In this blog post, Ananth Kini, a fourth-year BBA LLB student at Bharati Vidyapeeth’s New Law College, Pune and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, compares the annual compliance that has to be made by different business structures.
All types of Business organisations be it Limited Liability Partnership, Sole Proprietorship, Hindu Undivided family or a Company both public and private need to file compliance at regular intervals. It is done to fulfil the legal obligations as provided under different statutes, rules, etc. One of the main intentions of filing these annual or quarterly returns is to ensure transparency and accountability in these business structures.
A Public company is subjected to more compliances than other business structures as the money of Public are involved who subscribe to the securities of the Company by dealing in Stock Exchange.
Annual compliance by Sole Proprietorship
Sole Proprietorship may be defined in simple terms as a business run and managed by a single person; all the decisions regarding the business are taken by him/her alone and is alone responsible for the conduct of the Business. One of the major disadvantages of this type of business structure is that the owner is personally liable for the business, there is no separate legal entity, thus in the New Companies Act 2013 provides for One Person Company which aims at covering this drawback.
Sole Proprietorship is not subject to many annual compliances except for filing of annual tax returns accurately with the Income Tax department which include income tax, value added tax of their business activity, Annual reports are not required to be filed with the Ministry of Corporate Affairs (MCA) such as in case of Company or Limited Liability Partnership. No false or incorrect figures/data should be provided to the IT department and tax rate as applicable from time to time must be paid, any violation of this may provide for criminal and civil liability.
For the income tax returns, the income of the proprietorship and his business is considered the same, however, he must have valid Permanent Account Number (PAN) card and must be registered under Shop & Establishments Act and other related legislation such as Employee State Insurance Act, 1948, etc. Also, in addition to these various other welfare legislations have to be complied with.
Annual compliance by Limited Liability Partnership (LLP)
Limited Liability Partnership or LLP is a relatively new form of business structure governed by The Limited Liability Partnership Act, 2008. Section 2 (o) of the LLP Act defines “Limited Liability Partnership agreement” as any written agreement between the partners of the limited liability partnership or between the limited liability partnership and its partners which determine the mutual rights and duties of the partners and their rights and duties in relation to that limited liability partnership.
One of the distinctive features of an LLP is a limited liability that it is a separate legal entity. The LLP Act 2008 makes the liability of the partners limited to the extent of their terms in the agreement.
LLP’s are subject to both periodic and annual compliances, they have to periodically maintain a book of accounts (Statement of Account and Solvency) which shall state the financial position of the partnership, it should state the cash flows, assets and liability, transactions entered into the partnership, etc. A decision to maintain such an account must be passed by resolutions of the partners.
In addition to this periodic compliance, the LLP has to at the end of each financial year electronically file returns to the Registrar indicating that the annual returns filed by it as per form 11 of the Act it is correct which is certified by registered Company Secretary if the annual turnover of the firm is more than 50 crores or capital contribution of partners exceed 50 lakhs. If below the prescribed limit, then partner has to certify the returns stated are correct.
Also, the Statement of Account and Solvency has to be filed with the ROC signed by each designed partner of the firm within 30 days of the end of 6 months of each financial years according to format mentioned in form 8 of the LLP Act. The audit is not compulsory for LLP if the annual turnover and capital contribution of partners do not exceed 45 lakhs or 25 lakhs respectively. However, if the prescribed requirements are met, then the firm must also submit the audit report duly certified by Chartered Accountant and signed by the partners along with the Statement of Account and Solvency to the ROC.
Annual compliance by Hindu Undivided Family (HUF)
Hindu Undivided Family or HUF is a form of business structure which is run by the Karta of the family and other as members of the business, the karta is personally liable of for the transactions entered by him. The registration of HUF is not compulsory, a separate PAN card and bank account in the name of the HUF are required for running the business, the members of the HUF are a part of which by virtue of being born in the family.
There are as such no annual compliances that need to be filed by HUF the only exception being IT Returns to the IT Department; it is to be noted that for the purpose of taxation HUF is considered a separate entity and having an entity different from its members.
