A Private Limited Company enjoys an identity separate from its Directors. Thus, in order to maintain its active status, every business is required to file annual compliances for a private limited company with the Ministry of Corporate Affairs (MCA). Since the inception of the Companies Act in 1956, the scope of private limited companies has undergone a myriad of changes. The Ministry of Corporate Affairs and the Registrar of Companies, in an attempt to limit the functionalities of private limited companies, issue a lot of compliances as mentioned under the Companies Act, 2013. These complex terminologies might be a little difficult to comprehend for a non-professional. Thus, it is advisable to consult a professional right after private limited company registration to deal with your annual compliances.
Private Limited Company Compliances
According to Section 149 (1) of the Companies Act, 2013, the minimum number of directors required to incorporate a private limited company is two and the maximum is fifteen. In addition to this, it has a threshold limit of 200 members. All the shareholders of a private limited company have a liability, limited to the extent of the capital invested by them in the firm. On the other hand, a public limited company registration requires a minimum of three directors at the time of its incorporation. A public limited company registration enjoys more benefits in comparison to private limited company registration, in terms of perpetual existence, ease of transferability and borrowing capacity. A private company must also file its annual compliance with the Registrar of Companies, even in case of nil annual turnover.
What are the Annual Compliances for Private Limited CompanIES?
Almost all activities performed by a private limited company are regulated by the Companies Act, 2013. These include the appointment, qualification, remuneration, and retirement of the company’s directors and other aspects such as conducting the board meetings and shareholder meetings. It is always a better choice to seek professional advice to understand the legal requirements and to ensure timely fulfilment of all mandatory compliances so as to waive off the penalties. Outsourcing annual compliances for the private limited company after private limited company registration also allows you to focus on the key areas of your business. The due dates for the annual filing of a private limited company are based on the date of its Annual General Meeting. If a business regularly fails to meet annual compliances for a private limited company, it may lead to the removal of the company’s name from the MCA register and permanent disqualification of the company directors.
Benefits of Annual Compliances for Private Limited Company
- Greater Credibility: The date of filing annual compliances for a private limited company is displayed on the MCA portal and is visible to everyone. Thus, the regularity in filing compliances increase your business’s credibility, attracting customers, helping obtain government tenders and attaining loan approvals.
- Attracts investors: Financial records and compliances are the key points of focus with regard to investors. Before investing in your business, investors check the regularity of filing annual returns on the MCA portal. Thus, regular filing of annual compliances for a private limited company is a quintessential part to obtain investors.
- Maintain active status of your business: Filing annual compliances for a private limited company is essential to avoid penalties on accounting services. Failure to file may also reduce the status of your business to default and levy huge penalties. Moreover, the company will also be declared ‘in-operational’ and removed from the Registrar of Companies. The directors of such companies are debarred from all future businesses. With effect from July 2018, an additional fee of Rs 100 per day will be charged per day from the due date of filing.
Documents required for Annual Compliances for Private Limited Company
The documents requirement for Annual Compliances for Private Limited Company are:
- Certificate of Incorporation
- PAN Card of Directors
- MOA (Memorandum of Association) and AoA (Articles of Association) of the company
- Audited Financial Statements
- DSC (Digital Signature Certificate) of Directors
- Audit Report and Board Report
- Annual Compliances for Private Limited Company
- Appointment of First Auditor: The Body of Directors is required to appoint an auditor within thirty days of incorporation of the company. A private limited company that fails to appoint an auditor is liable to pay a penalty of Rs 300 per month. In addition, the company will not be allowed to commence business. He/She is required to stay in the office till the completion of 1st AGM.
- Subsequent Auditor: A subsequent auditor is appointed to monitor the fair dealings of a company in terms of its financial position. He/She is appointed in the first AGM and continues to stay in the same position till the sixth AGM. As per the Companies Act, 2013, a subsequent auditor is appointed by the filing Form ADT-1.
- Board Meetings: The first board meeting is required to be held within one month or thirty days of its incorporation. Four board meetings are required to be held in each financial year. Also, one should note that the gap between two consecutive meetings cannot be more than 120 days. Declaration of Board Meetings is to be duly informed to each director at least seven days before the meeting date.
- Annual General Meeting: An Annual General Meeting, commonly known as AGM, is one of the most essential annual compliances for private limited companies. At the AGMs, the Board of Directors of the company are required to present its true financial position to the shareholders. AGM is required to be organized on or before 30th September every financial year during working hours of the company. The AGM should not be held on public holidays or after business hours. It must be held on the registered office after issuance of notice of at least 21 days.
- Filing of Annual Returns: All private limited companies are required to file their annual returns within a time span of sixty days of holding the Annual General Meeting. This can be done by filing MCA Form MGT-7. Failure to file annual returns levy a penalty of Rs 200 per day from the due date of non-filing.
- Filing of Financial Statements: Every private limited company is required to file their financial statements, i.e., Profit and Loss Account and Balance Sheet along with Director Report by filing Form AOC-4 within thirty days of holding the Annual General Meeting. Failure to file Form AOC-4 levies a penalty of Rs 200 per day.
- Director Disclosure: All private limited companies are required to file Form MBP-1 to disclose their interest in other companies yearly on the first Board Meeting of every year.
- DIR-3 KYC of Directors: Directors owning DIN (Director Identification Number) with active status are required to file DIR-3 KYC annually as per the Companies Rules, 2014. Failure to file DIR-3 KYC will lead to inactive DIN status on the MCA portal. Please note that no Form of annual compliances for a private limited company can be filed if DIR-3 stands deactivated.
- Form DIR-8: Form DIR-8 is required to be filed by every director of a private limited company at the time of his/her appointment ascertaining that he/she is not disqualified/debarred from functioning as a Director of a company.
- Commencement of Business Certificate: The commencement of business certificate is required to be obtained by every company within 180 days of the incorporation of the business. In case a company fails to attain this certificate, there is a penalty of Rs 50,000 on the company and Rs 10,000 per day on the directors.
Event-based Annual Compliances for Private Limited Company
Apart from annual compliances for private limited companies, there are event-based compliances that need to be compiled on the occasion of the occurrence of an event. Here are specific instances of a few events:
- Change in the authorized capital or the paid-up capital of the private limited company (Form SH-7 and PAS-3 respectively)
- Allotment of new shares or transfer of new shares
- Offering loans to other companies
- Offering loans to directors of the company
- Appointment of managing or whole-time Director and their payment (to be filed with the ROC)
- When a bank account is opened or closed, or there is a change in the signatories of a bank account.
- If there is an appointment or change of the statutory auditors of the company
To conclude, annual compliance can make or break your business. It enhances credibility, brand loyalty and customer faith in your company. The cost of non-compliance always turns out to be more than that of compliance. Thus, you should consult a professional who may not only help you at every step of your business but also coordinate with you in fulfilling all the compliance requirements for your company while keeping you on the same page.
Author(s) Name: Abrar Khan (Taxzona Consultancy Services LLP)