Compliance and penalties for companies

Company Act – Mandatory Compliance and Penalties

Compliance and penalties for companies

Companies (big or small) contribute significantly to the growth and development of the nation.  The Indian parliament formulated the Companies Act in 1956. Under the Act, the Central Government controls the financing, development, functioning and winding up of any public or private company. The Central Government has all the rights to scrutinize the accounts, to direct the audits or to investigate into the affairs of any company.

In line with the changes in the business environment, the act 1956 has been amended to offer greater transparency and solid framework to business owners and leaders. On 12th September 2013, the Indian Parliament enacted the Companies’ Act 2013; and after receiving the concurrence of India’s president on 29-8-13, the act superseded the Companies Act, 1956.

In principle, the Companies Act intends to:

  • Safeguard the interests of the creditors, who have put financial resources in the business.
  • Safeguard the interest of all shareholders, with even minority stocks
  • Help the company grow, within the legal frameworks of the country
  • Ensure the companies run ethically and engage in honest business
  • Ensure there is a fair disclosure of the company’s balance sheet and profit and loss accounts

The number of new companies registering themselves is significantly rising in India, leading to an active start-up ecosystem. Once you get your company registered with the ROC (registrar of companies), there are certain requisite compliance that one must comply with.

LIST OF MANDATORY COMPLIANCE

Central government compliance can be looked at falling in three distinct categories:

  • Mandatory compliances that need to be filled just after incorporation
  • Periodic compliances that need to be filled once a year, without fail
  • Compliances that are necessary only in case of specific special events.

Read more : Documents to register your company

COMPLIANCE UPON REGISTRATION

Once your register your company, it becomes a distinct entity in legal terms. After being a separate entity, the company is expected to comply with all the statutory mandates under the Companies Act, 2013. Here is the list of the very first set of compliances your company must abide by, soon after its inception(registration):

  1. A registered office plays a significant role in acknowledging and receiving all official communities. Within the fifteen days of successful incorporation, it is mandatory to have your official business address registered with the Registrar of Companies (RoC). Most companies already have this complied with during the registration process. If you haven’t, the process is simple and all you need to do is fill-up the form INC-22 (e-form filling options is also available). You can click here to take a look at the form.
  2. After the registry, the company must display the following information legitimately at the office address and on all official documents (wherever relevant) in all the legitimate documents and publications, including:
  • Name of the firm
  • Identification number of the firm (CIN)
  • Website, e-mail, phone/fax number.
  • The official address of the firm
  1. Within the 30 days of the successful incorporation, the company must hold a meeting of the board of directors.
  2. Within the 30 days of incorporation, the firm must designate an auditor, the auditor is confirmed and can be changed by the board of director. maintain records that include the issuance of interest certificate. You must also, prepare and maintain minutes of every meeting held.
  3. MBP-1 form: The form is a disclosure of interest in the other registered companies. The disclosure is mandatory, and all board members must do it within 30 days of registering the firm.

ANNUAL COMPLIANCE

Once the firm is registered, it needs to adhere to a set of compliances that are annual and recurring. Some of the annual compliances are required to be completed within a financial year, include:

  1. As per Section 85 & 88 of Companies Act, 2013 every registered company must prepare and maintain the statutory registers at its registered office. The statutory register must include details of its directors, shareholders, charges, employee stock option, etc. maintaining the list of compliance may be strenuous and taxing. Relevant forms to maintain the statutory register include:
    • MGT-1,2,3,
    • FORM SH-2, 3,6,10,
    • FORM SH-3, 6, 10 and
    • FORM CH-7.
  2. Directors of the entity need to submit a disclosure of non-disqualification, (use the form DIR-2) once a year. Per section 134, of the companies act, the director(s) of the firm must prepare a director’s report. Information related to finances, changes in firm’s composition, declared dividends, state of affairs, all need to be mentioned in the director’s report. At the time of annual filling, this report needs to be submitted with the Form AOC-4.
  3. When you submit the form, you must also attach, a copy of balance sheet and P&L account, the auditor’s report, and the notice of AGM (annual general meeting)

Hiring an expert who can guide you on the set of compliance and handhold you can take the compliances burden off your shoulders.

Click here to see what all is covered under the Annual Compliance.

 

EVENT BASED COMPLIANCE

Adhering to the one time and annual compliance is not all. The act distills a set of event-based compliances that need to be adhered to without fail. Non- compliance or delay can make the firm liable for penalties. Here are a set of compliances you must be cognizant of:

  1. Changes in registered office address take place due to several reasons, but it is mandatory to intimate the address change to convey this to the registrar of the firm.
  2. Within the 30 days of the change in the board of directors or change in appellation then it should be informed to the registrar fulling up the Form DIR-12.
  3. If the board members decide to change the registered name of the firm, they must reserve the new name with the help of RUN service, pass a special resolution and file MGT -14. Once this is done the change in company name should be communicated through INC 24 seeking approval from the central government.

 

PENALTIES FOR NON COMPLIANCE

A company that does not comply with the act may attract hefty penalties. Some of the penalties for non-compliance/violation of the Companies Act 2013 include:

  1. Failure to disclose the interest of the director in any contract/arrangement could attract a fine of INR 25,000 plus imprisonment, under Section 189/190 of the Act.
  2. Failure to comply with provisions relating to proper disclosure of financial statements, could attract a fine of up to INR 5,00,00 and/or imprisonment of up to 1 year, under Section 129.
  3. If the company fails to submit the annual return report before the time stipulated, the company may be fined, a minimum INR 50,000 and maximum of INR 5,00,000, under sec 92.  Officials responsible for the default could face imprisonment of 6 months
  4. Non-compliance with Section 53 forbids the issue of shares of the company at a discount. Any discounted share will be considered as void. The company is liable to the fine of INR 1,00,000 than can extend up to Rs.5,00,000.
  5. Furnishing inaccurate information, or willfully suppressing material’s information, then per Section 77, this is an offense. Under Section 477, the central government can imprison the violators for a minimum time of 6 months that can be extended up to 10 years. The company might be levied a penalty of INR 20,00,000.
  6. If an adjudicating officer or the regional director inflict a fine on the firm and the company is not able to pay the penalty within the time-lapse of 90 days, then the company is liable to pay fine of INR 25,000 that can go up to INR 5,00,000.
  7. Failure to file an annual return is an offense per Section 92 of the Act and could lead to a fine from INR 50,000 to 5,00,000 and/or imprisonment of up to 6 months.

 

While running a business takes tremendous effort, focus on having the right compliance practice in place goes a long way in safeguarding the Company and it’s stakeholders’ interests. Hiring experts minimize the risk non-compliance to a large extent. To know how we can help you minimize risks, talk to us: 044 – 46315959 | [email protected]

 

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