Annual Compliance for Private Limited Company

In this blog, we will delve into the key annual compliance for Private Limited Companies in India, explaining their significance and how businesses can stay compliant throughout the financial year.

What is Annual Compliance for a Private Limited Company?

Annual compliance refers to the statutory obligations that a Private Limited Company must fulfill every year. These include filing financial statements, annual returns, conducting audits, and other necessary documents with the Registrar of Companies (ROC), the Ministry of Corporate Affairs (MCA), and other relevant authorities.

Maintaining compliance is not just a legal requirement but also helps the company build trust and credibility with stakeholders, investors, and customers. Non-compliance, on the other hand, can result in hefty penalties, legal actions, and even disqualification of directors.

Key Annual Compliance Requirements for Private Limited Companies

Here are the primary annual compliance obligations that a Private Limited Company in India must adhere to:

1. Board Meetings

A Private Limited Company is required to hold a minimum of four board meetings each year, with a gap of no more than 120 days between two consecutive meetings. The first board meeting should be conducted within 30 days of incorporation.

Minutes of Meetings: Proper minutes of each board meeting must be recorded and maintained in the company’s records.
Attendance Register: An attendance register of the directors attending the meeting should also be maintained.

2. Annual General Meeting (AGM)

An AGM is mandatory for all Private Limited Companies. It must be held within six months from the end of the financial year, with a gap of no more than 15 months between two consecutive AGMs. In the AGM, key matters such as the approval of financial statements, appointment or reappointment of auditors, and the declaration of dividends are discussed and approved.

For newly incorporated companies, the first AGM must be held within nine months from the end of the first financial year.

3. Filing of Financial Statements (Form AOC-4)

Every Private Limited Company must file its financial statements with the Registrar of Companies (ROC) in Form AOC-4. The financial statements include the balance sheet, profit and loss account, cash flow statement, and other relevant annexures. This filing must be done within 30 days of the AGM.

It is essential that the financial statements are signed by at least two directors, including the Managing Director, and certified by a Chartered Accountant (CA).

4. Filing of Annual Return (Form MGT-7)

Private Limited Companies must file an Annual Return in Form MGT-7 with the ROC. This return contains details such as the company’s registered office, principal business activities, particulars of directors and shareholders, and other company-related information.

The annual return must be filed within 60 days of the AGM.
Companies with a turnover of Rs. 50 crore or more, or paid-up capital of Rs. 10 crore or more, must get the annual return signed by a Company Secretary.

5. Income Tax Returns

All Private Limited Companies must file their income tax return (ITR) for the financial year, even if the company has made no profit or does not have any income. The return is filed using Form ITR-6 and must be submitted before the due date, typically on or before September 30 of the assessment year.

A tax audit is required if the company’s annual turnover exceeds Rs. 1 crore.

6. Statutory Audit

A Private Limited Company must get its accounts audited every year by a qualified Chartered Accountant. This statutory audit ensures that the company’s financial statements give a true and fair view of its financial position. The auditor’s report must be presented to the shareholders during the AGM.

7. Director's Report

The Director’s Report is an essential compliance document that must be prepared annually and attached to the company’s financial statements. It provides an overview of the company's performance, financial position, and the key activities carried out during the financial year.

The Director’s Report includes details such as dividends, related party transactions, changes in share capital, and key financial metrics.

8. Form ADT-1 (Appointment of Auditor)

Private Limited Companies must appoint an auditor for a term of five years and file Form ADT-1 with the ROC within 15 days of the AGM. The auditor's appointment must be ratified at every AGM.

9. Compliance with GST (Goods and Services Tax)

If a Private Limited Company is registered under GST, it is required to file GST returns on a monthly, quarterly, and annual basis depending on the turnover and GST category. Non-compliance with GST filings can attract significant penalties.

10. Maintenance of Statutory Registers

Private Limited Companies must maintain various statutory registers, including:

Register of Members
Register of Directors and Key Managerial Personnel (KMP)
Register of Charges
Register of Share Transfers

These records are crucial for regulatory compliance and must be updated regularly.

Consequences of Non-Compliance

Failing to meet annual compliance requirements can lead to:

Penalties: Non-filing of financial statements or annual returns can attract penalties ranging from Rs. 100 to Rs. 500 per day for each delay.
Disqualification of Directors: Persistent non-compliance can lead to the disqualification of directors for a period of five years.
Company Status: The company can be marked as a dormant or defunct company, restricting its ability to conduct business.

Conclusion

Staying on top of annual compliance is vital for the smooth functioning of a Private Limited Company. It not only ensures that the company operates legally but also boosts its credibility in the eyes of investors and stakeholders. Companies should consult professionals like Chartered Accountants or Company Secretaries to ensure that all statutory obligations are met on time, avoiding penalties and legal repercussions.

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