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Mandatory Compliance for Private Limited Companies

Synopsis - Private limited companies are regulated by the Companies Act of 2013 and, after incorporation, many legal procedures of compliance need to be followed to adhere with the rules and regulations of corporate laws.

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The act of forming a private limited company is merely the first step. A firm operating in India must comply with specific rules and regulations once it has been registered. In this post, we discuss 8 mandatory compliance, as required by the Companies Act 2013, in detail.

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Following is a list of mandatory compliance after a private limited company’s incorporation under the Companies Act, 2013:

1. Meeting of the Board of Directors

  • A company’s board of directors is one of its most influential bodies
  • Section 173 of the Companies Act addresses the board of directors meetings
  • The first board meeting of any corporate organisation must be held within 30 days of its incorporation
  • Each year, at least four board meetings should be held
  • The time between two consecutive meetings should not be more than 120 days.

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2. Issue of Share Certificates

  • According to Section 53 of the Companies Act of 2013, share certificates must be handed over within 2 months of the date of allotment
  • If shareholders surrender their allotted letters, the company should send their share certificates to them via a registered post
  • This is one of the important mandatory compliance for any private limited company.

3. Appointment of Auditors

  • According to Section 139 of the Companies Act, the first auditor of a private limited company must be appointed by the board of directors within 30 days of incorporation
  • If a board does not appoint an auditor within 30 days, they can call an extraordinary general meeting within 90 days
  • The first auditor may hold the position until the end of the first annual general meeting.

4. Minutes of the Proceeding of the Board Meeting and General Meetings

  • The element of the minutes of corporate proceedings is governed by Section 118 of the Companies Act and Rule 25 of the Companies Rules 2014
  • Following the conclusion of every board meeting/general meeting
  • A private limited company should prepare, sign, and keep minutes within the following 30 days
  • The minutes should include an accurate summary of the proceedings
  • The chairman of the meeting or the chairman of the next succeeding meeting should sign the minutes of a board meeting within 30 days
  • It can also be signed by a director duly authorised by the board if the chairman is unable to sign within the stipulated time.

5. Filing of Disclosure of Interest by Directors

Section 184 of the Companies Act of 2013 addresses the disclosure of a director’s conflict of interest. Every director must disclose his or her conflict of interest in any company or group of individuals at the first board meeting in which he/she participates as a director. And then at the first board meeting of each fiscal year or, if the disclosures already made have changed, at the first board meeting held after the change.

  • It states that every director must disclose his concern or interest in any company or association of individuals at the first meeting of the board in which he participates as a director
  • And thereafter at the first meeting of the board in each fiscal year or
  • If there is any change in the disclosures already made, at the first board meeting held after such change
  • If a director enters into a contract with the company without disclosing his interest, it is considered a breach of trust among the directors
  • Rule 9 of the Companies Rules, 2014 provides that such disclosure shall be made in form MBP-1 and filed with the ROC in form MGT-14
  • If the director fails to disclose his interest he shall be liable for imprisonment which may extend to 1 year or with a minimum fine of ₹50,000/- which may extend to ₹1,00,000/- or with both.

6. Approval and Signing of Financial Statements

  • Section 134 of the Companies Act, 2013 and Rule 8 and 9 of the Companies (Accounts) Rules, 2014 deals with aspects of financial statements and board reports
  • Every company should file the financial statements within 30 days of its annual general meeting with RoC in AOC-4
  • Based on the financial statement of the company, the board shall prepare the report and submit it in the general meeting
  • The financial statement should be approved by the board of directors and should be signed by the chairperson of the company.

7. Report by the Board of Directors

  • Section 134 of the Companies Act, 2013 provides that the reports of the board of directors of every company should be attached with the details of the company
  • Like finances accounts and corporate social responsibility standards along with the balance sheet
  • This should be produced in every Annual General Meeting as it is mandatory compliance
  • If a company is in default in complying with this provision, the company shall be liable to a penalty of three lakh rupees
  • Every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.

8. Filing of Annual Returns

  • According to Section 92 of the Companies Act, 2013 every company should mandatorily prepare its annual return with the Registrar of Companies
  • It should be prepared within 60 days of the AGM in MGT-7
  • This should be signed by at least one director and is required to be certified by a company secretary in practice.
Although private companies do not raise funds from the public in terms of equity, exposure to financial institutions and banks make them key players in the system and hence need greater oversight, as per the government. Private limited companies will soon have to do a secretarial audit if in the public interest, as defined by their exposure to debt.

The Takeaway – Mandatory Compliance for Private Limited Company

Following are the obligatory compliances for a private limited company:

  • Filing of annual returns
  • The reports by the board of directors
  • Approval and signing of financial statements
  • Filing of disclosure of interest by directors
  • Maintaining minutes of the proceeding of the board and general meetings
  • The appointment of auditors
  • Issue of share certificates and meeting of the board of directors

If a private company fails to comply with the mandatory compliance mentioned under the Companies Act, 2013, every person who is responsible for such a default will be penalised.

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