All you want to know about Private Limited Company (with particular reference to compliance)

  • News|Blog|Company Law|
  • 13 Min Read
  • By Taxmann
  • |
  • Last Updated on 10 May, 2022

Recent Posts

News, Blog, FEMA & Banking

Govt. Allows 100% FDI Under Automatic Route for Manufacturing of Components, Systems or Sub-systems for Satellites

Blog, News, Insolvency and Bankruptcy Code

NCLT-approved RP Offering 2.16% Payment to OC, Rest via Preference Shares Was Violative of Sec. 30 | NCLAT

Latest from Taxmann

Topics covered in this article are as follows:

1. Private Limited Company
2. Salient features of Private Limited Company
3. Compliances associated with Private Limited Company
4. Framework of Companies Act 2013
5. Kinds of Compliances
6. Mandatory Compliances
7. Compliance relating to the Registered Office
8. Maintenance of Statutory Registers of the Company
9. Compliance relating to Board Meetings/General Meetings
10. Appointment of Auditors
11. Disclosure/Record Maintenance and Filing Requirements
12. Event-Based Compliance
13. Other Relevant Compliance
14. Company Secretary
15. Secretarial Audit
16. Conclusion

This article first appeared on Taxmann.com’s Online Research Module for Company & SEBI Laws. To read more such peer-review articles, consider subscribing to Taxmann.com

Private Limited Companies

1. Private Limited Company

Private Limited Company is the popular form of business with limited liability protection to its shareholders. It is simplest form business registration and registration of Private Limited company can be done with a minimum of two people. The Private Limited company has the ability to raise equity funds and enjoys a separate legal entity status. Due to the above reasons, this form of the company formations most recommended type of business in our country and it best suits for small and medium sized businesses that are family owned or professionally managed.

2. Salient features of Private Limited Company

The following are the salient features of the private limited company with reference to shareholders, directors, capital requirement, fund raising, liability and its credibility.

Sl. no. Details Requirement
1 Director Minimum two who are of adults
2 Residential status One of the director has to be an Indian citizen The other director(s) can be foreign national
3 Shareholders Required to have minimum two shareholders
4 Shareholders to be natural or artificial person Shareholders can be natural persons or an artificial legal entity
5 Capital It can be registered with a mere sum of Rs. 10,000 as total Authorized Share capital.
6 Limited Liability If the company undergoes financial distress the personal assets of members will not be used to pay the debts of the Company as the liability of the person is limited.
7 Foreign Direct Investment FDI 100% FDI is allowed that means any foreign entity or foreign person can directly invest in a Private Limited Company.
8 Fund raising It can raise funds from the Venture Capitalists or Angel investors.
9 Credibility The particulars of the company are available on a public database and it helps improving the credibility of the company as it makes it easy to authenticate the details

3. Compliances associated with Private Limited Company

Though, Private Limited company is the simplest and most popular form of business to start with, yet there are various compliances that are required to be complied with under the Companies Act 2013 and as well under other corporate laws once the company is incorporated. If the compliances are not ensured timely, the regulator would impose fine, penalty for non-compliance. Therefore it is very much essential for these company to see the necessary help and assistance from the professional and understand the legal requirements in order to ensure timely fulfilment of required compliances without involving any extra fees, fine and penalty.

4. Framework of Companies Act 2013

The companies which are incorporated under the framework of the Companies Act 2013, and the very same Act provides the required legal compliances that are to be required to be complied by every company. The Companies Act 2013, spells out the compliances relating to reporting of financial results of the company, report of any change in management, maintenance of various statutory registers that are prescribed by the Act, accounts compilation and auditing and such other matters.

5. Kinds of Compliances

The required compliances to be fulfilled by the company can be divided in two parts i.e. mandatory compliances (routine and on ongoing basis) and event based compliances.

6. Mandatory Compliances

The following compliances are the mandatory compliances, the Private Limited company is required to comply with on an ongoing basis.

Upon incorporation of the company, the company is required to issue the share certificate to the subscribers of memorandum within 60 days of Incorporation of Company.

The director (s) is / are required to file a declaration in from INC-20 to the Registrar of Companies, within a period of 180 days of the date of incorporation of the company and verified in such manner 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 filed with the Registrar of Companies a verification of its registered office as provided in sub-section (2) of section 12 in Form INC-22.

It is also one of the condition that every Company is required to appoint at least one Director who has stayed in India for a total period of not less than 182 days in the previous calendar year.

Declaration of commencement of business is required to be intimated by filing form INC-20A with ROC within 180 days of its Incorporation for commencement of its business (with effect from 2nd November, 2018).

