All the registered companies are required to hold annual general meetings and file the company’s annual return with the ministry of corporate affairs. Undoubtedly a director’s report is a very important document for all types of companies. According to the Companies Act, 2013 every board of directors of a company has to attach the reports to its financial statements to be given before the members of the company at the annual meeting Financial reporting is necessary for companies as it provides details of the state of a company and its compliance with financial, corporate social responsibility and accounting standards. Public and private limited companies must file a financial document called the directors’ report at the end of the financial year. The directors’ report is the report prepared by the Board of Directors of the company and should be attached to every financial statement
Directors Report and Abridged Directors Report
The financial documents containing all the details of the company’s state and its compliance with financial and accounting responsibilities are known as the director’s report. As per the Companies Act, 2013 every board of directors of a company has to attach the reports to its financial statements before giving them to the members of the company at the annual meeting. whereas, the one-person companies (OPC) and the small companies don’t need to file the director’s report. Instead of that, they can file an abridged director’s report and the abridged director’s report is the short version of the director’s report. The Ministry of Corporate Affairs (MCA) introduced this kind of report for OPC and small companies in 2018. Moreover, the board reports of these companies are based on the standalone financial statement of the company in the form of abridged director’s reports according to the prescribed rules.
Contents of Director’s Report as per Companies Act,2013
- The number of meetings by the board of directors
- Information about annual return extract as provided under section 92(3) of the companies Act, 2013.
- Responsibilities of the director’s as per section134(5) of the act.
- All the details regarding the frauds reported by the auditors as per section 143(12) of the Act other than those reportable to the central government.
- The statement of the declaration provided by the independent directors as per section 149(6) of the Act.
- Particulars of guarantees, Investments or loans made under section 186 of the Act.
- The company’s state of affairs.
- The amount that companies propose to carry to any reserve if any.
- Comments and explanations by the board on every reservation, qualification, adverse disclaimer, or remark made by the auditors.
- Details of the policies developed and implemented by the company.
- The conservation of energy, technology absorption and foreign exchange earnings, as per the manner given under rule 8(3) of the companies (accounts) rules, 2014.
- Further, such other matters and information of the company are given in the report.
Purpose of the Director’s Report
According to section 134(3) of the companies Act, 2013, the directors of a company report at the end of every financial year. It ensures greater transparency, for this reason, the director’s report helps shareholders of the companies to understand various information like:
- How the company is performing in the market and how the market is performing in general.
- The finances of the company are in good condition or not.
- Whether the company can develop, grow and expand or not.
- Is the company complying with accounting standards, financial regulations, and corporate social responsibility requirements
Small Company under the Companies Act
To provide various benefits to companies with less turnover the government introduced the concept of a small company. So, companies with less turnover and paid-up capital are called small companies and these companies have no separate registration, and they will be registered as Public Limited Companies.
Small companies are defined under section 2(85) of the companies Act, 2013, as a company, other than a Public Company having:
- Firstly, paid-up share capital not exceeding Rs. 2 crore or such specified higher amount which shall not be more than Rs. 10 crores.
- Secondly, a turnover of such companies not exceeding Rs. 20 crore or such specified higher amount which shall not be more than Rs. 100 crores.
The definition of small companies does not include the following companies:
- A company registered under section number 8 of the Companies, Act, 2013.
- A Subsidiary or holding company
- A company or body corporate governed by any special act of both central and state.
Disclosures to be made in the abridged Director’s Report: Small Company
Rule 8A of the Companies (Accounts) Amendment Rules, 2018 states that the following matters should be disclosed in the abridged director’s report of an OPC and small company:
- It should display the web address where the copy of the annual return is placed as given in section 92(3) of the Act.
- A Total number of the board of directors’ meetings.
- Director’s responsibility statement as per section 144(5) of the companies Act.
- All the details regarding the frauds reported by the auditors as per section 143(12) of the Act other than those reportable to the central government.
- The company’s state of affairs.
- The summary and highlights are related to the company.
- Comments and explanations by the board on every reservation, qualification, adverse disclaimer, or remark made by the auditors.
- Details related to appointment and resignation of directors during the year.
- Further, The Other significant orders, details or material passed by the regulations, tribunals and court. Which will impact the company’s status and its future operations.
