Annual Compliance for Private Limited Company

Ashish M. Shaji

05 Sep, 2022

Private Limited Company can be termed as a Company which is having private ownership. Private Limited Company may issue shares and have shareholders but their shares do not trade on public exchanges. In this article we have described about Annual Compliance for Private Limited Company.

Private Limited Company is held by few individuals privately having a separate legal entity. It should have a minimum number of 2 directors and it can have the maximum number of 15 directors.

Major Features of Private Limited Company

1. Incorporation by single form.
2. Name availability, allotment of DIN, Company registration & commencement of business will now be possible through a single form.
3. No need for the minimum capital requirement as previously required.
4. Private Companies have been allowed to accept deposits from members without the requirement of offer circular & creation of deposit repayment reserve.
5. Any director if interested in any transaction can participate in any meeting in which discussion regarding such transaction is taking place only after he has disclosed his interest.
6. There is no need to have separate voting on the resolution for the appointment of more than 1 director. In other words, a simple vote could also decide the appointment of two or more directors through a single resolution.
7. ESOP can be given by ordinary resolution instead of Special resolution.

Reasons for Incorporating Private Limited Company

The following reasons can be considered for incorporating a private limited company:

1. A high cost of IPO i.e. initial public offering undertaking can be avoided. The cost of an IPO is the biggest reason why the company wants to remain silent.
2. To maintain family ownership staying private means the company does not have to answer to its shareholders or choose different members of Board.
3. Improves Business Credibility, this feature makes it easy to authenticate the existence of the business.
4. Today high performing employees are looking for more things than just a high salary, only Pvt. Ltd Company & Limited company can offer stock ownership & ESOP plans.

Annual Compliance which is Required to be Followed by Private Limited Companies after its Incorporation

Private Companies are the most popular form of Company for starting a business. There are various annual compliance which are required to be followed once your business is incorporated. They are as follows:

• Applying for Company PAN

Income Tax Dept. uses the PAN to track all the compliances & filings of an I.T assessed using the PAN. So a Company soon after its incorporation has to apply for PAN in its own name.PAN is a 10 digit alpha number character issued in the form of a laminated card. It is the first post-incorporation step of a Company.

• Filing E-Form INC 21 with ROC

As per Companies Act, 2013^[1] Company having share capital shall not commence any business or exercise its borrowing power unless a declaration is filed by a director to ROC that every subscriber to the memorandum has paid value of shares agreed to be taken by him.

INC 21 is to be filed within 180 days of its incorporation.

• Appointment of Auditor

The first auditor of the company shall be appointed within 30 days of its incorporation. He shall hold office till the conclusion of sixth AGM. On his appointment, ADT -1 is required to be filed with the ROC.

• Statutory audit of accounts

Every company shall prepare its accounts and those accounts shall be audited by a CA at the end of the financial year for which it is prepared. The auditor will provide an audit report and the audited financial statement for the purpose of filing it with the Registrar.

• Filing of Annual Return

Every Private Company is required to file its Annual Return within 60 days of holding its Annual General Meeting. Annual Return shall be filed for the period of relevant financial year.

MGT – 7 is required to be filed for filing an Annual Return with the ROC.

• Filing of Financial Statements

Every Private Company is required to file its Financial Statement i.e. Balance Sheet & Profit & Loss account & Directors Report within 30 days of holding its AGM.

AOC- 4 is required for filing Financial Statement with the ROC.

• Holding Annual General Meeting

Every Private Company should hold its AGM every year. And the AGM conducted should be as per the calendar year. Companies are required to hold AGM within 6 months from the close of the financial year.

• Preparation of Directors’ Report

The private companies need to prepare Directors Report specifying all the required information as mentioned under Section 134.

• Board Meeting

First Board Meeting shall be conducted within 30 days of its incorporation. Further 4 meetings shall be conducted in a calendar year (once in every quarter).

Note: In the case of a Private Company which is classified as Small Company at least 2 Board Meetings is required in a calendar year (once in every half year).

• Income Tax Compliance

Private Companies are required to comply with the following tax compliance:

• Quarterly compliance with Advance Tax.
• Filing of Income Tax Return.
• Tax Audit: It is mandatorily required if the sales, Turnover or gross receipts of the business exceed Rs. 1 Crore in previous assessment year.
• Maintenance of Statutory Registers & Records

Private Companies are mandatorily required to maintain various registers such as Register of shares, Register of Members, Register of Directors.

• Drafting and filing of Director’s interest in other entities

Directors of the company are required to disclose their directorship to every other company every year. And any change in the directorship shall also be intimated.

• Allotment of Securities

Every Company shall deliver certificates to its members of all securities allotted transferred or transmitted within a period of 2 months from the date of incorporation.

• DIR 8

Every director of the company in each financial year will file with the company disclosure of non-disqualification.

• Circulation of Financial Statement & related documents

The company will send to the members of the company approved financial statement (including consolidated financial statement) cash flow statement, directors report & auditors report at least 21 clear days before AGM.

• Appointment of Company Secretary

Private Company having paid-up share capital of Rs. 5 Crore or more are required to appoint a whole-time company secretary.

• Registered Office

Every company shall within 15 days of its incorporation is required to have a registered office capable of receiving any communication and notices and the same premises shall be verified within 30 days of its incorporation in form INC-22.

Benefits of Annual Compliance for Private Limited Company

The following benefits of annual compliance can be enjoyed:

1. Avoidance of criminal charges.
2. Building a Positive reputation.
3. Higher productivity in the Company.
4. Trust & Brand loyalty.
5. Competitive differentiation.
6. Private Limited Company has limited financial liability, liabilities are limited to their stocks only. Hence, it protects individual assets and income.

Conclusion

If the Company fails to comply with any rules & regulations of Companies Act or any other relevant law under annual compliance, then the company and every officer who is in default shall be punishable with the fine for which default continues.

Read our article: Loan to Directors under Section 185 of the Companies Act