ComplianceLegal Advice

Annual Compliances for a Private Limited Company

Here are the things you are required to cross and check while filing annual compliances as a private limited company

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Under the Companies Act of 2013, private companies are required to abide by the list of rules and regulations/annual compliances. While the detailed compliances are complex and lengthy, there are a few basics that should be complied with 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 annual compliances that have to be fulfilled for Private Limited Company.

Companies Act – Annual Compliances for a Private Limited Company

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 real issues as well as the legal issues. The law tries to limit private companies by imposing many conditions and compliances mentioned under the Companies Act, 2013. 

Well, sometimes it is tricky to understand all the annual 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 annual 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), a penalty of rupees thousand per day will be imposed on the defaulting company and on every officer in default till the default is rectified’.

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Accepting 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 Sections 73 to 76 of the Companies Act 2013.

Meeting With the Board of Directors

The 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 an 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 an audit report which is a must. Failure in doing this will lead to great penalties.

Directors Report

Most importantly directors’ reports 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 a 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 the 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 – Annual Compliances for a Private Limited Company

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

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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