Mandatory Legal Obligations for Companies in India

For any entrepreneur, managing the day-to-day operations of their company while also adhering to corporate regulations may be a bit difficult. Therefore, it is crucial to get expert assistance and comprehend these legal requirements in order to guarantee that compliances are punctually completed without the imposition of interest or penalties. Hence, companies in India must comply with yearly obligations, such as submitting annual tax returns, according to the Companies Act, 2013, which is overseen by the Ministry of Corporate Affairs (MCA). All Private Limited Companies must comply with a number of Mandatory Compliances, which are necessary to ensure that rules, regulations, and applicable laws are followed and enforced as necessary. These requirements also help the company effectively manage its day-to-day operations.

Key Abstract

Company laws describe the legal requirements that must be adhered to by every business, including reporting financial performance, reporting management changes, maintaining statutory registers, auditing accounts, etc. In order to avoid fines, every Private Limited Company is expected to complete such statutory secretarial compliance files or compliances as may be necessary by the Registrar of Companies (ROC). Let us first discuss what are compliances before we shall move on to discuss the Mandatory Legal Obligations for a company in India that should follow. 

Meaning of Compliances

Compliance is described as the capacity to follow instructions, rules, or demands. Every year, all companies registered in India must file Annual Returns and Income Tax Returns, including a private limited company, a One-Person Company, a limited company, and a Section 8 Company. Though Company Registration is the most common method of starting a business, certain requirements must be followed after the company is founded. A private limited company formed in India must comply with the rules of the Companies Act, of 2013.

With regard to the annual filings of the company, Legal Window has a team of professionals ready to offer you the finest help, prompt delivery, and ensure the greatest level of customer satisfaction. You may reach our staff by calling 072407-51000 or sending an email to [email protected].

Types of Compliances under the Companies Act, 2013

Compliance with the Companies Act of 2013 is divided into the following categories:

• After incorporation compliances under the Companies Act, 2013
• Annual compliances under the Companies Act, 2013
• Event-based compliances under the Companies Act, 2013

Let us go through each one briefly.

After the Incorporation of Compliances under the Companies Act, 2013

Following the successful completion of business registration, the Companies Act, 2013 requires much compliance. Each company becomes an independent legal entity after registration and is required to comply with all of the Act’s legal requirements. The Companies Act, 2013 requires the following obligatory compliances:

• Registered Office Verification: Following successful incorporation, every company is required to verify its registered office with the company registry. They have the option of communicating the same via the SPICe Form at the time of incorporation. If this is not done, the company must be notified by INC-22 within 30 days after incorporation.
• Display Company Information: Every registered company is required to display the following information outside its registered office and above all business communications, billheads, and other official documents and publications:
  • • The name of the company
    • Corporate Identification Number
    • Phone number  and Registered office address
    • Website, email, and fax numbers
• First Board of Directors Meeting: Within 30 days of incorporation, every newly established corporation is required to convene its first board meeting.
• Auditor appointment: Within 30 days after incorporation, every business is required to designate an auditor in a board meeting, who will be confirmed or amended in the subsequent AGM.
• Issuance of Share Certificates: Each corporation is required to provide share certificates to the shareholders mentioned on the incorporation document. All incorporation information, as well as share certificate numbers, must be kept on file by the company.
• Directors’ Interest Disclosure: Using Form MBP-1, each director must reveal their financial interests in other registered companies at the first board meeting held within 30 days of the company’s formation.
• Minutes: Every company must retain records of all meetings that take place. These minutes must be drafted within 15 days of the meeting and finalized within 30 days.
• Keeping up with statutory registers: According to Sections 85 and 88 of the Companies Act, 2013, every registered firm must produce and retain certain statutory records at its registered office. These statutory registers include the Register of Members, the Register of Shareholders, the Register of Charges, the Register of Employee Stock Options, and so on. Any registered corporation that fails to keep these mandatory registers may face penalties and fines under the Act.

