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Post Incorporation Compliances by a Private Limited Company

by Legal Donna Team

Posted on August 27, 2020 at 12:00 PM

blog

The following are the immediate steps to be taken by the Company after registration -

WITH IN 30 DAYS

Filing Verification of Registered Office (Form INC-22)

If the company was registered with a temporary address while filing SPICe Form INC-32, the details of permanent registered office has to be filed filing of INC-22 for Verification of its Registered Office in Form INC 22 within 30 days of Company registration.

Opening Bank Account in Company Name

After incorporation of the Company, it is necessary to open a Current Account in the name of the Company with Bank in India.All the transactions in the name of the company should be transacted through the Company Bank Account only.

The following are the documents and details required for opening. A Current Account with a bank:

i) Certificate of Incorporation of the Company

ii) Copies of Company Incorporation documents such as Memorandum and Articles of Association of the Company.

iii) Permanent Account Number (PAN) of the Company.

iv) Board Resolution of Opening and operation of bank Account.

v) Cheque for initial deposit of amount to Open Bank Account (This deposit can be considered as the initial capital infusion by the shareholder).

Appointment of First Auditors by Company

The Board of Directors of the company have to appoint a Chartered Accountant who holds a valid certificate of practice as the First Auditor of Company within thirty days from the date of registration of the company. In case the Board fails to appoint the first auditor with in the timeline, the shareholders have appoint the first auditor at an extraordinary general meeting. The first auditor appointed by the Board Meeting or General Meeting shall hold office till the conclusion of the first annual general meeting.

Shop and Establishment Registration

Every Business Establishments are required to obtain Shop and Establishment Registration under respective State Shop and Establishment Act and Rules within 30 days of registration. This is a state specific mandatory registration for all the business and establishments. The Company has to obtain the Shop and Establishment Registration in every state wherever they have offices and establishments.

Professional Tax Registration – Employer & Employee

Every Company is required to obtain Professional Tax – Employer Registration(Enrolment Certificate) within 30 days of incorporation. This again is a state specific labour registration mandatory for all registered business whether you have any employees or not. This registration is subject to renewal every year after payment of prescribed fee. Delay in obtaining the registration will attract penalty to business on yearly basis. Every company who employs people with more than the specified limit of salary (this limit varies from State to State) has to obtain Professional Tax – Employee Registration(Registation Certificate), when they start employing people. For this purpose, the partners / Directors shall be treated as employees if they are drawing salary beyond the specified limits. Also, the employer must deduct the Professional Tax from the salary of employee and pay to the State Govt. on monthly basis.

WITH IN 60 DAYS

Filing Verification of Registered Office (Form INC-22)

The subscribers to the Memorandum of Company has to bring the amount of subscribed capital as stated in the Memorandum of Association at the time of company registration within 60 days of incorporation.

There is no explicit conditions in Companies Act as to this time limit 60 days for bringing the capital. However, the company is required to issue share certificate to the shareholders within 60 days of incorporation. In order to comply requirements of issue of share certificates in time, it is advisable to bring the subscribed capital with 60 days of incorporation.

Infusion of capital to the Company bank account should happen preferably from the respective shareholders account. Also, the shareholder has to bring the entire amount of subscribed capital as stated in the Memorandum of Association.

In case of LLP, there is no time prescribed for capital infusion. However, we advise to bring the capital to the bank account before starting any activity or before closure of first financial year.

Issue of Share Certificate to the Subscribers of MOA

A limited company has to issue Share Certificates to the subscribers to the Memorandum of Association shareholders within 60 days of incorporation.The Share Certificates has to be issued in the prescribed format of Form SH-1 duly signed by at least two directors of the Company and an Authorised Signatory. Authorised signatory could be the third director, if any, or any person duly authorised by the Board of Directors in this regard. There must be three different signatories to the Share Certificate.

Also, the share certificates must be duly stamped as per the respective State stamp Act and Rules and the Register of Members and other Registers under the Companies Act are also to be updated. Delay in issue of Share Certificates will lead to non-compliance of Companies Act and also the delayed stamp duty payment shall attract impounding g of share certificates under Stamp Act.

WITH IN 180 DAYS

Commencement of Business by Company

Company has to file a declaration of Commencement of Business by Company with the Registrar of Companies that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of such declaration.

This declaration has to be filed by the company within a period of 180 days of the date of incorporation of the company in Form INC 20A.

Company can commence its business operation only after filing the declaration of Commencement of Business with Registrar of Companies.

If a company makes any default in complying with the above requirements, the company shall be liable to a penalty of fifty thousand rupees and every officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues but not exceeding an amount of one lakh rupees.

Also, if the company has not filed the declaration within a period of 180 days of the date of incorporation of the company, the Registrar may initiate action for the removal of the name of the company from the register of companies on the reasonable belief that the company is not carrying on any business or operations.

SPECIFIC NEED BASIS

Goods and Services Tax (GST) Registration

Every business with annual turnover exceeds Rs. 40 lakhs (Service providers 20 lakhs) is required to GST Registration under Goods and Services Tax (GST) Act and Rules.

It is not mandatory to obtain GST immediately after incorporation of the Company. The Company can obtain this registration as and when required.

In case the company has to produce its GSTIN to any third parties or authorities for its business, the company may. has to obtain the GST Registration immediately after registration of Company.

Trademark Registration

Registering a Company or LLP with a name does not provide complete protection to the name or brand name. The protection of Company /LLP name under the Companies Act / LLP Act is limited to the extent that another Company or LLP will not be registered with the same or a closely-resembling name. Ultimate protection for a business name is secured only by Trademark Registration.

If a trademark is used for goods and services under different classes, separate applications are required to be filed under each class to get protection of trademark for the respective goods and services.