Contents of a Directors’ Report as per Companies (Accounts) Rules, 2014
Rule 8 of the Companies (Accounts) Rules, 2014, provides that the board’s report should include the following information:
- The directors must prepare the board’s report on the basis of stand-alone financial statements of the company
- The directors’ report must contain a separate section where a report on the financial position and performance of all associates, subsidiaries, and joint venture companies included in the consolidated financial statements is presented.
- The following are the details relating to the conservation of energy:
- The impact or steps taken on the conservation of energy
- The steps taken for the usage of alternate sources of energy
- The capital investment in energy conservation equipment
- Contents of boards’ report as per Companies Act, 2013
- The following are the details relating to technology absorption:
- The efforts made towards technology absorption
- The benefits derived like cost reduction, product development, product improvement, or import substitution
- In the case of imported technology, i.e. imported during the previous three years, details of technology imported, year of import, whether the technology has been fully absorbed and the areas and reasons where absorption has not taken place
- The expenditure incurred on research and development
- The earned foreign exchange in terms of actual inflows during the year
- The outgo foreign exchange during the year in terms of actual outflows
- The financial highlights or summary
- Any changes in the nature of business
- The details of key managerial personnel or directors who were appointed or resigned during the year
- The names of companies that have ceased or become its joint ventures, subsidiaries, or associate companies during the year
- The following details relating to:
- Deposits accepted during the year
- Unpaid deposits or unclaimed deposits at the end of the year
- Default in payment or repayment of deposits or payment of interest during the year, number of such default and the total amount involved at the beginning of the year, maximum during the year and at the end of the year
- Details of deposits that are not in compliance with the requirements of Chapter V of the Act
- The details of material and significant orders passed by the regulators, tribunals or courts impacting the company’s operations in future and going concern status
- The details regarding the adequacy of internal financial controls concerning the financial statements
Additional Contents of a Directors’ Report for Listing Companies
Section 197(12) of the Companies Act, 2013, prescribes that the listed companies should disclose the remuneration ratio of all directors to the median employee‘s remuneration and such other details in the board‘s report.
According to Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the board’s report should include the following information:
- The increase in the percentage of the remuneration of each chief financial officer, director, chief executive officer, manager, or company secretary in the financial year, if any
- The increase in the percentage in the median remuneration of the employees in the financial year
- The number of permanent employees on the rolls of the company
- The explanation on the relationship between company performance and an average increase in remuneration
- Comparison of the remuneration of the KMP (Key Managerial Personnel) against the performance of the company
- Variations in the company’s market capitalisation and price-earnings ratio as on the closing date of the current financial year and previous financial year
- Average percentile increase made in the employees’ salaries other than the managerial personnel in the previous financial year
- The key parameters for variable components of remuneration availed by the directors
- The remuneration ratio of the highest paid director to that of the employees who are not directors but receive remuneration above the highest paid director during the year
- Affirmation that the remuneration is according to the remuneration policy of the company
- A statement consisting the name of every employee of the company indicating the following:
- Designation of the employee
- Remuneration
- Nature of employment, whether contractual or otherwise
- Experience and qualifications of the employee
- Date of commencement of employment
- Age of the employee
- The last employment held by the employee before joining the company
- The equity shares percentage held by the employee in the company
- Whether such employee is a relative of manager or director of the company and name of such manager or director
Penalty for not Preparing the Directors’ Report- The board’s report or Directors’ report and its annexures should be signed by the company’s chairperson when the board authorises them. When the board does not authorise the company’s chairperson for signing the report, at least two directors should sign the report, one of whom must be a managing director. A signed copy of the directors’ report should be circulated, issued or published on the company website.
When a company defaults in the preparation of the board’s report and directors’ report, the company has to pay a penalty of Rs.3 lakh, and every officer of the company in default has to pay a penalty of Rs.50,000.
Draft Format of Director’s Report: Small Company
Dear Members
Your Directors have the pleasure of presenting the annual report together with the audited statement of accounts of the company for the ended March 31, YYYY.
1) Financial Results
The financial performance, for the year ended March 31, YYYY:
| Particulars | Year ended 31st march YYYY | Year ended 31st march YYYY |
| Profit Before Tax | ||
| Turnover | ||
| Less: Current Tax | ||
| Deferred Tax | ||
| Income Tax | ||
| Profit for the Year | ||
| Less: Appropriation | ||
| Revenue from Operations (Net) | ||
| Other Income | ||
| Extraordinary Items | ||
| Total Revenue |
2). State of companies Affairs
The company engaged in the business of __(work of company)__. There are no changes in the business of the company during the financial year ended 31st March YYYY.
