Complying with Obligations of a Private Limited Company
Starting up with business in the form of a private limited company requires government registration. However, the road doesn’t end there as India’s Ministry of Corporate Affairs (MCA) is imposing a national policy designed to ensure fraud-free business activities in their country.
Part and parcel of the MCA’s policy is the compliance of a list of must-dos, which is something that legitimate investors are accustomed to. After all, these requirements are seen beneficial to the private limited companies in many aspects of doing business in a country of 1.35 billion people of the potential market.
Allow us to lay down the Obligations of a private limited company
Post Incorporation to PVT LTD Company
Entrepreneurs business incorporating process to Private Limited Company, MCA expects them to take care of the other equally important concerns which include:
Share Capital in the Bank
MCA requires businesses registered and incorporated as Private Limited Company to put up a corporate bank account where it should deposit the amount representing the share capital that was declared. Whatever was declared in incorporation to Private Limited Company should be exactly the same amount for a deposit, which by the way can also be used to defray the cost of company operations, or if warranted, reimburse to directors. MCA strictly implements a 30-day timetable for the compliance to stipulated obligations of a Private Limited Company.
Mandatory Registrations
India doesn’t allow how-based incorporators. As such, the MCA embarks on mandatory registration for purposes of establishing legal corporate and personal identity of the Private Limited Company and its incorporators. There are actually three business forms for mandatory compliance:
- PAN – Company’s legal identity is Permanent Account Number or PAN for brevity. MCA requires legal identity proof, regardless of business type.
- TAN – Tan Account Number, or TAN for brevity, is a mandatory requirement for business registrations. TAN is an economic perk that spares companies from paying taxes that has been already paid for by consumers. MCA refers to such perks as Tax Deducted at Source (TDS).
- Professional Tax – Just like in any other country, professional tax is mandatory for all forms of businesses, including the commercial establishments where actual business transactions take place. Professional tax registration is applicable to all the directors and the company.
Registrations for Each Business Type
Business registrations come in many forms – depending on the type of business a company is into. It could be in the form of services, trading, manufacturing, import-export, Business Process Outsourcing, online commerce, etc.
It requires these types of businesses to comply with the following:
- Service Tax – Taking a cue from its name “service tax,” it is something that has to be complied with for businesses embarking on services as its foremost commodity. However, it is applicable to those with company turnover above Rs 10 Lakhs.
- VAT and CST – Requirements for traders, manufacturers, goods importers-exporters, is Value Added Tax, or VAT for Central Sales Tax. It is generally applicable in all countries hosting foreign investments. However, each state differs on how they craft rules governing VAT and CST. In India, VAT and CST is a must regardless if the company turnover is zero. This even applies to business on digital platforms Flipkart, Amazon, Paytm etc.
- IEC – Import export code is applicable for importing and exporting business goods for trading purposes.
Mandatory Tax Compliances
As the name suggests, this provision is mandatory. The state expects no less than prompt compliance from all types of businesses in India.
- TDS –It represents the deducted amount every time the company complies with the obligation to pay or another company or an individual for rendered services. However, the deducted amount should not be considered as a corporate savings as it would only be for the company to keep until the 7th day of the following month, the date that the government requires companies to transfer it to their coffers. Among those which the company should be deducting TDS include payments for rent, services, interest and commissions. The usual rate is from one to 10 percent of the gross amount.
- Professional Tax Return – Government economic policy offers two options for the transmittal of professional taxes. It could be annually or monthly,
- Income Tax return – Every company and individual is required whether it’s not earning to comply with Income Tax return or ITR. The due date for Private Limited Company is the last working day of September.
Tax for Each Business Type
For traders and service providers with a company turnover exceeding Rs 20 Lakh per annum, the Good and Services Tax Council of India requires businesses to comply with the Goods and Services Tax on a monthly basis.
ROC List of Compliance
The Registrar of Companies, the governing body mandated to keep business activities in proper perspective, has also outlined other obligations of a private limited company, which include:
Board Meetings
- First Board Meeting within 30 days from the date of its incorporation
- Quarterly Board Meeting with a minimum of four members of the Board of Directors in attendance for big companies. It requires a Private Limited Company to convene once every semester.
- ROC underscores the need for at least two directors or 1/3rd of the total number of directors, whichever is greater, to be present in a meeting of the Board of Directors.
- The duration of the board meeting has to be jotted down in detail. Submission of documenting and recording the discussions called “Minutes of the Meeting.” in Company’s Registered Office.
- Directors agenda, time, date and place need to be notified, prior to seven days board meeting.
Annual General Meeting
- Private Limited Company Incorporated needs shareholders’ annual meeting, six months from the closing of the financial year date.
- The purpose for which to call the annual stakeholders’ meeting should include approval of financial statements, declaration of dividends, appointment or re-appointment of auditors, appointment and remuneration of directors etc.
- Annual General Meeting should take place at the registered office address {or just within the locality where the registered business address is located} on a day that doesn’t fall as a state holiday.
Annual Filings
Citing a need for transparency and a guarantee of a fraud-free business, the Registrar of Companies also requires Private Limited Companies to file its Annual Accounts and Returns disclosing details of its shareholders, directors etc.
Forms that we need to file with ROC:
- Form AOC 4 embarks on companies to separately file Balance Sheet and Profit & Loss Account
- Annual Return by Companies with share capital filing Form 20B
- Compliance Certificate by Companies filing Form 66
- Filing of Form 66, 23AC, 23ACA within 30 days of Annual General Meeting’s date. Filing of Form 20B within 60 days of the Annual General Meeting’s date.
Statutory Audit
To make sure the financial condition’s representation is accurate it needs a statutory audit. Part of the statutory audit is examining information such as bank balances, bookkeeping records and financial transactions. Private Limited Company Obligations appoint Statutory Auditors to determine Annual Accounts glitches.
No Need to Worry
In an apparent effort to maintain a fraud-free business climate, India, through its governing agencies, is imposing these measures to protect both the consumers and the investors.
For an entrepreneur who finds complying with stiff obligations of a private limited company as tedious, it is always best to consult business advisors with an extensive track record of delivering results just when it matters most. We at 3E Accounting offer India company formation services, with guaranteed results.
For help, please contact us.
3E Accounting India
3E Accounting India is a corporate service provider and accounting firm assisting clients with company formation and incorporation. We offer company secretary and business-related services in India.