Annual Compliance with the Companies Act, 2013

After discussing all of the post-incorporation compliances under the Companies Act, 2013, let’s move on to the Act’s yearly compliances. The following is a list of each of these yearly compliances under the Companies Act, 2013:

• Board meetings: In addition to this obligation, each registered business must conduct its first board meeting, which we detailed in the post-incorporation compliances. Every registered business must have at least four board meetings every year. There can be no more than 120 days between two consecutive board meetings.
• Form MBP-1 Receipt: Each director must complete Form MBP-1 and declare any ownership interests in other registered organizations. At the first board meeting of the year, every presently sitting director is required to make this disclosure. In addition to the yearly declaration, every director is obligated to declare any changes to his or her interests at the next board meeting after they occur.
• Receipt of the DIR-2 form: The DIR-2 form is used by corporate directors to disclose their non-disqualification. The corporation must ensure that this disclosure form is received each fiscal year.
• Making the Director’s Report: Section 134 of the Companies Act, 2013 requires every registered company’s board of directors to prepare a director’s report. This Director’s report will be submitted with Form AOC-4 at the time of the annual filing. The director’s report will include information regarding the company’s finances, present circumstances, any composition changes, dividends paid, debts, and so on.
• Financial statement preparation and distribution: Every company is required to keep financial records and release them along with the notice of its annual general meeting, the director’s report, and the auditor’s report.
• Choosing an auditor: Every registered business is required to hire an auditor. An auditor is appointed for a maximum of five years, and the ROC must be notified of the appointment in Form ADT-1. Previously, this appointment had to be ratified by the AGM once a year for the next five years. However, this condition has been removed.
• E-Form MGT-7 Submission: Section 92 of the Companies Act, 2013 requires all businesses to file their annual returns on e-Form MGT-7. It must be presented within six days of the date of the annual general meeting. Every company with a paid-up capital of more than 10 crore rupees, as well as listed organizations, is required to have an annual return certified by a professional company secretary.

• E-Form AOC-4 Submission: Along with your annual report, you must also submit e-Form AOC-4, which requests financial information from your firm, within 30 days of the date of your annual general meeting. The following files must be supplied as attachments with this form:
  • Balance sheet copy
  • Profit and Loss Account Copies
  • Notice of Annual General Meeting
  • Report of the Director
  • Report of the Auditors

Mandatory Compliance for Companies in India

Companies law specifies the legal requirements that must be met by every company, such as reporting financial results, reporting changes in management, maintaining statute records, auditing accounts, and so on. To make Mandatory Compliances and Event-Based Compliances easier to grasp, all compliances granted under the Companies Act, 2013 may be separated into two components.

We have elaborated on the following compliances that a private limited company must ensure:

• Mandatory Compliances
• Event-Based Compliances
• Other Compliances

Let us discuss them one by one in detail:

Mandatory Compliances 

Following are the heads that fall under mandatory compliances:

• Company Name Board: Every company must paint or affix the name and address of its registered office in readable lettering outside every office or site where its business is conducted.

• Company Letterhead: Every company must have its name, registered office address, CIN, phone number, and email address written on all business letters, billheads, and letter sheets. Notices and other government publications

• First Board of Directors Meeting: The first meeting of the Board of Directors must be convened within 30 days of the company’s incorporation. Every director must be notified of the BM at least seven days before the meeting.

• Subsequent Board Meetings: A minimum of four Board meetings must be conducted each year, with no more than 120 days between meetings. In the case of a small corporation, two Board Meetings are adequate.

• Share Certificate Issuance: The Company is obligated to issue Share Certificates to memorandum subscribers within 60 days of the Company’s incorporation.

• Directors’ Disclosure of Interest Form: Each and every director at:
  • • The first meeting in which he serves as a director; or
    • Every fiscal year, the Board holds its first meeting; or
    • Whenever there is an update to disclosures

Should report his concern or interest in any business, body corporate, firm, or other association of persons in Form MBP1 (together with a list of relatives and concern of relatives in the Company as defined by RPT) (including shareholding interest).

Form MBP1 must be preserved in the company’s records.

• Resident Director: Every company is obliged to nominate at least one director who has spent at least 182 days in India in the preceding calendar year.

