Key Government Regulations For Pvt Ltd Companies

The Ministry of Corporate Affairs (MCA) oversees the administration and implementation of major government regulations in India. Several rules and regulations are being enforced to regulate the functioning of the corporate sector.

To Start Pvt Ltd Company Online, an applicant requires a Director Identification Number (DIN), Digital Signature Certificate (DSC), Memorandum of Association (MOA), and Articles of Association (AOA), among others. The government has been actively encouraging the formation of businesses and start-ups by easing the registration process and offering support by streamlining the registration process and easing regulatory requirements. Further, the government has introduced several acts to establish a legal framework that protects consumers, ensures fair competition, and offers a stable environment for businesses.

This comprehensive blog outlines the key government regulations that aim to bring order, safeguard public interest, and proliferate businesses in the corporate world.

Important Government Regulations for Businesses

To Register a Private Limited Company, the applicant has to approach the Registrar of Companies (ROC) and comply with different legal requirements. The government oversees the entire process from formation to dissolution with the help of the following regulations:

Company Act, 2013:

The Companies Act 2013 regulates the functioning of companies, including private limited companies, in India. The first Company Act came into existence in 1956, based on the recommendations of the Bhabha Committee. Over the years, the act saw multiple amendments. The Act consists of 29 chapters, 470 sections, and 7
schedules.

Companies Act 2013, in a significant move, made CSR (Corporate Social Responsibility) spending a legal obligation through section 135. In addition, it brought the following major changes:

● The act introduced a new type of entity namely OPC (One Person Company). OPC enables the formation of a company with only a single individual as a member.

● It laid down provisions for the establishment of a small company with a maximum paid-up share capital of Rs.50 Lakhs.

● Companies Act 2013, section 455, introduced the concept of dormant companies. These companies are formed to hold intellectual property or for a future project. As per the law, a company is called dormant if it has not been involved in any business activity in the last two financial years.

● Proposed the formation of the National Company Law Tribunal that replaced the Company Law Board (CLB) and the Board for Industrial and Financial Reconstruction (BIFR). NCLT is a quasi-judicial body that manages corporate disputes and adjudicates cases of corporate governance, directorial misconduct, and shareholder disputes.

● The law mandates listed and public companies to have at least one woman director if the company’s turnover is more than Rs.300 crore or paid-up share capital exceeding Rs.100 crores.

Income Tax Act, 1961:

Income Tax Act 1961 oversees the administration, imposition, collection, and recovery of income tax in India by the Income Tax Department. The act comprises 23 chapters and 298 sections. The act includes several necessary provisions that cover almost all the aspects of taxation, particularly direct tax. The act contains the following notable provisions:

● Sections 260A and 261 provide provisions where a person can appeal against the order passed by the Appellate Tribunal to the High Court.

● The act obligates both Indian and foreign companies to pay corporate income tax through 115BA and the Finance Act.

● Corporate entities and companies pay corporate tax on their income. The tax rate is determined through the Finance Act as per the company’s turnover and type.

● The act lays down provisions for Capital Gains Tax. It is the tax imposed on profit or gain that arises from selling capital assets like bonds, real estate, stock, etc.

● Introduced the concept of MAT (Minimum Alternate Tax) which limits the amount of tax exemption benefits availed by corporations and makes them liable to pay a certain minimum amount as corporate tax.

Insolvency and Bankruptcy Code, 2016:

Almost everyone knows how to Register a Private Limited Company. However, not many are aware of the facilities offered by the government when a company is in financial distress, requires immediate restructuring, or is on the verge of being bankrupt.

● Insolvency and Bankruptcy Code 2016 offer a consolidated framework for handling bankruptcy proceedings and insolvency cases. The code helps in reviving companies, including private limited companies in a time-bound manner.

● The code gives a second chance to businesses that are viable and require some support to get back on their feet.

● The insolvency resolution process is administered by a licensed professional namely Insolvency Professionals (IPs). These individuals will manage the debtor’s assets and help creditors in decision-making.

Why and How to Ensure MCA Compliance for Pvt Ltd Company? Complying to the above-mentioned regulations are pivotal to avoid any potential legal issues, avoid penalties, and safeguard investors’ interest to ensure that your private limited company operates legally and ethically in the corporate world.

