The onset of COVID-19 was unexpected and devastating to most businesses. The mandatory shut down of businesses due to travel restrictions and lockdowns affected businesses adversely. This also made it difficult for such businesses to meet the required compliance measures and processes. To provide relief to such establishments during the coronavirus pandemic, the Indian government came out with several relief measures. The most substantial of these measures was the introduction of the Companies Fresh Start Scheme, 2020. The Ministry of Corporate Affairs also revised the LLP Settlement Scheme to enable LLPs to make it through this period. This article will take a closer look at both these schemes and the benefits they provide businesses.
What is the Companies Fresh Start Scheme, 2020?
All registered companies must maintain annual statutory compliance by filing their financial statements and an annual return to the MCA. Apart from these documents, companies must also upload other statements and returns to maintain compliance every year. Additionally, companies must also pay the prescribed fees and delays in filing usually lead to fines and other penalties. However, to make it easier for companies that defaulted, the MCA introduced the Companies Fresh Start Scheme, 2020.
What are the features of the Companies Fresh Start Scheme?
- The Companies Fresh Start Scheme came into force on April 1st, 2020 and will remain effective until December 31st, 2020. While the initial, last date was September 30th, 2020 the MCA later extended the deadline to the last day of the year.
- Any companies that default the compliance norms will now have the power to file the required documents on any given date.
- The defaulting companies will only have to pay the standard or regular processing fees, and will not need to pay any penalty for defaulting.
- All such companies have been granted immunity from any legal prosecution or proceeding for this particular period. Hence, government authorities will not impose any penalty on the delay associated with such defaults.
- The scheme also allows inactive companies to quickly obtain a dormant status by filing an application and paying the required fees.
What forms do the Companies Fresh Start Scheme apply to?
The Companies Fresh Start Scheme will encompass the following compliance forms;
- Form MGT 7 regarding the Annual returns
- Form AOC 4 regarding the company’s Financial Statements
- Form MGT 14
- Form PAS 3
- Form ADT 1
However, the Companies Fresh Start Scheme will not apply to the following individuals or companies;
- Companies which have initiated final notice for striking off their name from the Company Registrar
- Companies which have applied for striking off their name to the RoC
- Amalgamated companies
- Companies which have applied to achieve a dormant status
- Vanishing companies
- Companies which have Where any experienced an increase in authorized capital via Form SH 7
- Companies which have to file charge-related documents, such as CHG-9, CHG-8, CHG-4 and CHG-1
Companies Fresh Start Scheme, 2020 for Inactive Companies
In case the defaulting company is inactive while filing documents under this scheme, they may opt for dormant company status by filing FORM MSC 1. Otherwise, companies may apply to get their name struck off from the RoC’s Registry by filing Form SKT 2 and paying the required fees. Doing so will help inactive and dormant companies maintain legal compliance, preventing further legal hassles. The scheme ensures that such companies do not have to pay hefty fines or penalties, as defaulting companies need to pay only the prescribed nominal fee and no additional penalty or charge. Such companies will receive an Immunity Certificate, and the Registrar of Companies will withdraw any pending cases and prosecution regarding such details. Additionally, the companies must also withdraw any appeal they have filed against any such prosecution launched.
What is the Revised LLP Settlement Scheme?
Similarly, in March the MCA introduced an LLP Settlement Scheme in a bid to improve the efficiency of the business registration system. The new scheme helped provide LLPs with an opportunity to forgo the payment of additional penalties. It also gifted them immunity from prosecution, helping promote the overall ease of doing business in India. The COVID-19 situation encouraged the MCA to revise these guidelines further and improve on the LLP Settlement Scheme.
What are the changes brought into force by the LLP Settlement Scheme?
- The scheme came into force on April 1st, 2020 and will stay in effect until December 31st, 2020. While the MCA initially panned to set the deadline to September 30th, they later decided against it and extended the deadline to the end of the year.
- All LLPs that default during this period will be allowed to file the required documents at any time.
- The LLPs that default will only have to pay the regular fees and will not be asked to pay the additional penalty for the same.
- LLPs will also receive immunity from legal prosecution regarding fines accumulated due to delay in filing the necessary compliance documents.
- The scheme only permits a one-time condonation of delay regarding the late filing of annual compliance returns to the RoC.
What to know about the LLP Settlement Scheme, 2020
The scheme will apply to the following forms and returns;
- Form 3 which contains information regarding the LLP’s agreement and the changes made to it
- Form 4 which serves as a notice regarding cessation, appointment, name change, address change or consent of partners.
- LLP Form 8 which act as a Statement of Account and Solvency
- LLP Form 11 or the Annual Return of the LLP
Additionally, the scheme will not apply to LLPs that have filed Form 24 to strike off their name from the Registry as per Rule 37(1) of the LLP Rules Act, 2009.