Annual Compliance to be made by Private Limited Company in India

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The annual mandatory compliances which a private limited company has to  follow are listed below:

  1. Appointment of Auditor

The Statutory Auditor of the company shall be appointed for the 5 (Five) years and e-Form ADT-1 shall be filed for 5-year appointment. After that, in every year AGM, Shareholders shall ratify the Auditor, though there is no need to file e-Form ADT-1. The first Auditor of a company shall be appointed within one month from the date of incorporation of the Company.

  1. Statutory Audit of Accounts

Every Company shall prepare its Accounts and get the same audited by a Chartered Accountant at the end of the Financial Year compulsorily. The Audit Report and the Audited Financial Statements shall be attached for the purpose of filing it with the Registrar.

  1. Filing of Annual Return (e-Form MGT-7)

Every Private Limited Company is required to file its Annual Return within 60 days of holding of Annual General Meeting. Annual Return will be for the period 1st April to 31st March. There shall be attached the list of shareholders, as annexure to the e-Form MGT-7.

Annual Return shall be digitally signed by a Director and the Company Secretary; or where there is no Company Secretary by a Company Secretary in Practice.

If paid up capital of the company is more than Rs. 10 crore or turnover is more than Rs. 50 crore, a copy of e-Form MGT-8 (Certificate by Practicing Professional) is required to be annexed in e-Form MGT-7.

  1. Filing of Financial Statements (e-Form AOC-4)

Every Private Limited Company is required to file its Balance Sheet along with statement of Profit and Loss Account and Directors’ Report in this e-Form AOC-4, within 30 days of holding of Annual General Meeting.

  1. Holding Annual General Meeting (AGM)

It is mandatory for every Private Limited Company to hold an Annual General Meeting of the shareholders in every Calendar Year. Companies are required to hold their AGM within a period of six months, from the date of closing of the Financial Year.

  1. Holding of Board Meeting

 Every Company shall hold a minimum number of FOUR meetings of its Board of Directors every year in such a manner that maximum gap between two meetings should not be more than 120 (One hundred twenty) days. Company should hold at least 1 (one) Board Meeting every quarter of calendar year.

Preparation of Directors’ Report

Directors’ Report shall be prepared with a mention of all the information required under Section 134 of the Companies Act, 2013. Board’s report and any annexures thereto shall be signed by the ‘Chairperson’ authorized by the board or at least by two directors.

The above are the minimum annual compliances for a Private Limited Company in India – essentially, having minimum of 4 board meeting in a year, having an annual general meeting and having the audited accounts and filing e-Forms MGT-7, AOC-4 and ADT-1 with Ministry of Corporate Affairs.

Non-Compliance

If a Company fails to comply with the rules and regulations of the Companies Act, then the Company and every officer who is in default shall be punishable with fine for the period for which default continues.

If there is delay in any filing, then additional fees is required to be paid, which keeps on increasing as the time period of non-compliance increases.

Other event-based filing with e-Form MGT-14

Besides Annual Filings, there are various other compliances to be made as and when any event takes place in the Company. The instances of such events are:

  • Change in Authorised or Paid up Capital of the Company. – e-Form SH-7
  • Allotment of new shares or transfer of shares – e-Form PAS-3
  • Amendment of Objects Clause of Memorandum of Association
  • Change of situation of the Registered Office – e-Form INC 22 / e-Form INC 23
  • Giving Loans to other Companies.
  • Giving Loans to Directors
  • Appointment of Managing or whole time Director and payment of remuneration.
  • Availing of Term Loan / Working Capital or enhancement of WC limits from banks or institutions.
  • Raising of Private Equity or going for IPO.
  • Appointment or change of the Statutory Auditors of the Company.

Different forms are required to be filed with the Registrar for all such events, with e-filing of resolutions and agreements to the Registrar in e-Form MGT-14, within specified time periods. In case, the same is not done, additional fees or penalty might be levied. Hence, it is necessary that such compliances are met on time.

Foreign VCs can now invest in unlisted firms sans RBI nod

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Foreign venture capital entities can now invest in unlisted Indian companies without Reserve Bank of India approval.