Likewise, Partnership firm which is governed by Partnership Act,1932 also need not file any annual returns except for IT returns, the registration of partnership firm is also not compulsory although the Act indirectly makes it obligatory for the partners to register the firm.
Annual Compliance by Company
The old Companies Act,1956 provided for different procedures, forms, sections for the filing of annual returns which has now been repealed by the Companies Act,2013 (All sections and forms mentioned below are as per the Companies Act,2013). However, not all the sections of the new Act have been notified yet.
The New Companies Act, 2013 provides for a mainly electronic form of e-filing which has been introduced keeping in mind the ease of doing business. The Act divided companies into different kinds viz. One Person Company, Small Company, Private Company, Public Company and so on and so forth. The New Companies Act, 2013 also has made certain changes with respect to financial statement and secretarial standard.
Each type of company is required to file different annual returns and adhere to different forms prescribed in the Act.
Annual Compliances by One Person Company and Small Companies
One Person Company (hereinafter, ‘OPC’) which is a new kind of Company introduced by the present Act provides that the company must file annual returns accordingly in Form MBP-1, DIR- 8, E-FORM MGT-7, E-FORM AOC-4, etc. Apart from these forms, the OPC must also submit particulars of Director’s report, Board meetings, the appointment of auditors to the Registrar of Companies (hereinafter, ‘ROC’).
Similarly, Small Companies are also required to file various compliances to ROC which are more or less the same as that of OPC viz. Form MBP-1 (Notice by Director of interest in other entities (Section 184)), DIR- 8 (Disclosure of non-disqualification by the Director (Section 164)), MGT-7 (Annual Returns (Section 92)), E-FORM AOC-4 (Financial Statement of the Company (Section 137)), Director’s report (Section 134), Board meetings (Section 173), appointment of auditors (Section 139) etc.
Due to the small size of these companies, they have been exempted from many statutory compliances which are required to be filed by Private and Public Limited Companies.
Annual Compliances by Private ‘Pvt.’ Limited Company
In addition to the above-mentioned forms and particulars, a private company also needs to file other compliances such as Annual returns duly certified by a Company Secretary, notice of the annual general meeting, E-FORM MGT-8 (This form is to be filed only if the Turnover of the Company is more than 50 crore or Share Capital exceeds 10 crores).
Annual Compliances by Public Limited Company
A Public Company is subjected to more annual compliances than other kinds of companies as money of Public is involved, and therefore it is made mandatorily with a view to promoting investor protection. Some of the important filings are E-FORM DPT-3 (Returns of deposits is any), MR-1 (Appointment of Managing Director (Section 196)), DIR-12 (Appointment of women and independent Director (Section 149)), MGT-14 (Appointment of the internal auditor (Section 138)), etc.
Also if the turnover or the capital contribution of the company exceeds the prescribed amount, then other particulars such as Nomination & Remuneration Committee, Vigil mechanism also need to be filed with the ROC.
Annual Compliance by Listed Companies
A listed Company needs to file various other forms in addition to those for Public Ltd Company; some of them are as follow- FORM MBP-1, DIR-8, MGT-7 (Annual returns), AOC-4 (Financial Statement), MGT-15 (Report on Annual General Meeting of the Company), MGT-14, MGT-8 (Certification of annual returns (Section 92)) etc. Other particulars such as Board meetings, the appointment of auditors, notice of the annual general meeting, Stakeholder relation committee, etc.
They also have to abide by various rules and regulations by SEBI and Stock Exchange such as SEBI (Listing And Disclosure) Regulations, 2015, Stock Exchange rules, Clause 49 of listing agreement, etc.
Under SEBI (Listing And Disclosure) Regulations, 2015, a Public Ltd Company has to follow various compliances such as Regulation 7,13, 27, 29, 30, 31, etc. These regulations mainly relate to reporting on Share Transfer, Corporate Governance, Grievance redressal mechanism, Board meeting.