This article has been written by Ayushi Sinha, pursuing the Diploma Programme in Companies Act, Corporate Governance and SEBI Regulations from LawSikho.
Table of Contents
Introduction
Congratulations on your company being incorporated, however, that being said, that’s only the tip of the iceberg. With the rise of start-ups and the digital market, avenues for the incorporation of various entities has increased over the years but it is equally important for these new ventures to be in consonance with the post-incorporation compliances. They are just as important as the forming of a company and defaulting on the same attracts penalties. Compliances, depending on the kind of company incorporated, may vary slightly. For example, one person company, a private company, limited liability partnership and company formed under Section 8 of the Companies Act are all subject to compliances but in varied terms. This article will aim to cover compliances mandated under the Companies Act, 2013. The following general compliances need to be adhered to when your company has been incorporated under the Companies Act, 2013.
Open bank account
After the company has been incorporated, the next step is to form a bank account to ensure transparency between the company and the shareholders. The master circular issued by the Reserve Bank of India, requires companies to submit the following to open a bank account, where the company is the account holder, one certified copy each of the following documents are required to open such bank account:
- Certificate of incorporation;
- Memorandum and Articles of Association;
- A resolution from the Board of Directors and power of attorney granted to its managers, officers or employees to transact on its behalf;
- An officially valid document in respect of managers, officers or employees holding an attorney to transact on its behalf;
- Copy of PAN allotment letter; and
- Copy of the telephone bill.
The same has to be handed to the bank in self-attested copies along with the company’s seal.
Introduction of share capital
Once, the company has successfully opened a bank account, the next step is to issue securities to the shareholders. To that effect, Section 56 of the Companies Act, mandates the company to issue share capital by sending the letter of allotment to its shareholders under the Memorandum of Association, within a period not extending sixty days from the corporation of such company.
The shareholders are to deposit the payment against the scrip in the Bank Account by a cheque or net banking. Further, Under Section 56(6) of the Companies (Amendment) Act, 2020, the default in case the company fails to issue share certificates will amount to INR 50,000.
A share certificate issued shall bear the following details:
- Number of share certificate,
- Name of the subscriber,
- Number of shares purchased,
- Face value of the share,
- Amount received,
- Kind of share (equity or preference).
First board meeting
Every company after Incorporation has to hold its first board meeting within thirty days of such Incorporation, this has been mandated under Section 173 of the Companies Act. However, the central government in pursuance of a notification may excuse a certain category or class of company. An amendment effective from 7th May, 2018 allowed board meetings to be conducted through physical presence or through video conference.
Further, after the first board meeting, the company has to hold at least 4 board meetings per annum. In instances where the company is formed under Section 8 of the Companies Act, 2013, the company will be mandated to hold at least one meeting in the last 6 calendar months and for One-person company, private company and small company board meeting should be held at least once in 6 months, though the gap should at least be of 3 months between the former and the latter.
Compliances related to stationary
Post incorporation of a company, the company must fulfil its mandate under the Companies Act for the functioning of the company by maintaining the following:
- The Name Board of the Company is to be placed outside all the Registered offices/ Branch of the company and such Name Board should be printed in legible words so that it is easily understood by all (Section 12)
- The Company must ensure that all Letterheads, notices, billboards etc. of the company should include the name, registered address of the company, the telephone, email and Company identification number (Section 12).
- The company should ensure that they have a company seal which bears the name and designation of the authorized person which will be used as authorized signature against the company transactions, board resolutions, the opening of accounts etc.
- As mentioned earlier, securities are allotted to the shareholders after the incorporation of the company. Hence, to document such scrip sold against consideration paid by the subscriber, the company has to issue share certificates as well which will be held by the members associated with the memorandum of the company.
- Under the Companies Act, it is required by all companies to maintain statutory registers which will keep record of the directors, members, securities and accounts related to working of a company. This Statutory register has to be constantly updated and kept in the registered office.
Registered office
Section 12 of the Companies Act, 2013 mandates Companies to establish registered office within 30 days of the incorporation of a company. All communications and acceptances shall be made to and from the registered office. Further, the Registrar should be furnished with the verification of such registered office within 30 days of the incorporation.
Wherein, the company changes its address of the registered office after the incorporation, the notice has to be sent to the Registrar within a month of such change. However, the company cannot move to jurisdiction of another registrar, unless approved by the Region’s Director.
Appointment of auditor
This is one of the most important compliance which is regularly missed by recent entities. According to section 139 of the Companies Act, 2013, an Auditor shall be appointed at the first Board Meeting who can either be an individual or a firm and shall hold the office till the sixth Annual Board Meeting. The members, however, need to ratify the appointment of such auditors in every meeting. Before the appointment of the Auditor is placed before the board, the company shall take written consent from the nominated auditors which shall also include that the individual or firm has fulfilled the criteria provided under Section 141 of the Companies Act.
After the auditor has been appointed, the notice of such appointment shall reach the auditor and the Registrar of companies, within 15 days of such appointment. Central government has the authority to change the auditors as prescribed in the Rules.
Section 139(6) allows the Board of Directors of a company to appoint its first auditor in case the company is not a government-run entity within 30 days. Subsequently, if they fail to do so, the members are given 90 days to appoint the auditor by an Extraordinary General Meeting.
However, under Section 139(7) if the entity is government-owned or partially in control of the government then the first Auditor is to be appointed by the Controller and Auditor-General of India within sixty days. However, if they fail to do so, the Board of Director shall appoint the Auditor within the next thirty days.
Hence, a Chartered Accountant holding a certificate of practise shall be eligible to hold the position of an Auditor in a newly appointed corporation. In pursuance to that, the ADT-1 From has to be filled on the Ministry of Corporate Affairs Website to adhere to the compliance. Though another opportunity is provided to entities not filing such form at the prescribed time, it does attract certain penalties under Section 147 of the Companies Act, 2013.
Professional tax registration
Another mandatory compliance that new corporations have to comply with is the Professional Tax Registration. The Professional tax is remitted by the employer from the account of salaried individuals employed under him in any trade or business and then sent to the State Government. It can be equated with Income Tax levied by the Central Government, whereas, Professional tax is within the jurisdiction of the State Government. The cap on the professional tax is set by the state government of every state.
Also, it is important to note that not all state levy such tax and only the following impose it on the mandatory basis: Andhra Pradesh, Assam, Chhattisgarh, Gujarat, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Meghalaya, Odisha, Sikkim, Tamil Nadu, Telangana, Tripura, and West Bengal.
Conclusion
One must keep in mind that under the law, ‘Ignorantia juris neminem excusat’ which translates to ‘ignorance of law is no excuse for breaking it’. Often new entities fail to fulfil the above mandated due to lack of awareness, hence, this article aims to provide a concise requirement of law in a few words. Therefore, if one adheres to the above mentioned immediate steps that needs to be taken on account of a newly incorporated company then the new company can easily ward off any penalties under the Companies Act, 2013. Otherwise, the directors and members of the company are penalised with fines as prescribed under the Companies Act, 2013.
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