Latest Regulatory Challenge for Startups: E – Active Form

Author: thinkinglegal | April 23, 2019 - 18:32 | Tags: General Corporate

[Please note that MCA by a notification dated 25 April 2019 has extended the deadline for filing the Active Form to 15 June 2019.]

Impact on Startups

Recently, Ministry of Corporate Affairs (“MCA”) has taken various steps to strike off dormant companies and to prevent fraud through shell companies in the economy. One such measure is to require all companies incorporated on or before 31st December, 2017 to submit information to verify its existence. This requirement has introduced an additional compliance for startups.

Such requirements include photograph of the registered office showing external building and inside office with at least one director/KMP who has affixed his/her digital signature to the Active form. It is difficult for many startups to get a board put on the external building and take a geo tagged picture as they operate out of shared spaces or have a small office in a large corporate building. In addition to the above, another challenge being faced by most startups with multiple offices is that often the director is not based out of the office mentioned in the filing.

E – Active Form and its Applicability

MCA has inserted new Rule 25A in the Companies (Incorporation) Amendment Rules, 2014 (“Rules”) vide its Notification dated February 22, 2019 with the intention to e-verify the presence of registered offices of companies. This rule came into effect on February 25, 2019. In terms of Rule 25A of the Rules, the companies incorporated on or before 31st December, 2017 are required to file Form INC 22A i.e. E – Active (Active Company Tagging Identities and Verification)(“Active Form”) on or before April 25, 2019. 

Exemption: The companies which are under the process of striking off or under liquidation or amalgamated companies or dissolved companies.

Consequences of non-compliance with the Active Form

If a company fails to file the Active Form on or before April 25, 2019, the company shall be marked as ‘Active – Non-Compliant’ in the MCA Master Data. An ‘Active – Non-Compliant’ company will not be able to do any of the following:

  1. The Company cannot file for change in authorized and / or paid-up capital;
  2. The Company cannot file for change in the directorship;
  3. The Company cannot file for change in the registered office; or
  4. The Company cannot file for amalgamation / demerger.

If a company does not complete the requirements by April 25, 2019, such company will have to pay a penalty of Rs. 10,000 and file all the relevant information to change the status of the company from ‘Active – Non-Compliant’ to ‘Active – Compliant’.

Information required to be furnished under the Active Form

The Active Form requires following information:

  • Latitude & Longitude details of the Registered Office
  • E - Mail id of the company and its verification by way of One Time Password
  • Details of the Statutory Auditor and Cost Auditor along with their details
  • Details of the Key Managerial Persons (“KMP”) including the Directors
  • Details of the Last Annual Return and RoC Returns filed for the Year 2017-18
  • Photograph of the office (Both Exterior and Interior) along with the director to be attached with Active Form
  • Digital signatures of at least one Director/KMPwill be required after Active Form has been duly verified.

Thereafter, the Active Form has to be certified by practicing Chartered Accountant, Cost Accountant or a Company Secretary.

Concluding Remarks

Please note that MCA by a notification dated 25 April 2019 has extended the deadline for filing the Active Form to 15 June 2019.

After the Angel Tax issue, another regulatory challenge for startups is the filling of the Active Form. Startups are finding it hard and challenging to fulfil the requirements from the government in the Active Form. Many startups have requested and sought an extension of the deadline for companies to file the Active Form from the MCA. However, no such extension has been granted until April 23, 2019.

Further, the startups have another valid issue that the MCA already has the details regarding the financial returns and annual filings of the respective startups and these requirements should accordingly be exempted from the filing Active Form. There has been no exemption granted on this issue either.

Startups should ensure that they are compliant with this latest requirement since a startup that does not file the Active Form will have difficulties in raising funding and changing/appointing directors.

DISCLAIMER:  This article is for academic purpose and is solely to provide readers with general information regarding developments in Indian law. The information contained herein does not constitute legal or a professional advice. ]