Private Limited Companies (Pvt Ltd) are perhaps the most common legal structure for startups in India. If you’re considering Company Registration in Mumbai, understanding the mandatory compliances is crucial.
However, to run the model clearly and compliant with the law, there are certain mandatory requirements. They are akin to the traffic light for your business – be sure to adhere to these and do not end up hitting a wall!
Below are some of the major compliances that a Pvt Ltd company in India is bound to observe such as filings with the ROC, board meetings, audits, tax returns, and legal registers.
In short, this blog is about mandatory compliance for Pvt Ltd companies
Table of Contents
Mandatory Compliances for Pvt Ltd Companies: Essential Tips
What is a Private Limited Company?
A Private Limited Company (Pvt Ltd) business structure is ideal for startups. It limits ownership to a few individuals and safeguards the owners from any loss in their other business ventures by protecting them through limited liabilities.
The company itself is considered an independent legal person. This structure provides flexibility to the company and legal stability and protection.
Now, let us understand the mandatory compliance tips for these companies. The mandatory compliances for pvt ltd company are as follows:
Mandatory Compliances for Pvt Ltd Company: Annual General Meeting
Every Private company incorporated in India except OPC has to conduct an Annual General Meeting every year as per the provisions of the Companies Act, 2013.
The shareholders analyze the company’s financial position through reports and exercise their rights via special meetings to vote on the dispersed matters including dividends and board of directors’s appointments (within six months of the company’s financial year).
- The first AGM must be held within 18 months of the incorporation of the company.
- It is also necessary to provide 21-day proper notice and documented minutes filed within 30 days with the ROC.
Non-compliance can have some consequences, including severe penalties. Therefore, it can be asserted that well-organized AGMs bear significant importance in the process of good governance. In short, AGMs constitute the mandatory compliances for pvt ltd companies.
Mandatory Compliances for Pvt Ltd Company: Auditor Appointment
As per Section 138 of the Companies Act, 2013, all Pvt Ltd companies incorporated in India (except some OPCs) are required to appoint an auditor.
- The Board nominates the first auditor within 30 days of its formation; the shareholders ratify (or re-appoint) within the AGM.
- Auditors, usually CA or registered firms, can be elected for five years with the possibility of re-election, but rotation is mandatory for independence after some time.
The consequences of not appointing are penalties. To achieve a positive audit, it is necessary to make the right choice of partners, ensuring their freedom in performing work and setting clear requirements for them.
Also, the presence of an Audit Committee for some companies is desirable. In this way, Pvt Ltd companies guarantee accurate preparation of financial statements and the confidence of investors. Consider this as yet another mandatory compliance for Pvt Ltd company.
To prepare financial statements, you should work with expert accountants who can help you make decisions through financial statements.
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Mandatory Compliances for Pvt Ltd Company: Board Meetings
It is compulsory to have a regular frequency of board meetings in Pvt Ltd companies in India as per the Companies Act.
- The law requires that at least four meetings should be conducted in a year, and the last two meetings should not be conducted after a gap of 120 days.
- The first meeting must take place within 30 days of incorporation under section 366 of the Companies Act 2013.
- It is also important that directors are given seven days’ written notice beforehand regarding the matters that will be discussed in the meeting.
These meetings assist in implementing future strategies and making decisions that are grounded on the evaluation, management of risks, and compliance with the rules of law. Violations of these rules can lead to penalties and slow the company’s development when providing such services.
Therefore, board meetings are important for Pvt Ltd companies and another important mandatory compliance for Pvt Ltd company. Set up your Private Limited Company in Mumbai with us!
Mandatory Compliances for Pvt Ltd Company: Annual Returns
The Companies Act of 2013 mandates Pvt Ltd companies in India to file an Annual Return (AR).
- This is filed once a year to the ROC (Registrar of Companies) and contains information on share capital, shareholders, directors, debentures, and any changes in the above during the year.
- The AR is filed electronically in the form of MGT-7 within 60 days of the AGM which is required to be convened beforehand.
- Failure to do so exposes the filer to penalties as well as non-compliance indicators.
- To be specific, when a firm continually files AR regularly, it means that the company is transparent to stakeholders and complies with the ROC laws.
Thus, by satisfying this aim, Pvt Ltd companies can depict an image of transparency and gain the confidence of the general public. In short, filing ARs constitute the mandatory compliance for pvt ltd companies. Contact Actax India to attain such services.
Mandatory Compliances for Pvt Ltd Company: Allotment of Shares
Shares for capital in Pvt Ltd companies (India) can be issued by following the Companies Act, 2013.
- The Board initially enters into certain resolutions relating to the number, type, and price of shares.
- They then give out shares (offer of prospectus; letter of allotment) while investors make their application accompanied by cash.
