Any private limited company registered in India and successfully operating their business needs to follow the various compliances laid down by the Companies Act, 2013. Failure to adhere to these ROC compliances and regulations would lead to lawsuits and penalties that could severely damage your business and harm the brand that you have worked so hard for.
Following the various ROC Compliances not only makes you a legal entity as per the government norms but also makes you trustworthy for your investors, shareholders, and customers.
Choosing the right entity for registering your business
Before we talk about the various ROC Compliances, let’s discuss the very basic and important step. The first legal step that every startup needs to take before starting a new business venture. The right choice would define the nature of the firm ownership, management processes and would affect the day to day activities of the company in the long run. For establishing a sustainable business, your choice of entity should be in sync with the long-term goals and vision of your organization.
The startup founders should be aware of the pros and cons of the entity they choose as well as the various compliances that are applicable to those entities.
Being compliant under Companies Act 2013
It’s imperative for any Private Limited Company to follow the mandatory ROC compliances. These include appointing an individual or a firm as an auditor, conducting meetings of the board and committees and ROC filing of annual accounts and annual returns.
1. Appointing an Individual or a Firm as an Auditor –
Every company needs to appoint an individual or a firm as an auditor at the first annual general meeting. The first Auditor needs to be appointed within one month from the date of incorporation of the Company and Form ADT-1 needs to be filed for the same.
The auditor shall hold office from the conclusion of that meeting till the end of its sixth annual general meeting and after that till the completion of every sixth meeting further on.
2. Annual General Meeting (AGM)
Section 96 of the Companies Act 2013 requires that every company other than a One Person Company shall in each year hold an annual general meeting and shall specify the meeting as such in the notices calling it and not more than fifteen months shall elapse between the date of one annual general meeting of a company and that of the next.
In the case of the first annual general meeting, it shall be held within a period of nine months from the date of closing of the first financial year of the company and in any other case, within a period of six months, from the time of closing of the fiscal year.
The Registrar may, for any special reason, on application made by the company may extend the time within which any annual general meeting, other than the first annual general meeting, shall be held, for a period not exceeding three months.
Offense & Penalty on Non-Compliance:
If any default is made in holding a meeting of the company, the company and every officer of the company who is in default shall be punishable with fine which may extend to one lakh rupees and in the case of a continuing default, with a further fine which may extend to five thousand rupees for every day during which such default continues (Section 99).
Notice of Meeting:
A General meeting of a company may be called by giving not less than clear twenty-one days’ notice. The expression “clear twenty-one days” means 21 days exclusive of the day of service of notice and of the day on which the meeting is to be held.
The notice is to be given to all members legal representative of any deceased member or the assignee of the insolvent member, the auditors, and directors in writing or through electronic mode. A short notice may be given in convening a general meeting including annual general meeting if the consent of ninety-five percent (95%) of the members entitled to vote has been given in writing or by electronic mode (Section 101).
Report on Annual General Meeting:
Every listed public company shall prepare a report in Form No. MGT.15 on each annual general meeting including the confirmation to the effect that the meeting was convened, held and conducted as per the provisions of the Companies Act, 2013 and rules made there under [Section 121 of the Companies Act, 2013 and The Companies (Management and Administration) Rules 2014].
A copy of this report to be filed with the Registrar within 30 days of the conclusion of the annual general meeting. If filed after 30 days but within 300 days additional filing fees as prescribed under section 403 is to be paid. If report not filed even within 300 days with additional filing fees:
a. The company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, and
b. Every office of the company who is in default shall be punishable with fine which shall not be less than twenty-five thousand but which may extend to one lakh rupees.
3. Annual Return
Section 92 of the Companies Act, 2013 requires that every company has to prepare “The Annual Return” with the Registrar Of Companies within 60 days from the date of the Annual General Meeting of the company. The return has to be filed under Form No. MGT.7 containing the following particulars:
a. The details of its registered office, principal business activity, particulars of its holdings, subsidiaries and associates companies
b. The details of its shares, debentures, and other securities, shareholding pattern
c. Details of its indebtedness,
d. Details of its members and debenture holders along with changes therein since the close of the previous financial year
e. its promoters, directors key managerial personnel along with changes therein since the close of the previous financial year
f. Meeting of members or class thereof, Board and its various committees with details
g. Remuneration of directors and key managerial personnel
h. Penalty or punishment imposed on the company, its directors, or officers and details of compounding of offenses and appeals made against such penalty or punishment.
i. Matters relating to certification of compliance disclosures as may be prescribed
j. Details in respect to shares held by or on behalf of foreign institutional investors indicating their names address countries of incorporation registration and percentage of shareholding held by them and
k. Such other matters as may be prescribed.
