Compliance: Mandatory for Private Limited Company
A Private Limited Company relishes a separate legal identity that requires sustaining its active status and smooth functioning through its regular annual filings and complying with the Ministry of Corporate Affairs. For every private company, it is essential to prepare a compliance checklist for the upcoming financial year because compliance is the integral part of an organization’s duties to the community and stakeholders.
Annual compliance reduces the legal problems which might occur in the course of business. It decreases the risk of fines, penalties, work stoppage and unnecessary burden on the business.
It also makes sure about the imperative safety and operations happening in the organization and also protects from any kind of barriers in the functioning. It helps in creating bonafide relationships with the clients for long term.
Good corporate governance is a comprehensive concept for preparing valid compliance and identifying the risk involved in business activities.
Introduction to Private Limited Company
A private limited company is supposed to be a very suitable device for carrying on the business of family and small scale concern, as the minimum number of members required to form a private limited company is only two which has been defined under section 2(68) of the Companies Act 2013. It is governed by the Ministry of Corporate Affairs and regulated by Companies Act 2013 jointly.
The private limited company is entitled to have a minimum paid-up capital of one lakh rupees or a higher amount as may be defined in the Companies Act 2013 respectively. . Also, there is some kind of restriction on the right of members to transfer their shares in the company. This restriction will enable the directors to maintain the maximum limit of 200 members in the case of restriction on the transferability of shares.
Now let’s discuss the mandatory compliance of the Private Limited Company:
i) Board Meeting
- The first meeting shall be held within 30 days of incorporation of the company in the presence of the Board of Directors.
- In a calendar year minimum four board meetings shall be conducted i.e. one in every three months.
- In the case of ‘Small Company’, two board meetings shall be held every six month in a year. Many start-ups may fall within this ambit.
- The record and data analysis should be kept at the registered office of the company and every detail related to meetings also.
- The directors shall receive a notice regarding the date and purpose of the meeting prior seven days of date of meetings.
ii) Annual General Meeting
- It is explained under section 96 of The Companies Act, 2013 that every company is required to call at least one meeting of its shareholders each year.
- The first annual general meeting of a company must be held within nine months from the date of closing of the first financial year.
- After that no meeting is necessary for the year of incorporation. The annual general meeting must take place every year for once at least.
- The gap between one meeting and next should not exceed 15 months.
iii) Appointment of Auditor
- Section 139 of the Companies Act 2013, talks about the appointment of auditor.
- Every company at its first annual general meeting has to appoint an individual or a firm as an auditor.
- The Act mandates that Form ADT-1 shall be filed every year after the annual general meeting where the auditor is appointed.
- The manner and procedure has to be in accordance to what is prescribed.
- The certificate shall be made which states that appointment is done after it satisfies the conditions of section 141(qualifications of auditors).
iv) Directors Report
- A private limited company shall have two full time directors.
- No company can appoint director of the company unless he has been allotted a Director Identification Number from the Central Government.
- The directors have to give an annual report every year.
- The director has an obligation to fill Form MBP-1 in the first meeting, where he should disclose his interest in any company, body corporate, firm, association of individuals and details related to shareholding.
v) Statutory auditing the book of accounts by the auditor
- The auditor has the right to access the books and accounts of the company.
- A regular statutory audit shall be conducted to assess the company’s financial stability.
- The accountants shall be liable for fraudulent representation made in the books of accounts.
- The audited financial report shall be submitted to the Registrar of the company.
vi) Income Tax Annual Returns
- A private limited company must file Income Tax Return by filling e-Form MGT-7 on or before 30th November 2020 and failure to fill will captivate penalty of Rs 10,000.
- The Annual Income Tax Return is filed in the period of 60 days from conducting annual general meetings.
- The Annual Income Tax Return is calculated for the financial year with effect from 1st April to 31st March.
vii) Financial Statement
- The private limited company shall file the e-form AOC-4 on the portal of the Ministry of Corporate Affairs on or before 30th November 2020.
- The form has to be filed after the 30 days of annual general meeting to the Registrar of the company.
- The failure or delay in filing the AOC-4 form will attract the penalty of Rs 200 per day.
Benefits of Annual Compliance
- The company gets secured from paying any kind of financial penalties.
- It creates the trust and coordination amongst the clients.
- It signifies loyalty towards the brand.
- It enhances the credibility in the financial market.
- The company is free from any legal formalities and actions.
- Improves the persona of the firm and does not fall in the defaulter list of Registrar of the companies.
The business entity depends upon the compliance formulation strategy if used in the right way the opportunities may come with an advantage in terms of customer trust and other investments. Compliance defines the way of working in a transparent manner and opens the doors for future activities in business.
The person should keep in mind that the cost of non compliance is much more than cost of compliance. Now, the time has changed and there are a lot of business tools which are available as India is moving towards the digital era.
This has also enabled the company to take help from competent professionals for meeting regulatory compliance requirements for the better life of the businesses.