7. Compliance relating to the Registered Office

The following chart shows the compliances relating to registered office, letter heads and other documents.

Sl. no. Detail Section Compliance called for Consequences of non-compliance
1 Name board of the company 12 (3) Every Company is required to paint or affix the name and address of Registered Office and keep the same painted/affixed, outside every office or place in which its business is carried on, in legible letters. In addition to English, the display is also required to be in the vernacular language in general use of that locality As per section 12(8), company and every officer who is in default shall be liable to a penalty of one thousand rupees for every day during which the default continues but not exceeding one lakh rupees.
2 Letterhead / notices and other documents 12(3)(c) Every Company is required to get its name, address of registered office, CIN, telephone and email printed on all business letters, billheads, and letter papers. Notices and other official publications. —same as above–

8. Maintenance of Statutory Registers of the Company

The following prescribed statutory registers are to be maintained by the company.

Sl. no. Section Name of the statutory register
1 88(1) Rule 3 MGT -1 Register of members
2 88(1) Rule 4 MGT -2 Register of Debenture holders
3 88(2) Rule 6 Index of members and debenture holders
4 88(3) Register and index of Beneficial Owner
5 88(4) Rule 7 Foreign register of members, debenture holders, other security holders or Beneficial Owners residing outside India
6 46(3) Rule 6 SH -2 Registers of renewals of duplicate share certificates
7 54 Rule 8 SH -3 Register of Sweat Equity shares
8 62 Rule 12 Register of Employees Stock Option (ESOP)
9 68 SH -10 Register of securities bought back
10 73 Rule 14 Register of deposits
11 85 CHG -7 Register of charges
12 170 Rule 17 Register of directors and key manager personnel (KMP) and their shareholdings
13 186(9) Rule 12 MBP -2 Register of Loan and Guarantee
14 187 Rule 12 MBP -3 Register of investments of the company not held in its own name
15 189 Rule 62 Registers of contracts and arrangements in which directors are interested

9. Compliance relating to Board Meetings/General Meetings

The compliance relating to board meetings / general meetings.

1 First board meeting Section 173(1) After the incorporation of the Company, the first board meeting of the directors are required to be held within 30 days of Incorporation of the company. Notice of board meeting must be send to every director at least 7 days before the meeting as per section 173 (1) of the Companies Act 2013 read with Secretarial Standard -1.
Form MBP-1 Every director at the first meeting in which he participates as director; or first meeting of Board in every FY; or whenever there is change in disclosures is required to disclose in Form MBP‐1 (along with list of relatives and concern of relatives in the Company as per RPT definition), his concern or interest in any company, body corporate, firm or other association of individuals (including shareholding interest).
MBP-1 to be on record — Form MBP‐1 shall be kept in the records of the company.
Quorum 174 Quorum shall be one third or two directors, whichever is higherDirectors participating through Video Conferencing shall be counted for the purpose of quorum
2 Subsequent board meetings 173(1) & SS-1 As per sub-section (1) of section 173 of the Companies Act 2013 read with Secretarial Standard -1, minimum four (4) board meetings are required to be held every year with not more than 120 days gap between two meetings.
3 Meetings at shorter notice 173
– Meeting can be convened on a shorter notice for urgent matters
– Consent from not less than 95% of members entitled to vote thereat
4 Minutes of the board meetings 118 & SS-1 As provided in section 118 of the Companies Act, 2013 every company is required to prepare, sign and keep minutes of the proceedings of every meeting within 30 days of the conclusion of every such meeting concerned. Secretarial Standard-1 prescribes detailed procedure for preparing

– draft minutes
– circulation to directors
– comments from directors and
– finally the minutes approval and
– entering in the minutes book  which are to be strictly adhered.

Minutes kept shall be evidence of the proceedings recorded in a meeting.
5 Annual general meeting 96 Every Company is required to hold an Annual General Meeting on or before 30th September every year during business hours (9 am to 6pm), on a day that is not a public holiday and either at the registered office of the Company or within the city, town or village where the registered office is situated. A 21 clear days’ notice is required to be given for the same.
6 Minutes of general Meetings 118
1. Minutes of every general meeting, Creditors Board and Committee shall be prepared and kept within 30 days of conclusion of every meeting concerned.
2. All appointments in the meeting shall be included in the minutes.
3. Minutes of each meeting shall be entered into Minutes Book along with date of such entry.