• Changes in MOA and AOA: Within 30 days following adopting Special Resolution, any changes to the Articles and Memorandum must be filed with the Registrar, together with a copy of the revised Articles, a notice of meeting, and SR. Every change made to the MOA and AOA must be documented in every copy.
• Registers: Every company must keep and maintain the following registers in the format specified:
  • • MGT-1 Members’ Register
    • Other Security Holders Residing Outside India Register MGT-3
    • SH-6 Share Transfer and Transmission Register
    • Charge Register CHS-7
    • Index to the Registers
• Additional Registers: Every company must retain a Register of Directors and a KMP in the approved format and with the necessary particulars at its registered office.

• Resolution: Every resolution (including any explanatory statement) or agreement for the aforementioned subjects must be filed with ROC in Form MGT14 within 30 days. Copy of resolution affecting modification in AOA and Agreements referred to in Section 117(3) of the Act shall be included in the Company’s Articles.

• Meeting Minutes: Minutes of every general meeting, creditors’ meeting, board meeting, and committee meeting must be prepared and retained within 30 days after the completion of the meeting in question. The minutes must reflect any appointments made during the meeting. The minutes of each meeting must be placed into the Minutes Book, together with the date of entry.

• Director Appointment: Every individual appointed as a Director must submit his consent in Form DIR2, and the Company must register such consent with ROC in Form DIR12 within 30 days of appointment.

• DIN-related provisions: Every individual seeking an appointment as a director must submit an electronic application to the Central Government in Form DIR-3 for DIN allotment.

• Director Qualifications: The following qualifications should be held by the director:
  • • Qualifications for Director Appointment
    • Form DIR8: Declaration from the Director at the time of appointment or reappointment
    • Annual disclosure from the Director will be required.

• Directorship Number: No one individual may serve as a director of more than 20 corporations. The maximum number of public corporations that can exist is ten (Director in Section-8 Co. and Dormant Director not to be included)

• Director’s Resignation: The Director shall notify the Company of his resignation, which the Company shall register with ROC in Form DIR12 within 30 days. The resignation information will be posted on the company’s website and in the Directors’ Report.

• Director and KMP return: Directors’ returns and KMPs must be filed with the ROC in Form DIR 12 within 30 days after appointment or modification.

• Meeting with Short Notice: For urgent problems, a meeting might be called with less notice. Also, consent from at least 95% of members is eligible to vote.

• Quorum: The following quorum should be present:
  • • Quorum is one-third or two directors, whichever is greater.
    • Directors who participate through video conferencing will be counted for quorum purposes.

• The First Auditor: The BOD shall designate the company’s first auditor within 30 days of incorporation, who shall serve until the end of the first AGM. The submission of ADT-1 is not required in the case of the First Auditor.

• Following Auditor: In the first AGM of the company, the BOD shall appoint the auditor, who shall retain the office until the end of the sixth AGM, and shall notify the ROC by submitting ADT-1. It is the company’s obligation, not the auditor’s, to file Form ADT 1 within 15 days after the appointment.

• Auditor’s Ratifications: Shareholders will confirm the nomination of the Auditor at each AGM, but no ADT-1 will be required.

• ADT-3: The auditor must file a resignation letter with the firm outlining the reason for resigning and Form ADT-3 with the registrar within 30 days of the date of resignation. The auditor is responsible for filing form ADT-3, which can only be filed if the appropriate auditor’s ADT-1 has been filed.

• Annual General Meeting: Every company is required to hold an Annual General Meeting on or before September 30th of each year, during business hours (9 a.m. to 6 p.m.), on a day that is not a public holiday, and either at the registered office of the corporation or within the city, town or village in which the registered office is located. It is necessary to provide 21 days’ notice for the same.

• Financial Statements Filing: Every company is expected to file its financial statements with the Registrar of Companies in E-Form AOC-4 within 30 days of its Annual General Meeting. One director must digitally sign it, and it must be certified by a CA/CS/Cost Accountant in Practice.

• Annual Return Filing: Every company is required to file its Annual Return in E-Form MGT-7 with the Registrar of Companies within 60 days of the Annual General Meeting. A company with a turnover of INR 50 Crore or higher must be verified in Form MGT-8 by a Practicing CS.

