India is one of the largest economies in the world today, but many new companies still complain, and correctly, of the high complexity of running a business here. As compared to many other large economies, compliance requirements of small businesses are extensive and tedious. In this article, we’ll look at what these compliances are, primarily focussing on the Companies Act.
Compliance Requirements under the Companies Act
Companies incorporated in India are primarily regulated by the recently enacted Companies Act, 2013. The Companies Act, 2013, amongst other provisions, specifies various provisions with regards to qualification, appointment, remuneration removal, retirement of directors, conducting board and shareholders meetings, passing of resolutions, related party transactions, the maintenance of books of accounts and the preparation and presentation of annual accounts (matters to be reported upon in the annual reports of the companies), periodical filing of forms with the Registrar of Companies, etc.
Once all formalities required legally for the incorporation are done with, and a certificate of the same is issued, the company is recognized as a legal entity, distinct from its members who have incorporated such entity. Irrespective of whether the company is a private or a public company, there are certain things that need to be done post the incorporation.
Most of these are matters (read about them in detail here), which are to be taken care of in the first board meeting right after the incorporation, which would deal with regular and periodic work.
For starters, as soon as the incorporation is done, within 30 days one of the directors of the company must issue the notice for the first ever board meeting, almost seven days prior to the latter being slated for.
The company must also have the name board outside the registered office address, with its name, registered office address, Company Identification Number, e-mail ID, and phone number (which are mandatory now), website address and fax number, if any, stated on it. All the aforementioned details are also to be printed on the business letters, bill heads and all other official documents and publications going through the company.
One must also make sure the company has a PAN and TAN soon after the incorporation. Without these, you would not be able to even open a bank account. The company is also liable to convene regular board meetings throughout the calendar years and also make sure that minutes of the meeting are prepared in a permanent file or folder till the company exists.
These minutes must be prepared within 30 days of the meeting. The company also has to issue share certificates to all those who have been given stakes, and all details regarding the same must be mentioned and maintained in the allotment register. The company is also to file and maintain its balance sheet, a profit and loss account, an auditor’s report, and annual return every financial year before the due date, with the Registrar of Companies.
Other than the aforementioned non-negotiable terms and conditions, there will also be certain instances when the company will have to intimate the registrar of companies. These situations may include appointments of directors, removal and certain other changes in the prescribed manner.
The New Companies Act has also introduced the CSR (Corporate Social Responsibility) provisions. Now, under CSR companies are obligated to take on certain philanthropic activities. All companies that adhere to the CSR criteria have to undertake these activities in the financial year.
The above compliance requirements only apply to the Companies Act, 2013. There are further registrations required, depending on turnover and business type, such as service tax, VAT and Profession Tax. It is pertinent to note that the responsibility of a firm to comply with rules and regulations is not a one-time thing, but is a continuous affair.
Requirements under the Labor and Employment Legislation
Businesses running production lines and/or factories will also have to comply with other statutes like the Employees’ State Insurance Act, 1948; the Maternity Benefits Act, 1961; the Industrial Disputes Act, 1948; The Contract Labor (Regulation and Abolition) Act, 1970; the Trade Union Act, 1926; the Equal Remuneration Act, 1976; the Payment of Gratuity Act, 1972; the Workmen’s Compensation Act, 1923’ the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, etc.
The above-mentioned Acts govern issues such as working time and conditions of employment of workers, minimum wages and remuneration, rights and obligations of the trade unions, insurance of the employees, maternity benefits, employment retrenchment, payment of gratuity/provident fund, payment of bonus, regulations of the contract labour and other such issues that may arise for the employees.
It is the company’s responsibility to make sure that proper compliances of these various statutes are adhered to and all policies are formulated and implemented accordingly.
Requirements under Environmental Law
Environmental and pollution control matters are governed by various statutes such as the Environment (Protection) Act, 1986; the Water (Prevention and Control of Pollution) Act, 1974; the Air (Prevention and Control of Pollution) Act, 1981; Hazardous Wastes (Management, Handling and Trans boundary Movement) Rules, 2008; the Manufacture, Storage and Import of Hazardous Chemicals Rules, 1989; the Indian Forest Act, 1927; the Forest (Conservation) Act, 1980; the National Environment Tribunal Act, 1995; the Public Liability Insurance Act, 1991, etc. A legal entity is liable to comply with provisions as mentioned above with respect to the business operations of the concerned company. There are repercussions of a company not complying with the rules as mentioned in any of the above Acts, and the same are mentioned as per requirement in each.
Tax and stamp duty
India has a federal tax structure and the taxes are levied by the centre, state and various other local regulatory officials. These taxes are broadly in the nature of (i) Direct Tax (which includes income tax, wealth tax, dividend distribution tax, minimum alternate tax (MAT), share buy-back tax), (ii) Indirect Tax (which includes VAT/CST, Service Tax, Excise Duty, Customs Duty, Entry Tax, R&D Cess), and (iii) Levies on transaction (which includes stamp duty, securities transaction tax, and commodity transaction tax).
All companies registered in India are to duly pay their taxes and stamp duty for the business transactions that take place during the financial year. Non-payment of the same attracts a penalty, and may also involve impounding of documents related to the business.