The venture capital firm will, however, have to be registered with market regulator SEBI. The investment can be made in an Indian company in 10 specific sectors or in any start-up.

The central bank on Thursday amended the regulations governing foreign venture capital investors (FVCI) in order to further liberalise and rationalise the investment regime and to give a fillip to foreign investment in start-ups.

According to the RBI, the 10 sectors in which SEBI-registered FVCIs can invest without its nod are: biotechnology, IT, nanotechnology, seed research and development, discovery of new chemical entities in pharmaceutical sector, dairy industry, poultry industry, production of bio-fuels, hotel-cum-convention centres with over 3,000 seating capacity, and infrastructure sector. FVCIs can also invest in equity, equity-linked instruments or debt instruments issued by an Indian ‘start-up’ irrespective of the sector in which it is engaged. The RBI said a start-up will mean an entity (private limited company, registered partnership firm or a limited liability partnership) incorporated or registered in India not prior to five years, with an annual turnover not exceeding Rs. 25 crore in any preceding financial year.

These start-ups should be working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property and satisfying certain conditions as given in the Foreign Exchange Management Regulations, 2016.

The RBI also said FVCIs can invest in units of a venture capital fund (VCF) or a Category-I alternative investment fund (AIF) or units of a scheme/fund set up by a VCF or by a Category-I AIF.

In a circular issued to banks authorised to deal in foreign exchange, the RBI said: “In order to further liberalise and rationalise the investment regime for FVCIs and to give a fillip to foreign investment in the start-ups, the extant regulatory provisions have been reviewed, in consultation with the Government of India.”

The consideration for all investments by an FVCI can be paid out of inward remittance from abroad through normal banking channels or out of sale/maturity proceeds of or income generated from investment already made. There will be no restriction on transfer of any security/instrument held by the FVCI to any person resident in or outside India.

Source: http://www.thehindubusinessline.com/todays-paper/foreign-vcs-can-now-invest-in-unlisted-firms-sans-rbi-nod/article9247432.ece

Assam gets off the block with GST registration

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The BJP-ruled Assam, the first state to ratify the GST Amendment Bill, has started the process for providing registration to taxpayers in the new indirect tax regime that is slated to kick in from April next year.

The state tax department has started collecting mobile numbers and e-mail IDs of registered dealers or taxpayers under VAT, CST, entry tax, luxury tax and entertainment tax to provide Goods and Services Taxpayers Identification Number (GSTIN) on a provisional basis.

In order to facilitate communication of GST registration number to the existing registered entities, the Assam tax department has asked them to furnish the mobile number and email ID on or before November 5, 2016.

“If such mobile numbers and e-mails IDs are not furnished on or before November 5, 2016, GST registration number will not be generated.

Moreover, such dealers will be disabled to upload their tax returns and apply for statutory forms under the existing Acts,” it said. It has asked the taxpayers to log into the tax department website of the Assam government and after feeding the mobile number, PAN and e-mail ID, the provisional GSTIN will be sent.

The government plans to roll out GST, which will subsume excise, service tax and other local levies, from April 2017. In the run-up to the biggest indirect tax reform, the states have to get their taxpayers registered with the pan-India GST Network, which will help in seamless movement of goods and services throughout the country.

After the GST Constitutional Amendment Bill was passed by Parliament on August 8, Assam was the first state to ratify it on August 12.

A constitution Amendment requires ratification by 50 per cent of state Assemblies before presidential assent.

With the President approving it last month, GST is now a law and the GST Council, chaired by Union Finance Minister Arun Jaitley, will decide on the crucial tax rate in its three-day meeting beginning tomorrow.

Source: http://www.moneycontrol.com/news/economy/assam-gets-offblockgst-registration_7635021.html

IPO fund-raising in India highest since 2011

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Fund raising through initial public offerings (IPOs) has crossed $2.9 billion in 2016 and another $2.9 billion is to be raised through these offerings this year, according to a research report by Baker & McKenzie.

Around 22 companies are waiting to tap the markets bringing the year-end estimated total deal value to $ 5.8 billion, more than double last year’s $2.18 billion from 71 listings, and also the highest since 2011, the report said.