- Afterwards, applications are considered and the confirmation of the allotments takes place in writing.
- The remaining balance is paid by the investors.
- Last of all, the company has to file and notify the ROC about the allotment of shares within the prescribed time to have proper records. Non-compliance has consequences and yields penalties.
- Pvt Ltd companies should also respect the pre-emptive rights of existing shareholders and issue share certificates within legal time.
In this way, companies guarantee a trouble-free and transparent increase in the number of shares and good practices in corporate management. So, consider it as one of the mandatory compliances for pvt ltd company.
Mandatory Compliances for Pvt Ltd Company: Yearly Report of Directors
It is important to note that all Pvt Ltd companies in India are required to file a Directors’ Report as stated in the Companies Act, 2013.
- This report serves as the communication medium with the shareholders, creditors as well as the ROC (Registrar of Companies).
- It provides an annual assessment of the company’s financial and business activity and its management practices and strategies.
- The report also focuses on changes in directors or key personnel, the performance of subsidiaries, and CSR activities (where applicable – for large companies).
- This has to be filed online within 60 days of the AGM together with the Annual Return and must be in the form of a Board’s report which also has to be signed by the Board Chairperson and shall be laid before the AGM.
This report is important for the disclosure, believability, and credibility of information to the users of the organization’s financial statements. The failure to file can lead to penalties and the flagging of non-compliance in various ways. So, consider it as one of the mandatory compliances for pvt ltd company as well.
Mandatory Compliances for Pvt Ltd Company: Maintenance of Statutory Registers
In India, every Private Limited Company is required to keep the registers at its registered office as per provisions of the Companies Act, 2013.
These ‘statutory registers’ are formal registers that record the company’s activities and regulations. In format, some of the key registers include the member’s register, director’s register, share register, charge register, and transfer ledger. They bring in the aspect of accountability and also help in making the process as transparent as possible. Although the processes of keeping these registers are mandatory, continuing them is also beneficial for the audits and for the stakeholders.
Such failure is punishable by the ROC (Registrar of Companies) with action that can lead to the directors being removed from the company’s management. Organizations can store it in printed form or else in another format such as electronic format. Central to the best practices of corporate governance and credibility, these registers are considered essential for any company.
Consider this as yet another mandatory compliance for Pvt Ltd company. Learn More about List of Mandatory Annual Compliances For LLP [2024]
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Mandatory Compliances for Pvt Ltd Company: Audits & Financial Reporting
Indian Pvt Ltd companies (except some OPCs) are required to file annual financial statements as per the accounting standards of the Companies Act.
These statements announce the companies’ financial status. Also, an audit by a qualified CA is compulsory (unless otherwise exempted for some OPCs) for an impartial review and the validation of financial statements. The audit report goes to the Board with a consideration in the AGM. Adherence to these rules results in transparency and good decision-making while solving organizational issues and operations about set laws governing society.
Currently, there are thresholds set for mandatory audits but for companies who are not subjected to mandatory audits, it is good to consider conducting the audits for internal control. When these conditions are met, Pvt Ltd companies present clear revenues and settings and adhere to high standards of corporate responsibility. Actax India helps you in performing a clean audit. Check here
Mandatory Compliances for Pvt Ltd Company: Annual ROC Filings
Every company incorporated in India as Pvt Ltd is required to submit a report to the ROC (Registrar of Companies) every year. Key filings include:
- Annual Return (Form MGT-7): Shareholders’ register, directors’ report, financial statements, and directors’ report on any changes to the company (within 60 days of the AGM).
- Audited Financials (Form AOC-4): Annual accounts certified by an auditor and presented at the AGM are to be reviewed annually and must be sent to the members within 30 days from the date of the meeting.
- Director’s Report: Information concerning the company’s performance and its future projections appended to the Annual Return.
- Auditor Appointment (Form ADT-1): Notifies ROC about new or reappointed auditor(s) which should be done within 30 days after the event.
Such filings mean timely compliance, thereby keeping ROC informed and on the right side of the law. If not filed, it attracts penalties to the business, hinders operations, and tarnishes reputation. Annual ROC Filings are beyond important mandatory compliances for pvt ltd company.
Mandatory Compliances for Pvt Ltd Company: Commencement of Business
![business commencement certificate - Mandatory Compliances for Pvt Ltd Companies in India [2024]](https://actaxindia.com/wp-content/uploads/2024/07/business-commencement-certificate.jpg)
Pvt Ltd companies in India registered after November 2019 need a Commencement of Business Certificate (CBC) to commence the business.
- This is attained within 180 days of incorporation so as not to attract a penalty.
- To apply, documents such as the MOA, AOA, and proof of the office address of the applicant are required.
- The CBC represents actions like the signing of major accounts such as the opening of a bank account and then the company can commence business operations as highlighted in the MOA.
