Annual Compliances for Private Ltd Company

Last Updated at: February 10, 2020
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Annual compliances for Pvt Ltd Companies

The Companies Act of 2013 sets all the rules and regulations with which every private firm in India needs to abide. While the detailed compliances are complex and lengthy, there are a few basics that should be complied by all. In this article, we explain them comprehensively.

Companies and startups operating in India, have to prepare for annual compliances. There are a lot of startups and businesses in India which have one of the most popular legal entity i.e Private Limited Company but are least aware of the compliances that have to be fulfilled for Private Limited Company.

Listed below are some of the legal services provided at Vakilsearch. If you find them useful, feel free to contact us.

 

Companies Act

With the inception of the Companies Act in the year 1956, the definition and scope of Private Limited Companies have undergone a lot of changes. Nowadays, startups are fast-becoming a trend but it is not easy to organise and run a private business corporation, considering the realistic issues as well as the legal issues. The law tries to limit the private companies by imposing many conditions and compliances mentioned under the Companies Act 2013.

Well, sometimes it is tricky to understand all the compliances by one’s own self, therefore, it is better for the Private Limited Companies to get the assent of the experts, in order to abide with all the necessary compliances in accordance with the law; so that the unnecessary penalties can be avoided. For your easy understanding, let us see some of the fundamental compliances below.

Get the basics right

The company formation document “Memorandum of Association” has an object clause that describes the business of the company as per the law resolution that was passed that states, “Only with the consent of the board of directors of the company, it should undertake any other business activity beyond what is mentioned in the object clause.” With the effect from 1st April 2014, all such companies carrying out other businesses other than the principal business should be notified in the object clause. If not complied, such businesses will be treated as ultra-virus which will, in turn, require the company to change its name, owing to multiple business activities which might also result in a lawsuit.

Displaying company identity

Under Sec 12(3) of New Act states, “Every company will get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, email to be printed on company’s business letter, billheads, letter papers and in all its notices and other official publications. In case of any failure to quote CIN (Corporate Identity Number), number penalty of rupees thousand per day will be imposed on the defaulting company and on every officer in default till the default is rectified.

Acceptance of unsecured loans

Many companies accept loans from the director’s relatives or from the company’s members as it is allowed in the provisions of the Companies Act 1956. However, as per the Acceptance of Deposit Rules 2014, the company can get unsecured loans and deposits from the director’s relatives, only if it is not a borrowed amount but as a gift. Besides, such unsecured loans must be refunded. However, the companies which fail to refund the loans which are already accepted may as a consequence face penalty and prosecution proceedings under the provisions of section 73 to 76 of the Companies Act 2013.

Stay Legally Compliant

Meeting with the Board of Directors

First meeting must be held within thirty days of the incorporation of the company. Notice of the board meeting must be given before seven days of meeting each and every director of the company face to face or through an email.

Appointment of auditor

An auditor must be appointed within one month from the date of starting the company. Every accountant must prepare accounts and get the assent of the auditor at the end and shall provide audit report which is a must. Failure in doing this will lead to great penalties.

Directors Report

Most importantly directors report must be prepared as mentioned under the Sec 134 of the Companies Act which covers operations during the year, net profit, dividend declaration etc. The company must also issue share certificate within 60 days of starting the business.

Filing Annual Return

It is also mandatory that every company must file its annual return with register of the companies within 60 days of the annual general meeting in e-form available at http://www.mca.gov.in/, which has to be digitally signed by at least one of the directors.

Conclusion

Hence to put it in a nutshell, as the saying goes, “Prevention is better than cure”, companies must be aware of the basic compliances that are to be fulfilled and must take necessary steps to fulfill all the compliances so that unnecessary errors can be avoided.

Read Also: Mandatory Documents for Private Limited Company Registration

In a gist, some of the rules a company should comply with are creating the memorandum of association, displaying company identity, acceptance of unsecured loans from relatives only as gifts, meeting with the board of directors, the appointment of the auditor, director’s report and filing income tax returns.

