What is shaking up the startup community is the Legal Notice that the Ministry of Corporate Affairs (MCA) is sending.
There are 2000+ startups in Bangalore alone that have not filed annual returns as required under the applicable laws, and this act is backfiring on them. The startup status of your company could be an active startup or a dormant startup, but if you haven?t filed your returns, things are going to work as per MCA?s rule books and that would hurt.
Why is MCA sending a Legal notice?
Ideally, the Financial Statement should have been filed with Registrar of Companies (RoC) within the time as specified u/s 137(1) or (2) of the Companies Act, 2013 ('Act'). Companies that have not filed its Annual Returns in respect of financial year ending 2014 or before in terms of section 129 of the Companies Act, 2013 are receiving a legal notice from MCA.
What does the Legal Notice say?
Co-founders via a Legal Notice are called upon to give an explanation/ show cause as to why action should not be taken by launching a prosecution under Sections 129 and 137 for contravention of sections 129 and 137 read with section 403 of the Act respectively.
What is the duration of when the Company should act?
Companies that have received this Legal Notice must provide an explanation within 15 days from the date of issue of the Legal Notice and file the Annual Returns for the pending financial years with the RoC.
What is the penalty if a Company does not respond?
If the company does not provide any explanation within 15 days from the date of issue of the Legal Notice, the necessary prosecution against the Company may be instituted by the RoC. The penalty for non-compliance is no small amount but will run into a few lakhs of rupees.
What are the factors on which the penalty is dependent on?
The penalty is dependent on the number of years the returns have not been filed and the duration of the delay. Ignoring this Legal Notice and not complying with the above-mentioned provisions of the Act is a risky proposition.
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