The Signing of Annual Return:
The Annual Return shall be signed by a director and the company secretary or where there is no company secretary, a company secretary in practice needs to sign.
In the case of one person company and small companies, the annual return shall be signed by the company secretary or where there is no company secretary, the same needs to be done by the director of the company.
The annual return has to be filed with the Registrar of Companies within 60 days from the date on which the annual general meeting is held or where no annual general meeting is held in any year within 60 days from the date on which the annual general meeting should have been held together with the statement specifying the reasons for not holding the annual general meeting with such fees or additional fees as may be prescribed (subsection 4 of section 92).
The annual return filed by a listed company or a company having paid up share capital of ten crore rupees or more or having a turnover of fifty crore rupees or more shall be certified by a company secretary in practice and the certificate shall be in Form No. MTG.8 [rule 11 of Companies (Management and Administration) Rules, 2014].
Extract of Annual Return:
The extract of the annual return to be attached to the Board’s Report and shall be in Form No. MTG.9 [rule 11 of Companies (Management and Administration) Rules, 2014]
Offense & Penalty on Non-Compliance:
If a company fails to file its Annual Return with the RoC in accordance with subsection 4 of section 92 the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six month or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or with both (subsection 5 of section 92).
Apart from prosecution for default, it may expose the company and its directors to other regulatory action by Income tax authorities and a delicate risk perception by banks and other financial institutions which extend financial assistance.
This section corresponds to Sec 159, 160 161 & 162 of the Companies Act 1956.
4. Copy Of Financial Statement to be Filed With Registrar (Section 137)
Filing of financial statements adopted at the AGM:
A copy of the financial statements, including consolidated financial statement, if any, along with all the documents which are required to be or attached to such financial statements, duly adopted at the annual general meeting of the company, shall be filed with the Registrar in Form No. AOC.4 (consolidated financial statement if any in Form No. AOC.4 CFS) within 30 days of the date of the annual general meeting.
If not filed within 30 days filing may be done within 300 days with additional filing fees as prescribed in section 403. In case the company fails to file even within 300 days with additional fees penal consequence shall follow.
Filing of unadopted accounts:
In case the accounts are not adopted at annual general meeting or in adjourned meeting the unadopted accounts shall be filed with the Registrar within 30 days of the date of annual general meeting and the Registrar shall take them in his records as provisional till the financial statements are filed with him after their adoption in the adjourned annual general meeting.
Financial statements adopted in adjourned annual general meeting:
Financial statements taken in the adjourned annual general meeting shall be filed with the Registrar within 30 days of the date of such adjourned annual general meeting with such fees or such additional fees as prescribed in section 403.
One Person Company:
One Person Company shall file a copy of the financial statements duly adopted by its member, along with all the documents which are required to be attached to such financial statements, within one hundred eighty days from the closure of the financial year.
Accounts of Subsidiaries incorporated outside India to be attached:
Under this new provision, every company at the time of filing financial statements with the Registrar shall also attach the accounts of its subsidiary or subsidiaries which have been incorporated outside India and which have not established their place of business in India.
Clarification of filing of the unaudited financial statement of foreign subsidiary:
In case of a foreign subsidiary which is not required to get its accounts audited as per legal requirements prevalent in the country of its incorporation and which does not get such accounts audited, the holding / parent company in India may place/file such unaudited accounts to comply with requirements of section 136(1) and 137(1) as applicable.
Accordingly, a company may circulate or place on its website or provide to shareholders and file with the Registrar a copy of the unaudited financial statement of its foreign subsidiary. This is subject to a condition that the accounts have to be translated in English if the original accounts are not in English (Circular No. 11/2015 dated 21st July 2015).
Failure to Hold Annual General Meeting:
Where the annual general meeting of a company for any year has not been held, the financial statements along with the documents required to be attached, duly signed along with the statement of facts and reasons for not holding the annual general meeting shall be filed with the Registrar within thirty days of the last date before which the annual general meeting should have been held and in such manner, with such fees or additional fees as may be prescribed within the time specified, under section 403.
Offense & Penalty on Non-Compliance:
If a company fails to file the copy of the financial statements before the expiry of the period specified in section 403, the company shall be punishable with fine of one thousand rupees for every day during which the failure continues but which shall not be more than ten lakh rupees, and the Managing Director and the Chief Financial Officer of the company, if any, and, in the absence of the Managing Director and the Chief Financial Officer, any other Director who is charged by the Board with the responsibility of complying with the provisions of section 137, and, in the absence of any such director, all the directors of the company, shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.
To know more about the ROC Compliances and its various provisions, get in touch with the company law experts at IntegraBooks.