The report further said that 16 companies are in the pipeline to be listed domestically in 2017, raising as much as $5.86 billion, including Vodafone’s highly anticipated $3 billion IPO, which could potentially surpass the state-run Coal India’s IPO in 2010 to become India’s biggest IPO.

The report said the momentum in India’s IPO market continues to build, boosted by the central government’s push to ease of doing business in India.

The report added that Goods & Services Tax (GST) Bill which will take effect on 1 April 2017 will have a positive effect on the market.

“The GST Bill will not only bring about the immediate benefit of widening the country’s tax base and improving the revenue productivity of domestic indirect taxes, but more importantly, it sends the message to the people of India and the rest of the world that the Indian government is committed to the country’s economic reform, further bolstering India’s attractiveness as an investment destination,” said Ashok Lalwani, head of Baker & McKenzie’s India Practice.

The report said dual listing on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) of India accounted for 98.8% of Indian companies’ listings by value in 2016 year to date, raising a total of $ 2.9 billion from 19 IPOs, including ICICI Prudential Life Insurance’s $909 million IPO, which is the country’s biggest IPO this year.

A total of 33 companies are expected to dual list on both the BSE and the NSE by the end of 2016, raising a total of $4.62 billion. Improved business confidence is also driving Indian companies to look at growth and market expansion opportunities overseas by way of cross-border IPOs, the report said.

Among the 22 IPOs in the 2016 pipeline is Strand Life Sciences’ listing on NASDAQ, which if it goes ahead, will be India’s first cross-border IPO since early 2015 when Videocon d2h got listed, the report added.

Source: http://www.financialexpress.com/industry/companies/ipo-fund-raising-in-india-highest-since-2011/415830/

GST lends more weight to India’s 8% growth projection: S&P

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Calling GST as the most important structural reform till date by the Modi government, S&P Global Ratings today said the passage of the indirect tax law gives it additional conviction of India clocking 8 per cent growth in the next few years.

“India’s GST passage gives us additional conviction around our 8%-ish GDP growth forecast over the next few years,” it said in a report titled ‘Asia-Pacific steadies while China goes silent’.

The rating agency had last month projected India to clock a “steroid-free” growth of 8 per cent in coming years. “The GST passage is arguably the most important structural reform to date by the Modi government and will improve efficiency, cross-state trade and tax buoyancy,” it said today.

It saw a reasonably firm pick-up in Asia-Pacific’s macro momentum indicators, with pick-up in retail sales offering the clearest sign in most of the region’s economies. This, it said, stems from rising income, which in turn is part of the region’s evolving growth dynamics, with consumption playing a larger role.

S&P said China has been nudged up as it raised the GDP growth forecast by about a quarter percentage point in 2016 and 2017 to 6.6 per cent and 6.4 per cent, respectively, and has kept its 2018 forecast roughly unchanged at 6.1 per cent.

Japan’s second-quarter out turn was weaker than expected, it said, adding that its 0.7 per cent GDP growth forecast for 2016 looked like “a mild stretch at this point”.

In its ‘APAC Economic Snapshots — September 2016’ report, it had stated that India’s structural reforms agenda had maintained strong momentum and, most recently with the GST passage, should propel growth higher. “For India, we are still forecasting GDP growth at about 8 per cent over the next few years. Moreover, this is relatively high quality, steroid—free growth backed by a broadening consumption base,” S&P had said.

“Inflation remains a risk, given the large weights on food, fuel, and other volatile items in the Reserve Bank of India’s target basket,” S&P had said.

The latest gross domestic production (GDP) figures showed that India’s growth slowed to 7.1 per cent in the April-June quarter, from 7.9 per cent in January-March.

RBI has also said the near-term growth outlook for India seems brighter than last fiscal’s and the economy is likely to expand at 7.6 per cent in 2016-17.

Source: http://www.thehindubusinessline.com/economy/gst-lends-more-weight-to-indias-8-growth-projection-sp/article9208148.ece

Rotation of auditors and its side effects

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The Companies Act, 2013, has introduced important audit reforms. One of the important reforms is rotation of the auditor.