Annual Compliances for Private Limited Company

The Company Act 2013 prescribes a detailed list of rules and regulations a business must adhere to. The following list highlights those compliances to help companies enhance their legal conformity and bring greater accountability and transparency to their business operations.

Financial Statement:

Financial statements (FS) or financial reports of a business are sets of documents that show a company’s financial status. Financial statements reveal the financial position of a company on a particular date. It provides information on the obligations of a business, its earning capacity, and cash flows, and discloses accounting policies. There are three main types of financial statements a company has to prepare and publish on an annual basis.

● Income Statement: Also referred to as a profit and loss statement, it provides information on revenue, expenses, losses, and gains (net income) of a company over a particular period.

● Balance Sheet: Also known as the statement of financial position, it provides detailed insights into the company’s liabilities, assets, and shareholder equity at a specific point in time.

● Cash Flow Statement: The statement reports the inflow and outflow of cash and cash equivalent and shows how well the business manages its cash position.

As per the accounting standard notified by the MCA, every company is required to submit a copy financial statement to ROC within 30 days of the date of the AGM. The statements must provide a true and fair picture of the company’s affairs. It must be audited by an auditor and an auditor’s report is required specifying the ‘true and fair view’ of the FS. Understand the Importance of Corporate Governance for Pvt Companies to stay compliant with all the mandated government regulations.

Note: Those enterprises that newly Register a Private Limited Company (start-up), or are an OPC, Small Company, or Dormant company are exempted from preparing a Cash Flow Statement.

Annual General Meeting:

AGM is the yearly gathering of shareholders and directors where key decisions and the performance of the company are discussed. The main objective of the AGM is to present the company’s FS to shareholders and discuss matters related to the company’s management and operations.

As per section 96, Companies Act 2013, all private companies are required to hold their first AGM within 9 months from the end of the financial year. The subsequent AGM must be held within 6 months from the closure of the financial year.

If a company fails to conduct AGM within the stipulated time frame, it will be considered as a violation of the act. Thus, as a penalty, the company will be legally obliged to pay Rs. 1 Lakh or higher as may be prescribed by the Government of India. The directors too will be subject to a penalty of up to Rs. 1 Lakh for every default.

Appointment of Auditor:

Every private limited company is obligated to appoint an auditor within 30 days of its incorporation. ROC must be informed about the appointment within 15 days by filing ADT-1. The company is required to appoint an auditor at every AGM who will continue to hold office till the end of the next AGM.

However, if a company fail to appoint an auditor during an AGM, the appointed auditor will continue to hold his office till a new one is appointed. As per the Companies Act 2013, an individual auditor cannot serve for more than five consecutive years. Whereas, an audit firm can be appointed for a maximum of two terms and each term comprises five years.

If a company fail to intimate ROC regarding the appointment of an auditor through ADT-1, the company and every officer involved in the default will be liable to pay a penalty not less than Rs. 10,000. This fine can extend up to Rs. 1 Lakh. Delayed filing will further attract additional fees.

Annual Returns:

Once an entity Register a Private Limited Company, he/she becomes obliged to submit annual returns to the Registrar as per CA 2013. Every company has to file annual returns using MGT-7 that contain information related to shareholders, shareholding patterns, changes in the board, and other key corporate information. Adhering to the stipulated regulations will assist the company in Leveraging Pvt Ltd Registration for Global Expansion and tap larger international markets, enhancing profitability and efficiency in the long-run.

Further, every company is required to file a Director’s report, auditor appointment report, and financial statements, and maintain a register of members. Failure to comply with these norms will attract penalties and fines.

Final Thoughts

Therefore, private limited companies in India are required to comply with various government regulations including obtaining certificates, filing returns, and maintaining financial statements like Profit and Loss Accounts, Balance Sheet, and Cash Flow Statement. The companies are also obliged to file income tax returns, conduct annual audits and attach auditor’s reports specifying how the company has complied with all the regulations. In addition, Pvt Ltd companies have to hold annual general meetings and board meetings at specified intervals.

Government regulations consist of a wide array of situations and complex jargon which might end up confusing you and pose an obstacle in timely reporting and compliance. Thus, Start Pvt Ltd Company Online with Legal Raasta and get end-to-end support at minimal cost. Understand these complex legal jargon with us and enhance your compliance with the right guidance and assistance.