Constitution of the board: There has been no change in the constitution in the Board during the year under review. The composition of the Board of the company follows: –
1.__________
2.__________
3). Meeting of the Board Directors
During the financial year 2023-24, the Board of Directors of your company duly met 4(Four) times as per the provisions of Section -173 of Companies Act, 2013 and rules made thereunder.
| Sr. No | Date of meeting | Board Strength | No of the Director’s Present |
4). Statutory Auditors
____________& Associates, Chartered Accountants, have been appointed as statutory auditors of the company at the Annual General Meeting held on _____________ for Five years’ subject to ratification by members at every consequent Annual General Meeting.
The Companies (Amendment) Act, 2017 published in the Gazette of India on January 3, 2018, amended a few sections of the Companies Act, 2013 including the omission of the first proviso to Section 139(1) of the Companies Act, 2013 which provided for ratification of the appointment of Statutory Auditors by members at every AGM. The Amendment to said section is already effective from May 7, 2018.
Given the above, the Board of Directors of the Company have proposed partial modification of the previous resolution of the members passed at the 1st AGM of the company on the appointment of Statutory Auditors and recommended to continue the appointment of ____________Associates, Chartered Accountants, Jaipur, as statutory auditors of the company for five years commencing from the conclusion of 1st AGM till the conclusion of 6th AGM of the Company, without seeking any further ratification of their appointment from members at this AGM and ensuing AGM till the tenure of the Statutory Auditors
The Notes on financial statements referred to in Auditor’s Report are self-explanatory and do not call for any further comments. The Auditor’s Report does not contain any qualification, reservation or adverse remark.
5). Directors Responsibility statement
According to, Section 134(5) of the Companies Act, 2013 the Board of Directors of the Company confirms that-
- In the preparation of the annual accounts for the year ended March 31, 2022, the applicable accounting standards read with requirements set out under Schedule III to the Act, have been followed and there are no material departures from the same.
- The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent to give a true and fair view of the state of affairs of the Company as of March 31, 2022, and of the profit of the Company for the year ended on that date.
- The Directors have taken proper and sufficient care for the maintenance of adequate accounting records by the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.
- The directors had prepared the annual accounts on a going concern basis; and
- The Company being unlisted, under sub-clause (e) of section 134(3) of the Companies Act, 2013 about laying down internal financial controls does not apply to the Company.
- The directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
6). Board of comments on auditor’s report
The notes on accounts referred to in the Auditor’s Report are self-explanatory and there are no adverse remarks or qualifications in the Report and therefore, do not need any further comment.
7). Material Changes and Commitments
No material changes and commitments affecting the financial position of the Company occurred between the end of the financial year to which this financial statement relates and the date of this report.
9). Details of significant material orders passed by the regulation, courts and Tribunals
No significant and material order has been passed by the regulators, courts, or tribunals impacting the going concern status and Company’s operations in future.
10). Sexual Harassment
The Company has in place prevention of Sexual Harassment Policy in line with the requirements of the Sexual Harassment of women at the workplace (Prevention, Prohibition and Redressal) Act,2013.
During the Financial Year, YYYY-YYYY were No complaints related to sexual harassment in the company.
11). Acknowledgement
Your Directors place on record their sincere thanks to bankers, business associates, consultants, and various Government Authorities for their continued support extended to your Companies activities during the year under review. Your Directors also acknowledge gratefully the shareholders for their support and confidence reposed on your Company.
FOR _________________________PRIVATE LIMITED
__________ _________
Director Director
DIN ________ DIN____________
Date: ____________
FAQs
Q: What is a Directors' Report?
The Directors’ Report is a formal document prepared by the board of directors that provides an overview of the company’s performance, financial position, and future outlook. It is an integral part of the annual financial statements.
Q: Is there a specific format for the Directors' Report for small companies?
The format of the Directors’ Report for small companies may vary based on regulatory requirements. Generally, it includes sections on business operations, financial performance, future outlook, and other relevant disclosures.
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