Related Party Transactions

by Legal Donna Team

Posted on September 04, 2020 at 6:00 PM

Compliances

Introduction

1.The manner in which the company (listed or unlisted) complies with the provisions of Related Party Transactions determines the commitment level towards Corporate Governance norms. Other than check-list oriented compliances, following are the important aspects w.r.t. related party transactions:

i) Disclosure of interest,

ii) Avoiding conflict of interest,

iii) Fiduciary duty of a director towards the company and other directors,

iv) Transparency and disclosures.

1.1 The compliance under related party transactions covers the following aspects

i) Approval of Audit Committee, consent of board of directors and approval of shareholders,

ii) Voting or restriction from voting at the meeting (shareholders meeting or board meeting),

iii) Recording of related party transactions in register maintained under the Companies Act,

iv) Disclosures in the Boards Report, Explanatory Statement (in case of approval of shareholders is required), agenda (in case of consent of board of directors and approval of Audit Committee),

v) Maintenance of certain documents, records and information for the purpose of compliance of the provisions relating to related party transactions (Valuation report or documents w.r.t. arms length transactions, etc.)

Taking into consideration the prior relationship between the parties, the provisions relating to related party transactions are very crucial due to the following reasons:

i) Pricing aspect of the transaction,

ii) Terms and conditions of the transaction,

iii) Whether such transaction is on arms length basis? What are the factors for determining arms length basis transaction?

iv) Whether such transaction is in the ordinary course of its business? What are the factors for determining such ordinary course of business?

v) Whether the transaction is in the interest of the company and shareholders?

ICSI's Guidance Note on related party transactions

2.Taking into consideration the above complexities, interpretational issues and practical issues in compliances of some subjective factors (i.e., ordinary course of business or arm's length pricing), the Secretarial Standard Board of ICSI has formulated Guidance Note on Related Party Transactions. The 93-page Guidance Note explains the rationale, procedure,practices and compliances associated with the provisions relating to related party transactions.

The scope of the Guidance Note on related party transactions is quite wide and covers the provisions under the Companies Act, 2013, Rules under the Companies Act, 2013, Companies (Auditor's Report) Order, 2016, Indian Accounting Standards - 24, Accounting Standards - 18, Secretarial Standards. Based on these, Guidance Note on related party transactions covers 13 important points (covered under sections 177, 184, 188, 189 of the Act and the SEBI (Listing Obligation and Disclosure Requirement) Regulations, 2015). The coverage of the Guidance Note on related party transactions is as follows:

i) Meaning of the terms used in the context of transactions with related parties,

ii) Meaning of related party,

iii) Meaning of related party transactions,

iv) Legal Mechanism pertaining to Related Party Transactions,

v) Board processes,

vi) Approval requirements (under Companies Act and SEBI Listing Regulations),

vii) Disclosures by directors,

viii) Maintenance of registers and records,

ix) Policy on Related Party Transactions,

x) Penalty and prosecution for non-compliance of related party transactions,

xi) Ratification of transactions with related party,

xii) Audit of related party transactions,

xiii) Best practices.

The phrase's ordinary course of business's has been referred to in section 188 of the Act. However, the same has been not defined. The Guidance Note on related party transactions provides 8 parameters that can be considered for a transaction to be in ordinary course of business's of the said the company. However, taking into consideration the complexities of transactions, the list is not exhaustive.

The Guidance Note on related party transactions addresses another important factor - arm's length transaction. The Guidance Note has given reference to section 92C of the Income Tax Act w.r.t. the methods for determining arm's length price in relation to an international transaction or specified domestic transaction. The Guidance Note has referred to followin methods: (i) Comparable uncontrolled price method, (ii) Resale price method, (iii) Cost plus method, (iv) Profit split method, (v) Transactional net margin method, (vi) Such other method as may be prescribed.

The Guidance Note on related party transactions has provided a tabular chart for the basis of determining arm's length basis for each type of transaction (as described in Section 188(1) of the Act).

The Guidance Note has addressed more than 50 issues on related party transactions. The ICSI has given its views (and not 'answer') to such pertinent issues. Such issues are in relation to related party transactions vis-à-vis managerial appointment, managerial remuneration, issue and transfer of shares, approval process and disclosures. At the time of dealing with related party transactions, the Company Secretaries (in employment or practice) and other professionals may come across such issues. ICSI's insight into such issues will be helpful for the readers.

The Guidance Note contains checklist of corporate secretarial records for related party transactions by private companies, unlisted public companies, listed companies. The checklist can further be refined and made customised, depending on the complexity of transactions in the group of companies.

The Guidance Note on related party transactions also provides for specimen resolutions for following approval processes:

i) Audit Committee's specific approval,

ii) Audit Committee's omnibus approval,

iii) Resolution to be passed by the board of directors at its meeting,

iv) Approval requirements (under Companies Act and SEBI Listing Regulations),

v) Resolution to be passed by the shareholders at its meeting.

Conclusion

3.The ICSIs Guidance Note on related party transactions is very helpful for the professionals in ensuring compliance of the complex provisions. The issues raised and views expressed by ICSI will assist the compliance officers, Company Secretaries and corporate law professionals in proper application of the provisions relating to related party transactions. The discussion on the SEBI Listing Regulations will be helpful for the compliance officers for listed companies and the Secretarial Auditors of respective companies.

However, there should have been discussion on section 185 of the Act (relating to loans to directors's) in ICSI's Guidance Note on related party transactions. Though loans, guarantees and securities provided by company to its related party's is covered in a separate section (i.e., section 185 of the Act), such transactions are with parties in which directors are interested. There are many practical issues in compliance of Section 185 of the Act (after the same has been substituted by the Companies (Amendment) Act, 2017).