendment. From the Financial Year 2020-21 onwards, OPC and small businesses must file yearly returns in Form No-MGT-7A.
Rule 12 Companies (Management and Administration) Rules, 2014
Before this change, the annual return extract to be submitted to the Board’s Report had to be in Form No. MGT.9. If the web link to the annual return has been revealed in the Board’s report per sub-section (3) of section 92 of the Companies Act, 2013, a company is not obliged to attach the extract of the annual return with the Board’s report in Form No. MGT.9. A copy of the yearly return must be filed with the Registrar, together with any fees that may be required. However, following the change, a copy of the yearly return must be filed with the Registrar, together with any applicable fees.
Conclusion
Every company in India is required to file an annual return with the Registrar of Companies at the end of each fiscal year. The current modification clarifies the yearly return filing process and eliminates any confusion. By introducing Form MGT-7A, the government has made a strong attempt to reduce cumbersome documentation for small businesses and one-person businesses. The benefits of the modifications removing Form MGT-9 and replacing it with Form MGT-7A can be considered as a positive step toward the central government’s goal of reducing compliance and hefty filings for businesses and improving the ease of doing business in the country. Reduced compliance and documentation will allow firms to stay focused on their core operations, resulting in increased growth.
[1] CS Muhammed Salim, Recent Amendments in Annual Return filing in Form MGT-7, Tax Guru, June 9, 2021, https://taxguru.in/company-law/amendments-annual-return-filing-form-mgt-7.html, (Last visited- 11/11/2021)
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