Category: COMPLIANCES

 

Annual Compliance for Private Limited Company

An Overview of Annual Private Limited Company Compliance

With the introduction of the Companies Act, 2013 in India, the compliance burden of every company has increased substantially, irrespective of the company’s nature, whether it is a Public Limited Company, Private Company, LLP, OPC, etc. To enhance transparency in reporting, SEBI and MCA frequently introduce new amendments through notifications and circulars. Companies must adhere to all compliances within the specified due dates; any non-compliance often results in heavy penalties. Therefore, it’s good practice to keep track of the relevant compliances as per the applicable provisions of the Companies Act or SEBI, as the case may be. Practically, it is very tough to maintain all the Private Limited Company Compliances, and that’s why RegisterKaro is here to help with all the annual filings of companies and provide details regarding company compliances.

In India, compliance is a vital aspect that has to be taken into account while running a business or a company. It is compulsory to follow all the ROC Compliance to avoid any penalties. All Private Limited Companies in India must maintain annual compliance as per the Companies Act, 2013. Annual compliance of a Private Limited Company in India is generally independent of the total turnover or the capital amount involved. The ROC compliance for registered Private Limited Companies is compulsory, and not being able to follow the Private Limited Company Compliance may result in serious action against the company.

What are the Benefits of Private Limited Company Compliance in India?

  • Helps to attract investors: Financial records and compliance are the main points of focus for investors. Before investing in your business, investors check the regularity of filing annual returns on the MCA portal. Hence, regular filing of Private Limited Company Compliance is crucial for attracting investors.
  • Helps to maintain the active status of your company: Filing annual compliance for a Private Limited Company on time is vital to avoid penalties on accounting services. Failure to file may also reduce the business or company status. Furthermore, the company may be declared “in-operational” and removed from the ROC. Such companies’ directors are debarred from all future businesses in India.
  • Credibility: The date of filing Private Limited Company Compliance is shown on the MCA portal. Thus, regularity in filing compliance increases your business credibility, attracting customers, helping to obtain government tenders, and attaining loan approvals.
  • Provide Financial Assistance: The financial department of a business must meet several standards in terms of taxes and accounting. Failure to meet such standards not only leads to losses but also legal issues.

Types of Compliance for a Company Registered in India

External Compliance

Regulatory Compliance: These are rules and laws passed by regulatory bodies set up by the Central or State Government. Examples include:

  • Accounting & Payroll: Employee Payroll, Statutory Audit, Tax Audit, etc.
  • Direct Tax: Corporate Tax, Transfer Pricing, Withholding Tax, etc.
  • Indirect Tax: Customs Duty, Goods and Services Tax (GST).
  • Secretarial Compliance: Compliance with secretarial matters under the Companies Act.
  • Labour Laws: Provident Fund, Employee State Insurance, Professional Tax, etc.
  • Corporate Law: Board Meeting, Annual General Meeting, Annual Return with the ROC.
  • Tax: Corporate Tax Return, Tax Audit Report, Transfer Pricing Report, TDS Returns, GST Return.
  • Compliance: Deposit of TDS, Deposit of GST.

Statutory Compliance: These are mandatory regulations for businesses, including:

  • Shops and Commercial Establishments Act
  • Employees Provident Funds and Miscellaneous Provision Act
  • Employees State Insurance Corporation Act
  • Professional Tax Act
  • Labour Welfare Fund Act
  • Contract Labour (Regulation & Abolition) Act
  • Minimum Wages Act
  • Payment of Wages Act
  • Payment of Bonus Act
  • Maternity Benefit Act
  • Payment of Gratuity Act
  • Equal Remuneration Act
  • Employment Exchange (Compulsory Notification of Vacancies) Act
  • Sexual Harassment of Women at Workplace Act
  • Employees Compensation Act
  • Industrial Employment (Standing Orders) Act
  • The Apprentice Act
  • Factories Act
  • Trade Unions Act

Internal Compliance

Internal compliance refers to internally designed rules and regulations that the traders, customers, and employees follow to maintain the quality of services or products by the company or organization. These are created and sanctioned by senior experts and are followed by everyone in the company. Examples include setting up a Board of Directors, conducting regular meetings, and distributing stocks to shareholders.

Mandatory Private Limited Company Compliance

  • Appointment of 1st Auditor: The Board of Directors (BoD) must appoint an auditor within 30 days of company incorporation. Failure to appoint an auditor results in a penalty and the company will not be allowed to start business operations. The auditor stays in office until the completion of the 1st Annual General Meeting (AGM).
  • Subsequent Auditor: Appointed in the 1st AGM, this auditor monitors the company’s financial dealings and stays in position until the 6th AGM. Appointed by filing Form ADT-1.
  • AGM (Annual General Meeting): An essential compliance where the Board of Directors presents the company’s true financial position to shareholders. Must be organized before September 30th of every financial year, during working hours, and not on public holidays. Notice must be issued at least 21 days prior.
  • Board Meeting: The 1st Board Meeting must be held within 30 days of incorporation, with four meetings required per financial year. The gap between two consecutive meetings cannot exceed 120 days. Notices must be sent to each Director at least 7 days before the meeting date.
  • Director Disclosure: All Private Limited Companies must file Form MBP-1 annually at the 1st Board Meeting of the year to disclose their interests in other entities or companies.
  • Filing of Financial Statements: Private Limited Companies must file their financial statements (Profit & Loss Account and Balance Sheet) along with the Director’s Report by filing Form AOC-4 within 30 days of the AGM.
  • Annual Returns Filing: Private Limited Companies must file their Annual Returns within 60 days of holding the AGM by filing MCA Form MGT-7. Failure to file results in penalties.
  • Director KYC: Directors with active DINs must file DIR-3 KYC yearly as per the Companies Rules. Failure to file results in inactive DIN status, preventing further compliance filings.
  • Form DIR-8: Filed by every Director upon appointment to confirm they are not disqualified from functioning as a Company Director.
  • Commencement of Business Certificate: Must be obtained within 180 days of company incorporation.