10. Appointment of Auditors

1 Appointment of First auditor of the company 139(6) First Auditor of the company shall be appointed by the BOD within 30 days of Incorporation who shall hold the office till the conclusion of 1st AGM. In case of First Auditor, filing of ADT-1 is not mandatory
2 Subsequent appointment of Auditors ADT-1 The BOD shall appoint the auditor in first AGM of company who shall hold the office till the conclusion of 6th AGM and shall inform the same to ROC by filing ADT-1. The responsibility to file Form ADT 1 is that of the company and not of the auditor within 15 days from the date of appointment
3 Causal vacancy of Auditor —- If Casual Vacancy is arising due to the resignation of auditor, it shall be filled within 30 days of BOD meeting, subject to approval in General Meeting (AGM or EGM). Any auditor appointed in a Casual Vacancy shall hold office until the conclusion of the next Annual General Meeting.
4 Filing requirements Form ADT-3 The auditor shall file with the company a resignation letter stating the reason for resigning and file Form ADT-3 with the registrar within 30 days from the date of resignation.
Form ADT-1 Filing form ADT-3 is the responsibility of the auditor and thereafter the company is required to file ADT-1 of the relevant auditor within seven days.

11. Disclosure/Record Maintenance and Filing Requirements

The following are some of the important disclosures that are required to be made, records to be maintained and also required filing compliance requirements which arise out of various events which might take place in the company on an ongoing basis.

1 Director’s appointment Form DIR-2 Every person to be appointed as Director shall provide his consent in Form DIR 2
Form DIR-8 Declaration from Director at the time of appointment or reappointment in Form DIR 8 (Section 164(2) & 143(3)(g))
Form MBP-1 Annual disclosure from Director to be taken in form MBP-1 (section 184(1))
Form DIR-12 The consent director is required to be filed by the company with ROC in Form DIR 12, within 30 Days of appointment informing the appointment of director
Directors are to be required to ensure the adhere the ceiling limit prescribed by the Companies Act 2013 that is no person can be a director in more than 20 companies and maximum number of public companies can be 10 (Director in Section-8 Co. and Dormant Director not to be included)
2 Resignation of Director Letter Director is required to intimate his resignation to the Company
Form DIR-12 The Company is required to form DIR-12 with ROC within 30 days
Disclosure Company is also required to put resignation details on its website (if any) and in its Directors’ Report.
3 Filing of Financial statements Form AOC-4 XPRL Every Company is required to file its Financial Statements within 30 days of its Annual General Meeting with Registrar of Company in E-Form AOC-4. (section 137)
Certification The same is required to be digitally signed by one director and certified by CA/CS/Cost Accountant in Practice
4 Board Report Section 134 Directors’ Report is required to be filed covering all the information required along with these together with the financial statements within 30 days of AGM along with Form AOC-4. It should be signed by the “Chairperson” authorized by the Board, where he is not so authorized by at least 2 Directors.
5 Filing of annual return Form MGT-7 Every company is required to file its Annual Return with Registrar of Companies within 60 days of Annual General Meeting in E-Form MGT-7. (section 92)
Form MGT-8 A company having turnover of INR 50 Crore or more shall be certified by a Practicing CS in Form MGT-8.(section 92)
6 Alteration in MoA and AoA Section 13 Every alteration of Articles and Memorandum shall be filed with Registrar together with copy of altered Articles, notice of meeting and SR within 30 days of passing Special Resolution. Every alteration made in MOA and AOA shall be noted in every copy thereof.
7 Resolutions Form MGT-14 Copy of every resolution (with explanatory statement, if any) or Agreement for the specified matters to be filed with ROC in Form MGT 14 within 30 days.
Section 117 Articles of Company shall have copy of resolution effecting amendment in AOA and Agreements referred in Section 117(3) of the Acts
8 Return of Director and KMP DIR-12 Return of Directors and KMP to be filed with ROC in Form DIR 12, within 30 days of appointment or change.
9 Regularization of Additional Director DIR-12 If company wants to appoint additional director as director, then it shall regularize the person as director in General Meeting by passing Shareholder Resolution. File form DIR-12 for Change in Designation of Director along with ordinary resolution within 30 days of AGM.
10 Filing financial statements of a foreign company Form FC-3 Every Foreign Company is required to file Annual accounts (consolidated financial statements/ global accounts) along with the list of all principal places of business in India within 6 months of close of the Financial Year.
11 Filing annual return of a foreign company Form FC-4 Every foreign company shall prepare and file annual return of the company in e-Form FC-4 within 60 days from the close of financial year.

12. Event-Based Compliance

The following are the compliance which are triggered based on happening of certain events. For these events, there are certain paperwork needs to be done and also there are deadlines to file the requisite form with the ROC. Needless to mention that such event based activities are properly tracked and compliances met with on time.