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 Annual Compliances for Private Ltd Company

1741

The Companies Act of 2013 sets all the rules and regulations with which every private firm in India needs to abide. While the detailed compliances are complex and lengthy, there are a few basics that should be complied by all. In this article, we explain them comprehensively.

Companies and startups operating in India, have to prepare for annual compliances. There are a lot of startups and businesses in India which have one of the most popular legal entity i.e Private Limited Company but are least aware of the compliances that have to be fulfilled for Private Limited Company.

Listed below are some of the legal services provided at Vakilsearch. If you find them useful, feel free to contact us.

 

Companies Act

With the inception of the Companies Act in the year 1956, the definition and scope of Private Limited Companies have undergone a lot of changes. Nowadays, startups are fast-becoming a trend but it is not easy to organise and run a private business corporation, considering the realistic issues as well as the legal issues. The law tries to limit the private companies by imposing many conditions and compliances mentioned under the Companies Act 2013.

Well, sometimes it is tricky to understand all the compliances by one’s own self, therefore, it is better for the Private Limited Companies to get the assent of the experts, in order to abide with all the necessary compliances in accordance with the law; so that the unnecessary penalties can be avoided. For your easy understanding, let us see some of the fundamental compliances below.

Get the basics right

The company formation document “Memorandum of Association” has an object clause that describes the business of the company as per the law resolution that was passed that states, “Only with the consent of the board of directors of the company, it should undertake any other business activity beyond what is mentioned in the object clause.” With the effect from 1st April 2014, all such companies carrying out other businesses other than the principal business should be notified in the object clause. If not complied, such businesses will be treated as ultra-virus which will, in turn, require the company to change its name, owing to multiple business activities which might also result in a lawsuit.

Displaying company identity

Under Sec 12(3) of New Act states, “Every company will get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, email to be printed on company’s business letter, billheads, letter papers and in all its notices and other official publications. In case of any failure to quote CIN (Corporate Identity Number), number penalty of rupees thousand per day will be imposed on the defaulting company and on every officer in default till the default is rectified.

Acceptance of unsecured loans

Many companies accept loans from the director’s relatives or from the company’s members as it is allowed in the provisions of the Companies Act 1956. However, as per the Acceptance of Deposit Rules 2014, the company can get unsecured loans and deposits from the director’s relatives, only if it is not a borrowed amount but as a gift. Besides, such unsecured loans must be refunded. However, the companies which fail to refund the loans which are already accepted may as a consequence face penalty and prosecution proceedings under the provisions of section 73 to 76 of the Companies Act 2013.

Stay Legally Compliant

Meeting with the Board of Directors

First meeting must be held within thirty days of the incorporation of the company. Notice of the board meeting must be given before seven days of meeting each and every director of the company face to face or through an email.

Appointment of auditor

An auditor must be appointed within one month from the date of starting the company. Every accountant must prepare accounts and get the assent of the auditor at the end and shall provide audit report which is a must. Failure in doing this will lead to great penalties.

Directors Report

Most importantly directors report must be prepared as mentioned under the Sec 134 of the Companies Act which covers operations during the year, net profit, dividend declaration etc. The company must also issue share certificate within 60 days of starting the business.

Filing Annual Return

It is also mandatory that every company must file its annual return with register of the companies within 60 days of the annual general meeting in e-form available at http://www.mca.gov.in/, which has to be digitally signed by at least one of the directors.

Conclusion

Hence to put it in a nutshell, as the saying goes, “Prevention is better than cure”, companies must be aware of the basic compliances that are to be fulfilled and must take necessary steps to fulfill all the compliances so that unnecessary errors can be avoided.

Read Also: Mandatory Documents for Private Limited Company Registration

In a gist, some of the rules a company should comply with are creating the memorandum of association, displaying company identity, acceptance of unsecured loans from relatives only as gifts, meeting with the board of directors, the appointment of the auditor, director’s report and filing income tax returns.

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