• Maintenance of Additional Director: If the company wishes to appoint an extra director as a director, it must do so in a General Meeting by adopting a Shareholder Resolution. Within 30 days of the AGM, submit form DIR-12 for Change in Director Designation together with an ordinary resolution.

• Report of the Directors: Within 30 days following the AGM, a Directors’ Report comprising all of the information necessary for a Small Company under Section 134 must be filed, together with Form AOC-4. Where he is not so authorized by at least two Directors, it shall be signed by the “Chairperson” approved by the Board.

• Filing of a Foreign Company’s Financial Statements: Within 6 months after the end of the fiscal year, every foreign company is expected to produce annual accounts (consolidated financial statements/global accounts) as well as a list of all primary sites of business in India.

• Filing of a Foreign Company’s Annual Return: Every foreign company must prepare and file an annual return in e-Form FC-4 within 60 days after the end of the fiscal year.

Event-Based Compliances under the Companies Act, 2013

These are activated when specified situations occur. There is documentation to be completed, and there are numerous deadlines for these duties. In the event of noncompliance or simply a missed deadline, there may be fines, extra costs, or a compounding of offenses, among other things. As a result, it is critical that such incidents be recorded and compliances addressed on time.

Other Relevant Compliances

There are other Mandatory Compliances for Companies in India which are as follows:

• Tagging Form INC-22A – Active Company: All companies formed before December 31, 2017, must file e-Form ACTIVE (Active Company Tagging Identities and Verification) – INC-22A on or before April 25, 2019. Failure to file e-Form Active would result in a Rs. 10,000 fine.
• ACTIVE Form Filing Requirements: The following conditions must be met in order to file an ACTIVE Form:
  • All directors’ DINs must be active when filing form INC-22A.
  • Form ADT-1 for auditor appointment should have already been filed.
  • The company’s annual filing (Forms AOC-4 and MGT-7) must be completed by F.Y. 17-18.
  • Email ID that will be validated using OTP
  • Photograph of the registered office showing the external building and inside the office, as well as at least one Director KMP who has attached his/her DSC to this form.
• Declaration of the Beginning of Business: With effect from November 2nd, 2018, every company is now obliged to file e Form INC 20A with the Registrar of Companies within 180 days of its incorporation for the initiation of its operations.
  • • A declaration is filed with the Registrar by a director within 180 days of the date of incorporation of the company in form INC-20 A and verified in such manner as may be prescribed, that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration; and
    • The company has submitted verification of its registered office with the Registrar in accordance with Section 12 sub-section (2) of Form INC-22.
• MSME Regulations: Specified Companies must file MSME Form 1 every half-year by the 31st of October / 30th of April. Companies and information are to be presented below:
  All companies that receive supplies of goods or services from micro and small enterprises and whose payments to them exceed 45 days from the date of acceptance or the date of deemed acceptance of the goods or services, as defined by the Act, must submit a semi-annual return to the MCA stating the following:
  • • The sum of the outstanding payments; and
    • The causes of the delay
• Deposit Regulations: Every company besides the government company must submit a DPT-3 each year for:
  • • A Deposit
    • Transactional Information is not considered a Deposit or
    • Both

To be submitted yearly by June 30th and provide information as of the previous year’s March 31st, thoroughly audited by the company auditor.

Note: One-time Every company other than a government entity must file a return within 90 days of the date this notification was published detailing any outstanding receipts of funds or loans that were not deemed deposits under rule 2(1)(c) from 1st April 2014.

Takeaway

Running a business, especially one in the form of a private limited company, obviously involves a large amount of knowledge about several financial and regulatory intricacies as well as a continuous expenditure of a great deal of time and effort.

When handled properly, compliance is a corporate asset that can give organizations a competitive edge, consumer trust, and eventually a return on investment. Compliance is a style of working, a component of the business, investor confidence, and transparent and open culture. It is not only about “doing the right thing” or “ticking a box.” Always keep in mind that the cost of non-compliance is greater than the cost of compliance. Today’s market is populated with reputable experts who are prepared and eager to assist you at every step of the business cycle, including incorporation and all compliance and regulatory needs throughout the duration of your company’s existence.