Formalities and Compliances to be Adhered to by New Start-ups

It has been a great time for startups lately in India, particularly in the running decade. Swift progress in diverse sectors has led to a momentous upsurge in the number of Indian startups. A Startup may be established in several forms such as One Person Company (OPC), Limited Liability Partnership (LLP) or a Partnership firm. Further to prevailing laws, each of the forms is governed by different legislation. It is obligatory to adhere to labour laws, tax laws, securities laws, environmental laws, contract laws, IPR laws, and many others aside to incorporation laws.

Startups must adhere to such compliances to make the most of various benefits and schemes planned by the Indian government while avoiding penalties. They should also be prepared to face progressions for dispute settlement, litigation, mediation, arbitration, conciliation, negotiation and more. The Indian government has formed a comprehensive policy to facilitate startups as well.

Mandatory Compliances under Companies Act 2013

Startups, registered as a Private Limited company, must comply with the following provisions of the Companies Act, 2013.

Annual General Meeting (AGM)

Holding AGM once per year is mandatory, and the duration between two AGMs must not exceed 15 months. The key objectives of an AGM are dividend declaration, acceptance of financial statements, the appointment of auditors, etc. It has to be held within the company's registered office premises.

Board Meetings

The first board meeting should be held within 30 days after the company's incorporation. One AGM has been made mandatory for every six months' duration. While this, it is also to comply that there should be a difference of at least 90 days between two AGMs.

Besides all this, in every financial year, four board meetings should be arranged such that the gap between two consecutive board meetings is not more than 120 days.

Appointment of Auditor (E-Form ADT-1)

Appointment of the first statutory auditor should be completed within 30 days of incorporation of the company, i.e. during the first meeting of the board. The appointment of subsequent auditors in AGM could be finalized.

The company needs to file an ADT-1 form for an auditors appointment of 5 years. In every AGM, the shareholder endorses the auditors, but there is no need to file ADT-1 at any time.

File e-Form MGT-7

MGT-7 is an electronic form which all companies will compulsorily apply to the Ministry of Corporate Affairs (MCA). It has all the information associated with an annual return for a company. The Registrar of Companies (ROC) keeps an electronic record of this form. Any business registered as a private limited company is required to file MGT-7 annually.

File e-Form AOC-4

For every financial year with the ROC, Form AOC-4 is used to file the financial statements. Financial statements serve as a form of communication between management boards and shareholders. Any company registered under the Companies Act, 2013 should, therefore, file AOC-4.

Filing Directors' Report

The Companies Act, 2013 provides for the preparation of a board report stating the specifics of each organization, its state and activities during the year, dividend declaration, net profit, accounting enforcement, financial and corporate social responsibility standards set out in. The Director's Report should be filed summarizing and covering all the details required by various sections of the Companies Act, 2013, for a company.

The report should be signed by the chairperson approved by the board, should it be signed by at least two directors in case there has been no authorization.

Form MBP-1

Every company director will file MBP-1 at the first meeting of the board in each financial year in which they would report their interest in other companies. A fresh MBP-1 must be submitted in case of any subsequent change in the director's interest.

Form DIR-8

For the non-disqualification disclosure, every director must file DIR-8 in each financial year.

Books of Accounts and Statutory registers

There are other compulsory registers to keep. Such are:

1. Book minutes for Board and General Meeting;
2. Statutory Registers;
3. Financial Statements, or Account Books
4. Directors' documented Attendance at meetings of the Board or Committee.

Circulation of Financial Statement and other relevant documents

The company should compulsorily file before the AGM, the financial statements, the Director's Report and the Auditors' Report to the company's members.

Essential GST Compliances for Start-up

All taxpayers who are enrolled under GST laws must file GST returns on a monthly and quarterly basis, depending on their turnover.

Like any other law, the GST law also has some exceptions. Taxpayers falling under those, do not need to file their GST return.

Income Tax compliances for Start-up

In India, the filing of TDS returns is compulsory according to the provisions of the Income Tax Act. The assessee which deducted TDS must file the returns. TDS reports are to be filed quarterly.

Additional compliances

Besides Mandatory Compliances under Companies Act, 2013, there are a few more compliances that a newly registered company should meet upon their trigger:

  • Periodic assessment and payment of advance tax.
  • Filing of Income Tax Returns (ITR) filings.
  • Filing Tax Audit Report.
  • Regulatory Assessment of business under various acts like Competition Act, Environment and Protection Act, Factory Act, Prevention of Money Laundering Act, etc.

Conclusion

There are various compliances that a company needs to follow while operating a business. To avoid paying hefty fines for non-compliance, strict adherence to them is necessary. Every startup needs to evaluate its standing in the legal compliance spectrum, whether by a quick self-assessment or through a legal audit. It helps the startup close the gaps remaining uncovered due to ignorance or lack of knowledge. Once done, the startup must create a system to monitor amenability status and stay well-informed of the changes stirring in the regulatory and legal environment. Compliance must be a key part of the entire operating model of the startup or company. Becoming compliant enables startups to benefit from various government schemes and initiatives while being protected from severe fines and penalties of going against the law.

By: Ishanee Sharma
The author can also be reached at ishaneesharma@gmail.com

 

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on 28 March 2020
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