Sl. no. Particulars Form No. Deadline
1 Change in director / KMP DIR-12 Within 30 days of change
2 Increase in authorized share capital of the company SH-7 Within 30 days of passing the ordinary resolution
3 increase in paid up capital (issue of security PAS-3 Within 15 days from the date of the allotment
4 Change in registered office INC-22 Within 15 days from the date of such change
5 Change in secured borrowings (creation, modification and satisfaction of charges) CHG-1 CHG-4 Within 30 days for all types of charge creation / modification / satisfaction
6 Change of name of the company INC-24 Within 60 days from the date of applying reservation of name in form INC-1
7 Conversion company INC-27 —
8 Filing resolutions and agreements MGT-14 Within 30 days of passing resolutions
9 Removal of auditor before the expiry term ADT-2 Within 30 days from the date of passing special resolution
10 Application of KYC for directors DIR-3 KYC By 30th September of the immediately preceding financial year
11 Report for disqualification of the director DIR-9 To be filed by company within 30 days from the date of disqualification
12 Issue of capital instrument to a person resident outside India FCGPR within 30 days from the date of issue of securities

13. Other Relevant Compliance

The following compliances would be applicable depending upon the applicability of the rules to the company.

Under Deposit Rules: – The company is required to file DPT-3 annually for deposits or particulars of transaction not considered as deposit or both. The due date for filing this form is 30th June of every year annually and the company is required to furnish the information as on 31st March of that year duly audited by auditor of the company. (section 73 Rule 6)

Under the Company (SBO i.e., Significant Beneficial Ownership) Rules 2019:- with respect to this rule, the following could be noted:-

S.No. Form Particulars Due date
1 BEN-1 Every individual who is holding significant beneficial ownership is required to make a declaration to the company. Within 30 days of acquiring or change therein
2 BEN-2 Company to file the form with ROC Within 30 days of receipt of declaration from SBO
3 BEN-3 Register of SBO To be maintained by the company
4 BEN-4 Every reporting company shall give notice in BEN 4 In all cases where its member (other than an individual), holds not less than 10% of its (a) shares, or (b) voting rights, or (c) right to receive or participate in the dividend or any other distribution payable in a financial year.

Under Micros, Small and Medium Enterprises Rules: – If the company is getting 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 per the provisions of the Act, shall submit a half yearly return to MCA stating the (a) the amount of payments due; and (b) the reasons for delay

The companies are required to file e-Form MSME FORM I, on half yearly basis, as per the provisions of order dated 22 January, 2019 issued under Section 405 of the Companies Act, 2013as given below

Sr. No. Period covered Due date
1 April to September 31st October
2 October to March 30th April

14. Company Secretary

As per section 203 read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, every private company which has a paid up share capital of ten crore rupees or more shall have a whole-time company secretary.

MCA with vide notification dated January 03, 2020 has amended Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

The office of company secretary vacated any time, the resulting vacancy is required to be filled up at a Board Meeting within a period of 6 months from the date of such vacancy.

15. Secretarial Audit

With effect from financial year commencing on or after 1st April 2020 as per the new Rule 9(C) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the regulators have prescribed for secretarial audit for every company having outstanding loans or borrowing from banks or public financial institutions of one hundred core or more.

With this amendment, the secretarial audit provisions is applicable to a private company which is having loans or borrowing from banks or public financial institutions of rupees hundred crore or more. (It may be noted that the loans and borrowing should be from bank or public financial institution and does not include the inter-corporate or borrowing.)

16. Conclusion

Although private limited company is one of the best form of company for small and medium sized businesses that are family owned or professionally managed by, one cannot take it lightly, when it comes to compliance requirements. From the business point of view, time and efforts are called for and as well significant knowledge financial is also required. In addition to the above, with respect to regulatory compliance, one has to ensure, the stricter adherence of Companies Act 2013 read with relevant rules since non-compliance would attract severe penalties.

If the company is a compliant company, it would be a big asset to the company since, the complaint company can get competitive advantage coupled with customer trust and confidence amongst all people who are dealing with the company. Compliance cannot be taken lightly like “ticking a box” but one has to do the right thing as per the provisions of the applicable regulations. It has to be remembered that cost of non-compliance is always more than the cost of compliance. The private companies could take the help of the competent professional who are available and they would help the company in each of their stage – i.e. right from the incorporation onwards in every stage of business cycle and thus the company could ensure the required regulatory compliance.

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Leave a Reply

Your email address will not be published. Required fields are marked *

«
»

Everything on Tax and Corporate Laws of India

To subscribe to our weekly newsletter please log in/register on Taxmann.com

Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied