ANNUAL COMPILATION

  • INDIA
  • ANNUAL COMPILATION

COMPLIANCES FOR PRIVATE LIMITED COMPANY

The term compliance refers to the ability to adhere to orders, a set of rules, or requests.

A private limited company incorporated in India is obligated to ensure adherence to the compliances stipulated by the Companies Act of 2013.

The Companies Act of 2013 governs the appointment, qualification, remuneration, and retirement of a company's directors, as well as other aspects such as the conduct of board meetings and shareholder meetings.

Compliance with the Registrar of Companies (RoC) for registered Private Limited Companies is imperative. Regardless of the total turnover or capital amount, companies must fulfill the annual compliance requirements.

All companies registered in India, including private limited companies, one-person companies, limited companies, and section 8 companies, are required to uphold annual compliances such as filing annual returns and income tax returns each year. While Company Registration is a popular means of initiating a business, it is essential to follow various compliances once the business is incorporated.

COMPLIANCES TO BE MAINTAINED BY THE PRIVATE LIMITED COMPANY

For companies incorporated in India after November 2019 with a share capital, it is crucial to secure a commencement of business certificate within 180 days of incorporation before engaging in business activities or exercising borrowing powers. Failure to obtain this certificate incurs a penalty of Rs. 50,000 for the company and Rs. 1,000 per day for each director for each day of default.

Regarding Auditor Appointment (Within 30 Days), every registered Indian company must appoint a statutory auditor within 30 days of incorporation. Failure to do so hinders the company from initiating business and results in a monthly penalty of Rs. 300.

Income Tax Return filing is mandatory on or before September 30, 2021, for the financial year 2020-21.

Registered private limited companies must submit MCA Form AOC-4 by November 30, 2021, for FY2020-21. Neglecting to file AOC-4 leads to a penalty of Rs. 200 per day of default or delay.

It is obligatory to file MCA Form MGT-7 by December 31, 2021, for FY2020-21. Failure to do so incurs a penalty of Rs. 200 per day of default or delay.

All directors must undergo DIN eKYC or DIR-3 eKYC, providing a unique personal mobile number and a personal email address. Failure to file DIN eKYC results in a penalty of Rs. 5,000.

For a private limited company, holding an Annual General Meeting (AGM) is mandatory once a year, and it must be conducted within six months from the closing of the financial year.

The preparation of the director's report must encompass all the information required under Section 134 of the Companies Act.

What is a Provident Fund Return?

The Employees Provident Fund (EPF) is a scheme governed by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, and overseen by the Employees’ Provident Fund Organization (EPFO). Mandatory PF registration applies to establishments employing 20 or more individuals, but establishments with fewer than 20 employees can also voluntarily obtain PF registration.

The Provident Fund serves as a social security system designed to promote savings among employees, ensuring financial benefits for them during their retirement. Both the employer and the employee contribute to the fund on a monthly basis. Withdrawal of PF contributions is typically allowed only at the time of the employee's retirement, with a few exceptions.

It is the responsibility of all employers with PF registration to submit monthly returns in compliance with the regulations. This process ensures the proper administration of the Provident Fund scheme and the fulfillment of the associated legal obligations.

Monthly Challan Remittance to Bank

Employers must remit the monthly Provident Fund (PF) contributions to the bank by the 15th of every month. This ensures that the PF contributions are deposited timely and that the employees' benefits are not affected.

Monthly PF Returns

Employers must file monthly PF returns by the 25th of the subsequent month. These returns provide detailed information about the PF contributions made for each employee, ensuring transparency and compliance with PF regulations.

Yearly Returns

Employers must file yearly PF returns by the 30th of April each year. These returns provide a comprehensive overview of the PF contributions for the entire financial year, facilitating tax calculations and audits.

Late deposits of P.F. dues result in the imposition of penal damages, which are applied at the following fixed rates:

  • ✓ Delay of 0 to 2 months – Charged at 5% per annum.
  • ✓ Delay of 2 to 4 months – Charged at 10% per annum.
  • ✓ Delay of 4 to 6 months – Charged at 15% per annum.
  • ✓ Companies – Private Limited Company, One Person Company

COMPANY NAME CHANGE

A Limited Company is recognized by a name, and the choice of this name is within the discretion of the company. Essentially, a company has the authority to change its name at its discretion. Nevertheless, any modification to the name must adhere to the regulations and procedures stipulated by company law.

Conditions to fulfill for Changing Company’s Name

Revenue or Asset Threshold

For a name change to be justifiable, the company must prove that a minimum of 50% of its total revenue in the past year is attributed to the new business activity suggested by the proposed name. Alternatively, the company should have invested at least 50% of its assets in the new activity/project. These criteria ensure that the name change aligns with the company's primary business focus.

One-Year Waiting Period

A company needs to wait at least one year after its most recent name change before considering another name change. This rule is in place to maintain consistency and familiarity with the company's name among stakeholders.

Public Disclosure

Following a name change, the company is required to publicly disclose both the old and new names on the websites of the relevant stock exchange/s where it is listed. This disclosure must persist for a continuous one-year period from the date of the last name change. This practice promotes transparency and keeps stakeholders informed about the company's rebranding.

APPOINTMENT OF AUDITORS

An auditor plays a crucial role in both government and non-government organizations as they prepare to close their financial year. These entities are required to maintain accurate accounts and submit audited reports to the relevant authorities. The responsibility of meticulously examining and evaluating the financial statements of these organizations falls on the shoulders of an auditor.

An auditor is defined as an individual who is proficient in reviewing and validating accounting data. Specifically, someone recognized as a Chartered Accountant (CA) under the Chartered Accountant Act of 1949 is considered qualified to serve as an auditor. The role involves a comprehensive assessment of financial documents to ensure compliance and accuracy.

How to appoint an Auditor in Company?

  • ✓ Noc from Old Auditors
  • ✓ Consent from New Auditors
  • ✓ Preparation of Documents
  • ✓ Filing of Forms
  • ✓ Auditor is Appointed

Upon receipt of the signed draft documents from you, we will initiate the preparation of Form ADT-1, the official auditor appointment form. Following this, we will digitally sign the form and submit it to the Registrar of Companies (ROC) for further processing. If the ROC finds the submitted documents satisfactory, they will proceed to officially appoint the auditor. Rest assured, we will provide ongoing updates and promptly inform you as soon as the auditor's appointment is confirmed.

What is Appointment of Director?

A Director in a company is an individual responsible for directing, managing, overseeing, or controlling the company's affairs. This person is appointed to the company's Board to fulfill duties and functions in accordance with the provisions of The Company Act, 2013.

The Director is a natural person elected by the shareholders based on the Memorandum of Association and Articles of Association of the company. The Board of Directors refers to a group of individuals elected by the shareholders to collectively manage the company's affairs.

Minimum director requirements vary depending on the type of company:

Minimum number of director based on the type of the company:

  • ✓ One Person Company: 1 director is required.
  • ✓ Private Limited Company: A minimum of 2 directors is required.
  • ✓ Public Limited Company: A minimum of 3 directors is required.

The need for the addition or appointment of a director arises in various circumstances:

In the event of sudden death, planned retirement, resignation, or other personal reasons leading to the inability of existing directors to fulfill their duties for an extended period. In such cases, appointing an additional director becomes necessary to meet the statutory requirements of the company.

For the expansion and growth of the business, it is essential to bring in new talent to the management team, necessitating the appointment of additional directors.

When a company introduces a new product line or department, the appointment of an expert as a director is necessary to lead the team effectively.

If the number of directors falls below the specified statutory limit, it becomes mandatory for the company to appoint a new director.

To allow shareholders to delegate more operational responsibilities while retaining strategic control, the appointment of additional directors can be beneficial.

To be appointed as a director in a company, the individual must meet specific eligibility criteria:

✓ Fulfillment of eligibility requirements outlined in the relevant clauses of the Articles of Association is a prerequisite.

✓ The proposed individual must be at least 18 years old, qualifying as a legal adult.

✓ Compliance with qualification criteria specified in the laws under the Companies Act of 2013 is mandatory.

✓ Essential to the appointment process is obtaining consent from the Members of the Board.

✓ Notably, there is no specified educational qualification mandated by the Companies Act as a prerequisite for director eligibility.

