Private Limited Company Compliances

Overview

 In India, a private limited company must ensure compliance with all stipulations of the Companies Act, 2013. This Act regulates the appointment, qualifications, remuneration, and retirement of directors, as well as conducting shareholder and board meetings. Annual compliance with the Registrar of Companies (RoC) is mandatory for such entities.

The company must fulfill annual compliance obligations, irrespective of its turnover or capital. Every registered Indian company, including section 8 companies, private limited companies, limited companies, and sole proprietorships, must maintain annual compliances like income tax returns and annual reports at the fiscal year’s end. Registering a company is a common start-up approach, but post-incorporation, it must meet various annual compliances. The entrepreneur’s challenge lies in managing daily operations while complying with intricate corporate laws. Hence, seeking professional advice and understanding legal mandates is crucial to ensure timely compliance and avoid penalties.

Private Limited Company Compliance Checklist for India

Let’s have a look to the annual compliance checklist for Private Limited Companies in India:

Statutory Audit Compliance: Audits are performed to verify the accuracy of financial information by reviewing bank balances, accounting records, and financial statements. A statutory auditor is appointed to finalize the company’s annual accounts.

Annual ROC Filings: Private companies are required to submit annual accounts and returns to the Registrar of Companies (RoC), detailing directors, shareholders, and stakeholders. Essential documents for annual filing include: – Form MGT-7 for the annual return within 60 days post-AGM. – Form AOC-4 for Financial Statements, including balance sheet, profit & loss account, and director’s report, within 30 days.

Auditor’s Appointment: Companies must appoint a statutory auditor within 30 days of incorporation. Failure to appoint results in a penalty of INR 300 per month and may lead to business operation restrictions.

Annual General Meeting (AGM): An AGM must be convened annually within six months of the fiscal year’s end, with the first AGM possible within nine months of the financial year’s close. AGMs are held to approve financial statements, declare dividends, and address other corporate affairs.

Board Meeting: The first board meeting should occur within 30 days of incorporation. Subsequent meetings should be held quarterly, with at least two directors or one-third of the total number of directors present. Discussions must be documented in minutes and stored at the registered office. A notice of the meeting should be sent seven days in advance.

Director’s Report: Directors must annually disclose their directorships in other companies by providing a written declaration to the company.

Income Tax Compliances: Includes quarterly advance tax payments and filing income tax returns with the tax department. Tax audits are mandatory if the previous year’s gross revenues or sales exceed Rs. One crore. 

Additional Compliances: Other annual compliance tasks must be completed as events occur within the company.

Examples of Event-Based Compliances for Private Limited Companies

Here are some instances of event-based or specific compliances that Private Limited Companies must adhere to:

• Capital Changes: Any alterations in the company’s authorized or paid-up capital.
• Share Allocation/Transfer: Issuance or transfer of new shares, and directors may take loans from other entities.
• Management Appointments: Hiring of management personnel or full-time directors and their remuneration.
• Banking Changes: Changes in bank account signatories upon opening, closing, or altering accounts.
• Auditor Changes: Appointment or change of the company’s statutory auditors.

For each event, appropriate forms must be filed with the registrar within a specified period. Neglecting these requirements can lead to penalties and legal issues. Timely fulfillment of these compliances is crucial to avoid legal repercussions.

Understanding ROC Compliance for Private Limited Companies

Addressing a common query: Is ROC compliance mandatory for Pvt Ltd Companies? Indeed, ROC compliance is obligatory for private limited companies. Non-compliance can result in penalties and legal consequences for both the company and its directors. To maintain its status and meet legal obligations, the company must file necessary documents and forms with the Registrar of Companies promptly and accurately.

Legal Compliance Essentials for Start-up Private Limited Companies

Understanding the legal compliance checklist is crucial for start-up private limited companies, which involves adhering to annual filing norms and compliance standards set by various laws and regulatory bodies. This includes maintaining sanctioned books and records, conducting board meetings, filing taxes, and submitting financial statements consistently. Key periodic obligations include:

• Dues Payments: Mandatory TDS, TCS, and GST liabilities.
• Non-Registrar Returns: Periodic filings (monthly, quarterly, annually) like GST, TDS, etc.
• GST and TDS Reports: Quarterly/Monthly GST filings and TDS Quarterly Reports.
• Advance Tax: Evaluation of advance tax liabilities and regular advance tax payments.
• Income Tax Filing: Submission of Income Tax Returns with a flat rate of 30% plus Education Cess.
• Regulatory Compliance Review: Administrative assessment of business practices under various legal statutes, such as the Environment and Protection Act, Money Laundering Act, Competition Act, Factory Act, etc.

Advantages of Diligent Annual Compliance

Post-registration, all companies, irrespective of their liability limits, must adhere to annual compliances. The advantages of diligent annual compliance include:

Enhanced Company Credibility: Compliance is a company’s fundamental duty; the MCA website displays the submission dates for annual returns. Consistent adherence to government tenders, loan sanctions, and other stipulations is vital for establishing trustworthiness. Such regularity in compliance also elevates the company’s reputation, attracts new customers, and facilitates the acquisition of government tenders and loan approvals.

Attracting Investors: Investors prioritize financial records and compliance. They verify whether a company timely files its annual returns on the MCA website before making investments. Investors favor companies with a track record of consistent compliance. Hence, it’s imperative for a private company to regularly fulfill annual and mandatory compliances to attract fresh investments.

Maintaining Active Company Status: To evade penalties, private companies in India need to file annual compliances and returns punctually. Non-compliance can degrade the company’s standing, leading to the removal of the company’s name by the ROC or even insolvency. Moreover, non-compliant directors risk disqualification from future roles and exclusion.

Necessary Documentation for Company’s Annual Filing

The following are the documents necessary for the annual filing of a company:

• PAN Card: The company’s PAN card is essential.
• Certificate of Incorporation: This certificate is a legal document related to the formation of the company.
• Audited Financial Statements: The company’s financial statements, which include the MOA and AOA, must be audited by an independent auditor.
• Board and Audit Reports: These reports provide insights into the company’s financial health and operations.
• DSC of Director: A valid and up-to-date Digital Signature Certificate (DSC) of one of the directors must be provided for authentication purposes.

Annual Compliance Expenses for a Private Limited Company

The annual compliance costs for a private limited company encompass various expenses, such as:

• Registrar of Companies (ROC) Fees: Charges associated with ROC filings.
• Accounting and Bookkeeping Costs: Expenses for maintaining financial records.
• Statutory Audit Fees: Payments for compulsory financial audits.
• Annual Return Filing Fees: Costs for submitting yearly returns.
• Tax Compliance Costs: Expenditures related to tax filings and adherence.
• Legal and Professional Fees: Charges for legal advice and professional services.
• Miscellaneous Expenditures: Includes costs for internal processes and training.

The specific expenses differ based on the company’s industry, size, and the governing local laws. For precise estimates of annual compliance costs, it’s advisable to seek guidance from a professional.

Consequences of Non-Compliance for Companies

Companies that do not adhere to the stipulations of the Companies Act face penalties and legal proceedings. The company in default, along with its members, including practicing company secretaries and directors, may incur fines that continue to accrue as long as the non-compliance lasts.

Additional charges are imposed for late submissions of periodic tax filings or annual returns. Hence, it is advisable to fulfill compliance requirements punctually to avoid such penalties.