Important provisions under this reform

  • All listed companies; unlisted public limited companies having paid-up share capital of Rs 10 crore or more; all private limited companies having paid-up share capital of Rs 20 crore or more, and all companies having public borrowings from financial institutions, banks or public deposit of Rs 50 crore or more are required to rotate their auditor.
  • An individual cannot continue as an auditor for more than one term of five years and an audit firm cannot continue as an auditor for more than two terms of five years
  • The cooling off period is five years.
  • The provision must be complied by April 1, 2017.

Benefits of this reform

  • This is expected to improve audit quality, resulting in improved financial reporting.
  • Would give local auditors more leverage, if implemented properly along with some other measures.

Local auditors v/s the Big Four

  • Local firms dominate the Indian audit market. However, the presence of the Big Four audit firms (Deloitte, PWC, E&Y and KPMG) cannot be ignored.
  • The Big Four are the largest professional service network in the world. They provide audit, assurance, tax, consulting, advisory, actuarial, corporate finance and advisory services. In India, they cannot provide audit services directly.
    • It is alleged that they flout rules while providing audit and assurance services. Many foreign investors put a condition that the auditor of their choice should be appointed. This helps the Big Four audit firms to grow in India.
    • There is an apprehension that many companies that get their accounts audited by local firms will appoint one of the Big Four or another large international professional service network as auditors.
    • Hence, the Ministry of Corporate Affairs had notified the constitution of a three-member expert group to look into the complaint that the Big Four are circumventing rules and to find ways to help local firms.

Should the government intervene?

  • Local auditors are mostly present in tier 2 and tier 3 cities and audit 62 % of the companies listed on BSE 500.
  • They provide a variety of services to small companies. They lack aspiration to become big.
  • Therefore, it is debatable whether there is a case for government’s intervention to protect local audit firms

Way ahead and Conclusion

Chartered accountants are prohibited from soliciting professional work through advertisement or otherwise. But they can respond to tenders.

  • The practice of issuing a tender for the appointment of internal auditors is quite common among public enterprises. Such a practice is not common among private-sector companies.
  • Tendering is the right method to search for the right audit firm. This increases choice and reduces auditing cost through competition.
  • Companies should not limit their choice to the Big Four and other international firms or a few large local audit firms.
  • There are local firms that have capabilities to audit large and complex transactions. Search through tendering process would help to identify such firms.

It will be interesting to see how the new rules regarding rotation of auditors will actually impact the auditing profession.

 

Source: http://www.business-standard.com/article/opinion/rotation-of-auditors-and-its-side-effects-116100900736_1.html

Sebi deems share transfer by promoters by way of gift as sale

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Any inter-se transfer of shares by a promoter to his wife will be considered as sale even if it is in the form of a gift where no monetary transaction is involved, Sebi said.

According to guidelines, the promoters are not eligible for preferential allotment of shares or warrants if there has been any inter-se transfer of shares among promoter group firms in the last six months.
Giving its views on an application filed by KJMC Financial Services, the watchdog said that as envisaged in the Sebi ICDR (issue of capital and disclosure requirements) regulations, any transfer of shares in the form of gift will be considered as sale.
As per Sebi’s ICDR regulations, if any person belonging to the promoter or promoter group in the issuer company has sold his equity shares during the six months preceding the relevant date, such entity will be ineligible for allotment of specified securities on a preferential basis.
KJMC Financial Services had sought an interpretative letter from Sebi on whether transfer of shares by its promoter to his wife by way of gift will be considered as sale under the Sebi’s ICDR regulations.
“Our view is that the inter-se transfer by way of gift will be considered as sale as envisaged… in the Sebi ICDR regulations,” Sebi said, adding that its response is based on the information given in the company’s letter. Referring to the ICDR regulations, the regulator said: “The primary intention of the regulation was not with respect to consideration, but with change in ownership of equity shares.” It added: “Different facts or conditions might lead to a different result.

Further, this letter does not express a decision of the board on the questions referred.” The watchdog also said its views are expressed with respect to the clarification sought in terms of Sebi ICDR norms and is not applicable to any other Sebi regulations.

Source: http://www.moneycontrol.com/news/economy/sebi-deems-share-transfer-by-promoters-by-waygift-as-sale_7454721.html?utm_source=ref_article