✓ The pool of eligible individuals for directorship extends to Indian Nationals, Non-Resident Indians, and Foreign Nationals, all of whom can be appointed as directors in India.

What is Removal or Resignation of Director?

In simpler terms, a company's director is chosen by shareholders following the rules in the Memorandum of Association and Articles of Association. If the company's needs change, it might be necessary to add another director. Sometimes, directors may resign or be removed from the board.

When a director wants to resign, they provide notice, and the board must file the appropriate form with the Registrar of Companies (ROC) within 30 days. The resigning director also needs to submit form DIR11 to the ROC.

How to give Effect to Resignation of Director?

- DSC APPLICATION
- DOCUMENTS PREPARATION
- SIGNING OF NOTICE
- FORM DIR 12 TO FILE
- FORM DIR 11 TO FILE

SURRENDER DIRECTOR IDENTIFICATION NUMBER (DIN)

The surrender of a Director’s Identification Number (DIN) is crucial for individuals holding DINs who are neither serving as directors in any company nor designated partners in any Limited Liability Partnership (LLP), and do not have plans to do so in the near future. To surrender DIN, the DIN holder must submit an application using Form DIR-5, accompanied by a declaration confirming that they have never been appointed as a director in any company and that the DIN has not been used for filing any documents with any authority.

Before deactivating any DIN in such cases, the government conducts a verification of electronic records. It is important to note that if a person has held directorship in any company using the DIN in question, the DIN cannot be surrendered by filing E-form DIR-5.

SHARE TRANSFER

Shareholders are the true owners of a company and enjoy limited liability towards the company. They hold the authority to appoint directors who handle the day-to-day affairs of the company. The transfer of shares results in a change of ownership. In private limited companies, the transfer of shares is typically constrained, and shares must initially be offered for sale to existing shareholders.

The ability to effect a share transfer is contingent upon a corresponding provision in the Articles of Association of a private limited company. Thus, it is essential to examine the Articles of Association before proceeding with a share transfer in a private limited company.

Process in Share Transfer

✓ Examination of Shareholding
✓ Formulation of Documents
✓ Settlement of Stamp Duty
✓ Drafting of Resolution
✓ Execution of Share Transfer Deed

What is form DIR 3 KYC?

DIR-3 KYC is a form that must be submitted by every director assigned a DIN (Director Identification Number). It is obligatory for all directors, regardless of their qualification or disqualification status. Furthermore, the DIR-3-KYC-WEB is utilized by DIN holders who have previously submitted the DIR-3 KYC e-form in the preceding financial year and do not require any updates in their details. All DIN holders must file DIR 3 KYC every year.

01

Due Date for Filing ROC Form DIR 3 KYC

Directors who have been allocated a DIN as of March 31st of a financial year are required to submit their KYC on or before September 30th of the immediately following financial year.

02

Filing Requirement for DIR 3 KYC

Starting from the financial year 2019-20 onward, every director assigned a DIN on or before the conclusion of the financial year, with a DIN status of 'Approved,' is obligated to file the DIR-3 KYC form before September 30th of the immediately subsequent financial year.

03

Consequences of Non-filing of DIR 3 KYC

If a director fails to file the DIR 3 KYC e-Form or DIR 3 KYC web within the stipulated time on the MCA 21 portal, the department will designate the DIN of such director as 'Deactivated due to Non-filing of DIR-3 KYC.' Additionally, a penalty of INR 5,000/10,000 is applicable if filed after the due date.

How to File form DIR-3 eKYC?

✓ Acquire a Digital Signature Certificate (DSC).
✓ Submit the necessary documents.
✓ Verify the submitted documents.
✓ File DIR-3 eKYC.
✓ Achieve eKYC Compliance.

REGISTERED OFFICE ADDRESS CHANGE

(Within state)

Registered Office of Company

Every company established in India is required to have a registered office address, serving as its principal place of business. The registered office is crucial as all official communication from the Registrar is directed to this location. If there is a need to relocate the principal place of business, whether within the same city, within the same state, or to an entirely different city or state, it is mandatory to inform the Registrar of Companies (ROC). The registered office is the designated address to which all official correspondence and formal legal notices intended for the company will be dispatched.