Other Annual Compliance for Private Limited Company in India

  • GST returns: Monthly, quarterly, and annual.
  • Periodic TDS returns.
  • Calculation of advance tax liability.
  • Income tax return filing.
  • Tax audit report filing.
  • Submitting semi-annual returns.
  • PF returns.
  • Professional tax return filing.
  • Regulatory evaluation and reporting.

Event-Based Compliance for Private Limited Company

  • Change in authorized or paid-up capital.
  • Allotment or transfer of new shares.
  • Loans to other companies or directors.
  • Appointment or change of managing/whole-time Directors and their remuneration.
  • Changes in bank account signatories.
  • Appointment or change of statutory auditors.

In India, LLP or Limited Liability Partnership enjoys a separate status and an organization needs to maintain its active status by regularly filing with MCA (Ministry of Corporate Affairs). Annual Compliance filing is compulsory for any LLP, whether having a business or not. LLP Compliance in India requires filing 2 separate forms. One form is for Annual Return and another one is for Statement of Accounts & Solvency. The forms are filed for reporting the activities & financial data for each Financial Year in the future. The failure to fulfill all the requirements for LLP Compliance levies an additional fee of Rs. 100 each day of a delay till the actual filing date. Hence, apart from the mandate, the heavy penalty compels the Partners to fulfill the requirements.

For LLP, the returns should be filed periodically to maintain compliance & avoid heavy penalties for non-compliance. An LLP has only a few compliances to be followed every year which is amazingly low as compared to the compliance requirements placed on the Private Limited Companies. Whilst non-compliance might only charge a Private Limited Company Rs. 1 lakh in terms of penalties and it might charge an LLP up to Rs. 5 lakhs.

LLP (Second Amendment) Rules, 2022

What are LLP (Second Amendment) Rules, 2022?

The LLP (Second Amendment) Rules, 2022 introduce several key changes in the registration and compliance processes for Limited Liability Partnerships (LLPs) in India. The major amendments are as follows:

  • Increased Number of Partners: LLPs can now have 5 partners instead of the previous requirement of 2 designated partners without needing a Director Identification Number (DIN) during incorporation.
  • Allotment of TAN & PAN: Limited Liability Partnerships will be allotted their Tax Deduction and Collection Account Number (TAN) and Permanent Account Number (PAN) along with the Certificate of Incorporation (CoI).
  • Web-Based Consent Form: Filing for the consent of partners will now be done via a web-based Form-9.
  • Signing of Statement of Account & Solvency: This statement can now be signed on behalf of the LLP by its interim resolution professional.
  • Online Forms: All LLP forms are now available in a web-based or online format.

Benefits of LLP Compliance in India

Adhering to compliance requirements provides numerous benefits to LLPs in India:

  • Easy Closure and Conversion: Regular compliance makes it easier to convert an LLP into another organization or close it if needed. Compliance records streamline the process.
  • Avoid Penalties: Regular filing of forms helps prevent hefty penalties and avoids being declared a defaulter, thus protecting the LLP and its partners.
  • High Credibility: Legal compliance is crucial for maintaining credibility. Compliance status is publicly accessible, which is important for loan approvals and other requirements.
  • Financial Worth Record: Annual filings provide a record of the LLP’s financial worth, which is useful for entering into major projects or contracts.
  • Greater Reputation: Compliance enhances the organization’s reputation and trustworthiness, as its status is visible on the MCA portal.

Mandatory Compliance for LLP in India

Post-registration, LLPs must adhere to several mandatory compliance requirements:

One-Time Mandatory Compliance for LLP:

  • LLP Form-3: Draft an LLP Agreement and file it with the Registrar of Companies (ROC) in LLP Form-3 within 30 days of incorporation.
  • Opening a Bank Account: Open a current bank account in the LLP’s name. All transactions should be conducted through this account.
  • PAN & TAN Number: Obtain PAN and TAN from the Income Tax Department. With the LLP (Second Amendment) Rules, 2022, these will now be allotted with the Certificate of Incorporation.
  • GST Registration: Obtain GST registration if the annual turnover exceeds Rs. 40 lakhs (Rs. 20 lakhs for service providers). GST registration is not mandatory immediately post-incorporation but should be obtained as needed.

Annual Compliance for LLP:

  • Statement of Accounts & Solvency in LLP Form-8: Prepare and close accounts by March 31 each year. Form-8 should be filed by at least 2 partners with the Registrar 30 days after the completion of 6 months of the financial year. This form can be signed by the interim resolution expert.
  • Annual Return in Form-11: Submit Form-11, summarizing changes in LLP management, within 60 days from the closure of the financial year.
  • Income Tax Return: File an IT return by July 31 each year. LLPs under tax audit must file by September 30.
  • DIR-3 KYC: Each designated partner must file Form DIR-3 KYC by September 30 of each financial year.
  • Audit: LLPs with a turnover exceeding Rs. 40 lakhs or contributions over Rs. 25 lakhs must get their accounts audited.

Consequences of Non-Compliance for LLPs

Failure to comply with LLP regulations can lead to significant consequences:

  • Penalties: Late filing of Form-8 and Form-11 incurs a penalty of Rs. 100 per day of default. Non-compliance can result in additional penalties and difficulties in winding up or closing the LLP.
  • Closure Difficulties: LLPs cannot be closed without fulfilling annual accounts and compliance requirements. Non-compliance may lead to heavy penalties.