- Refusal to obtain the CBC results in fines and limits the business’s activity.
However, there are a few exceptions for OPCs under some circumstances and also for the companies formed before November 2019. Thus, through the procurement of the CBC, these new Pvt Ltd companies facilitate legal and appropriate business transactions.
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Mandatory Compliances for Pvt Ltd Company: Income Tax Compliances
All the Pvt Ltd companies operating in India need to fulfill the legal requirements of income tax.
This will involve registration with the ITD for tax purposes besides getting PAN numbers and TAN in cases where they are required. There are yearly requirements to declare and remit Income Tax Returns (ITR) depending on the income generated by the companies. They may also be required to deduct tax at source i.e. TDS on some payments and collect tax at source i.e. TCS on some transactions.
These deductions and collections have to be remitted to the government. As per the applicable law, it is mandatory to keep the proper books of accounts for 6 years. Some of the tax returns are not compulsory and, for the ones that are required, it is wise to have auditing done as well as seeking help from professionals in the tax advisory bureau.
Discharging these responsibilities guarantees the establishment’s legal compliance, non-amassment of fines, and rapport with the body of revenue. Contact Actax India to know more about these services, as they constitute mandatory compliances for pvt ltd companies.
Mandatory Compliances for Pvt Ltd Company: Change in Statutory Auditors
As per the Companies Act 2013, certain legal provisions are obligatory to be followed by Pvt Ltd companies in India, to change the statutory auditors.
This helps to promote transparency in the audit process. Here’s what to do:
- Board Resolution: Replace the existing auditor with a new independent qualified auditor and record the cause of replacement in the Board resolution if any.
- Notice to Existing Auditor (Optional): Notify the existing auditor about the change in writing, and the reason for the change if needed.
- Auditor Resignation (Optional): The current auditor may tender his resignation and may state his reasons (optional).
- Form ADT-1 Filing (Within 30 Days): Submit the ADT-1 form electronically to the ROC within 30 days from the date of appointment of the new auditor.
Mandatory Compliances for Pvt Ltd Company: Disqualification & Change in Directorship
There are certain legal provisions laid under the Companies Act, 2013 that regulate the Pvt Ltd companies in India through provisions related to Director Disqualification and Alteration of the Board of Directors. This helps in avoiding corrupt practices and makes governance good.
Disqualification of Directors:
- Some of the causes may include fraud, failure to pay debentures, or failure to file returns for the year.
- Legal penalties include being prohibited from being a director, attending directors’ meetings, and or casting a vote on any resolution.
- Pertinent requirements are reporting to the ROC and the adoption of a board resolution for disqualification.
Changes in Directorship (within 30 days of event):
- Appointment: An ROC form that notifies the change of director must be filed.
- Resignation: Submit a form to the ROC after accepting the director’s resignation letter.
- Removal: Register a form with the ROC after the removal of the director by the shareholders.
When adhering to these procedures it is easier to keep away from corrupt practices, show accountability, and follow the provisions of the Act. Non-compliance may result in time lags and penalties from the ROC.
Mandatory Compliances for Pvt Ltd Company: Increase in Authorized Share Capital
Under Section 62 of the Companies Act, 2013, it is possible to increase the authorized share capital (the maximum amount of funds that can be raised through shares) of Pvt Ltd companies in India. Here’s what to do:
- Board Resolution: The Board uses a resolution passed in making proposals to the amount and type of shares, including equity and preference shares.
- Shareholder Approval (Special Resolution): By way of a Special Resolution in a General Meeting the shareholders approve an increase of the share capital.
- ROC Intimation (Within 30 days): An SH-7 form, electronically prepared with all details regarding the increase, accompanied by a certified copy of the shareholder’s resolution, is submitted to the ROC.
- Updated MOA: The Memorandum of Association containing the new limit is submitted to the ROC jointly with form SH-7.
Adherence to these steps makes it possible to report facts to the stakeholders and at the same time saves the company from penalties from ROC. New shares may also require stamp duty and a prospectus or letter of offer where the issue of the shares took place.
Mandatory Compliances for Pvt Ltd Company: Key Takeaways
All types of businesses in India require compliance, but the most popular type, the Private Limited Companies, comes with a list of compulsory requirements. They are quite literally guidelines that you must adhere to if you want to keep your business functioning efficiently and, most importantly, within the bounds of the law.
Some of the legal requirements are filing with the ROC which involves government reports, having board meetings for purposes of making strategic decisions, and auditing for purposes of checking the financial information. As it is with personal tax returns, firms also need to file their income tax returns.
Other important steps include record keeping and adhering to certain processes for board alterations or the capital increase. Mandatory compliance for Pvt Ltd company helps in reducing hitches in the organizational processes while at the same time establishing credibility with the stakeholders.
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