What is most difficult about any business other than running it? Ask any business person this question and the answer will most likely be the same. It is to make sure that they meet all the mandatory compliances for the business to run legally. This is, undoubtedly, a tedious task, but it is there for obvious reasons. Before elaborating on the mandatory compliances, we need to understand what a private limited company is.
What is a Private Limited Company?
A company is a legal entity formed by one or more individuals to do business. The company’s form of business has popularized over the years. Some of the different companies are:
- Private limited companies
- Public limited companies
- One person companies
- Holding and subsidiary companies
- Associate companies
- Nidhi companies, etc.
The company’s form of business has gained popularity over the years. According to Wikipedia, almost 93 percent of companies in India are private limited companies. All private limited companies are now regulated by the Companies Act, 2013. The number of members in private limited companies can start from 2 to a maximum of 200 and not more than that. The minimum paid-up share capital for a private limited company is Rs one lakh.
With private limited companies being the majority in the business sector in India, there must be rules and regulations in place. The parliament passed the Companies Act 2013 for this purpose.
Why is compliance important?
Compliances are statutes or in simple words, rules and regulations to ensure the business is legally and ethically correct. The business actually benefits from these compliances. It helps to build trust with the community and stakeholders. Take, for example, a bag of chips. When the customer sees the FSSAI stamp behind the bag of chips, there is an assurance of safety. That stamp implies that the food is prepared according to the safety regulations stipulated by them.
As Paul McNulty, the former US Attorney General, said, if you think compliance is expensive, try non-compliance. This, in a nutshell, explains the importance of compliance.
After completing the registration process of the private limited company, the compliances to follow as a private limited company commences. For registration of the company as a private limited, there should be a minimum of two adult persons as directors. The maximum number of directors cannot exceed 15. At least one director must be an Indian citizen and resident of India.
The registrar of companies (ROC) has the power to regulate the administration of Indian companies and their subsidiaries from incorporation to winding up. The Companies Act 2013 has ensured that the companies must report to the ROC on a periodic basis or event basis. ROC has offices in every state.
Declaration of commencement of business
This comes under section 10A of the Companies Act 2013. This was initially section 11 of the companies act, which was omitted in 2015. On 2 November 2018, through an ordinance passed by the President of India, this section made a comeback. The gist of this section says that the director of the company must file a declaration within 180 days to the registrar. The form INC-20A is the declaration form. This declaration is to state the value of their shares is received by the company from its shareholders. There is a penalty if this is not met.
Meetings of Board
Section 173 of the Companies Act 2013 is about the meetings of the board. It says that every company shall hold its first board meeting within 30 days of incorporation. After the first board meeting, every company has to meet a minimum of four times in a calendar year. There shall not be over 120 days between consecutive board meetings. Further, the sub-sections mandate the directors must receive written notice at least seven days prior to the board meeting.
Appointment of Auditors
This comes under section 139 of the Companies Act 2013. The board of directors must appoint the first auditor within 30 days of registration of the company. An auditor can be an individual or a firm. The form ADT-1 is to intimate the Registrar about the appointment of the auditor. The company and not the auditor file the Form ADT-1. Auditors can serve a term of five years but are subject to ratification every year.
Certificate of shares
This comes under section 46 of the Companies Act of 2013. A share certificate is a document issued by the directors to the member mentioning the number of shares held. The timeframe to issue this is within two months of incorporating the company. This is in section 53 of the Companies Act of 2013. The share certificate should have the approved format as mentioned in Form SH-1.
Disclosure of interest by director
This comes under section 184 of the Companies Act 2013. In simple terms, directors need to disclose the concern or interest in any other company, firm, or organization. The director shall by submitting a form disclose the interest in another company or firm:
- at the first board meeting,
- at the first board meeting of every financial year,
- whenever there is a change in disclosure already made.
The form to submit is Form MBP-1. The rule mandates preserving the disclosure form submitted by the directors at the registered office for 8 years from the year of submission.
Annual General Meeting
This comes under section 96 of the Companies Act of 2013. The companies must hold their first annual general meeting within nine months after the closing of the first financial year. In other cases, it shall hold the AGM within six months of the closing of the financial year. The registrar can give an extension of not over three months. The AGM shall be during office hours, between 9 am and 6 pm, on any day other than National holidays.
This comes under section 92 of the Companies Act of 2013. As per this, companies need to file the annual return to the registrar within 60 days of the AGM. The company secretary has the authority to sign the annual return. If there is no company secretary, the director can sign. As per rule, Form MGT-7 is used to prepare an annual return.
This comes under section 134 of the Companies Act 2013. It is part of the annual report, containing information on the overall financial position, operation, and scope of the business. This must get approval in the meeting of the board of directors. After approval, the requirement is to file the resolution with the registrar in Form MGT-14 within 30days.
It is daunting for a normal person to go through the various compliances. This is where a pioneer financial services company can help. Diligen, with its experienced team, can handhold the business throughout the compliance processes.