Change in the Address of Registered office of Company

It is imperative for any company that undergoes a relocation of its registered office to inform the Ministry within 30 days of the said change. In cases where the registered office is moved to a different city within the same state, a special resolution is required to be passed.

Points to Note

Same State, Same Jurisdiction

When altering the address of the registered office of a company within the same city, the company must convene a board meeting and pass a board resolution to effect the change. Subsequently, the company is required to submit Form INC-22 to the Ministry of Corporate Affairs (MCA) within 30 days from the date of the board resolution. If the registered office is shifted to a different city within the same state and falls under the jurisdiction of the same Registrar of Companies (ROC), along with Form INC-22, Form MGT-14 and the special resolution passed in the Extraordinary General Meeting (EGM) must be filed with the MCA.

Same State, Different Jurisdiction

In situations where a company intends to relocate the registered office within the same state but to a jurisdiction different from the existing ROC, it must seek approval from the Regional Director (RD). This application is to be made in the prescribed manner using Form INC-23, accompanied by necessary documents such as a special resolution. Upon receiving confirmation from the Regional Director, the company is required to file the same confirmation with the ROC within 60 days. The ROC will then confirm the change of address within 30 days of receiving the filing.

INCREASE IN AUTHORIZED CAPITAL

(Upto 10Lakhs)

Concerning a company, Authorized Capital denotes the sum specified in the capital clause of the company's Memorandum of Association. It serves as a determinant of the maximum number of shares that the company is permitted to issue to its shareholders. The company can raise capital up to the limit specified in the capital clause. Should the company seek additional capital beyond this limit, an amendment to the capital clause is necessary. This amendment is accomplished through the passing of a special resolution by the members during a general meeting. An augmentation of the authorized capital may be essential for the issuance of new shares and/or the infusion of additional capital into the company.

How to increase the authorized share capital of the company?

Review Articles of Association (AOA)

✓ Ensure the AOA includes a provision for expanding authorized share capital.

✓ If absent, amend the AOA to incorporate this provision

Conduct Board Meeting

✓Inform the Board of Directors about the intention to raise authorized share capital.

✓Obtain Board approval for the proposed increase.

Schedule Extraordinary General Meeting (EGM)

✓ Arrange an EGM to seek shareholder approval for the increase and MOA amendment.

Present Notice of EGM:

✓ After Board approval, issue the EGM notice to shareholders, directors, and auditors.

Hold EGM and Obtain Shareholder Approval

✓Conduct the EGM and secure shareholder approval for the increase.

✓The approval must be in the form of an ordinary resolution.

File ROC Forms

✓ Within 30 days of passing the ordinary resolution, file Form SH7 with the ROC.

✓ Attach the following documents:
a. Notice related to the EGM
b. Authorized true copy of the ordinary resolution
c. Amended MOA reflecting the higher authorized capital

Increase Paid-up Share Capital

✓ Following the authorized share capital increase, issue new equity shares to expand the paid-up share capital.

WINDING UP OF A COMPANY

Winding up is the procedure of liquidating a company's assets, with the collected proceeds used to settle outstanding debts. In this process, the primary focus is on clearing debts, expenses, and costs, and distributing any remaining funds among the shareholders.

Upon the completion of the liquidation, the formal dissolution of the company takes place, bringing an end to its existence.

Winding up acts as the legal mechanism for closing down a company and discontinuing all its activities. After the winding-up process, the management of the company's assets is handled with care to protect the interests of stakeholders.

A Private Limited Company, being an artificial judicial entity, must adhere to various compliance requirements. Failure to meet these obligations can lead to fines, penalties, or even disqualification of directors from forming future companies. Therefore, it is advisable to wind up a company that has become inactive or is no longer involved in transactions.

The initiation of winding up can be carried out by the company's shareholders at any time. If there are secured or unsecured creditors or employees on the payroll, settling all outstanding dues becomes a crucial step. Closing all company bank accounts and surrendering the GST registration are vital components of the winding-up process.

Once all necessary registrations are surrendered, a winding-up application petition can be submitted to the Ministry of Corporate Affairs, formalizing the legal proceedings and initiating the dissolution process.