Over the years, the process of incorporating a company has been made simpler, which encourages full compliance by the companies. The management should be fully aware of the post-incorporation compliance to avoid any penalties or punishments.
The Companies Act 2013 is a stringent act and leaves no room for any mistakes. “Ignorantia juris non excusat” means “ignorance of law is not an excuse”. This is a legal maxim which goes on to say that one cannot escape liability on the pretext of unawareness of the law. Thus the directors and shareholders will have to be aware of the legal compliance involved post-incorporation of the company.
Compliances as per Companies Act, 2013
The Companies Act, 2013, must be followed by any company formed in India.
- The appointment, qualification, compensation, and retirement of company directors are all governed by the Companies Act, 2013.
- Aspects such as the conduct of Board Meetings and Shareholder Meetings.
- The preparation and presentation of annual financial statements, as well as the continuing maintenance of accounting records.
A private company must comply with two types of regulations.
- Mandatory Compliances: Every private company, regardless of its status, is required to follow the same set of rules.
- Event-based Compliances: Event-based Compliances are triggered when a Company comes across a certain Event while conducting its business. Only the companies that are responsible for such situations are required to comply.
What are the Post Incorporation Compliances of a Company?
Post incorporation compliances for private limited company encompass a series of legal obligations that a company must adhere to following its formation or incorporation. These obligations typically include appointing directors and key managerial personnel, opening bank accounts, obtaining necessary licenses and permits, conducting initial board meetings, issuing share certificates, appointing auditors, filing statutory documents with relevant authorities, ensuring compliance with labor laws, registering for taxes, and maintaining statutory registers, among others.
Fulfilling these requirements involves meticulous attention to detail, timely submission of documents, adherence to prescribed procedures, and compliance with applicable laws and regulations. Failure to meet these compliances can expose the company to legal penalties, financial liabilities, reputational damage, and operational disruptions. Hence, thorough understanding and diligent execution of compliances are essential for ensuring the legal and operational integrity of the company.
Following are the significant actions which need to be taken post company incorporation:
- First meeting: As per Section 173(1), of The Companies Act 2013, the company shall hold a meeting of the Board of Directors in less than 30 days from the date of its incorporation. Directors are permitted to attend the meeting either in person or through video conferencing.
- Bank account: Companies need to have a bank account even before approaching the authorities for company incorporation. Since the company is an artificial entity, the transactions cannot be done in the name of any natural person.
- Official address: As per Section 12(1), a company shall have a registered office within 30 days from the date of incorporation. This address shall be used to receive all official communication from the various authorities. The company shall inform the same to the registrar within 30 days from the date of incorporation.
- It’s all in the name: Every company shall be required to affix its name at all places from where it carries on its business operations. It shall be displayed in the language which is generally used in the locality. Additionally, the company has to get a seal with its name engraved on it, letterheads with appropriate information and printed negotiable instruments.
- Auditor: According to Section 139(1), the first auditor shall be appointed by the Board of Directors (BOD), except for a government company, within 30 days from the time the company is registered. Failing which, the members shall appoint the auditor within 90 days at an extraordinary general meeting. The term of the first auditor shall be until the conclusion of the first annual general meeting.
- Interest disclosure: At the first board meeting, every director shall disclose his interest in any company/firm/body corporate/association of individuals as outlined in section 184(1) of the Companies Act 2013. Any changes in the disclosures shall be intimated to the board in its first meeting held during each financial year. An independent director, if any, must give a declaration that he meets the criteria of independence during the first board meeting as a director.
- Statutory registers: The company shall be required to maintain statutory registers at the registered office of the company. The same shall be maintained in the prescribed form failing, which the company will be subject to penalties.
- Share certificate: The share certificate shall be issued to a shareholder within 60 days from the date of incorporation. In case of additional shares being allotted, the time period is taken as 60 days from the date of allotment.
- Books of Accounts: As per section 128, every company shall maintain proper books of accounts which shall represent an accurate and fair view of the state of affairs of the company. The double entry system shall be followed, and the accounting is done on an accrual basis.
- Commencement of business certificate: Within 180 days, the company shall obtain a certificate of commencement of business. There is a requirement to file a disclosure made by the directors of the company stating that every subscriber has paid the amount due on the shares.
Consequences of Non-Compliance Post Company Incorporation
- Fines & Penalties: Non-compliance with post-incorporation requirements can lead to the imposition of fines, penalties, and interest charges by regulatory authorities. These financial sanctions can strain the company’s resources and impede its financial health.
- Hindrance in Business Operations: Non-compliance may result in the inability to obtain necessary licenses, permits, or approvals, hindering the company’s ability to conduct business operations smoothly. This can lead to delays, disruptions, and loss of revenue opportunities.
- Closure of Company: Persistent non-compliance or serious violations of regulatory requirements may ultimately lead to the closure or dissolution of the company by regulatory authorities. This can result in the loss of investments, jobs, and assets.
- Damage to Brand Reputation: Non-compliance tarnishes the company’s reputation and erodes trust among stakeholders, including customers, investors, and partners. Negative publicity surrounding compliance failures can undermine brand loyalty and market credibility, impacting long-term growth.
- Consequences for Professionals In-Charge: Directors, officers, and professionals responsible for ensuring compliance may face personal liability, legal action, or disqualification from holding directorial positions for failing to fulfill their duties. This can have serious career and financial implications for individuals involved.
FAQs
What are Post Incorporation Compliances for companies?
Post incorporation compliances refer to the mandatory actions and filings a company must complete after its registration or incorporation to remain compliant with the rules and regulations set by authorities like the Ministry of Corporate Affairs (MCA) in India.
What is the time limit for the appointment of an auditor?
A company must appoint its first auditor within 30 days of its incorporation. The board of directors is responsible for this appointment. If the board fails to appoint the auditor, the members of the company must do so within the next 90 days at an extraordinary general meeting.