Blog Details

Author - Rashi Suri (Managing Partner)

Getting your company's Certificate of Registration is an exciting moment on your business start-up journey. You could have gone through the process of arranging necessary documents as prescribed by the Ministry of Corporate Affairs and also insisted by the professionals who assisted with certifications for your company registration.

Your company is born as an artificial legal person with some inherent characteristics, rights, powers, and obligations. The company's shareholders and the directors are the brains and organs of a registered company.

Obtaining a Certificate of Incorporation is only a starting point for several compliances that a company must comply with from time to time under various laws in India.

The process of incorporating a company has been made more straightforward over the years, which encourages the companies to comply fully. The management should be fully aware of compliance with the post-incorporation to avoid any punishments or penalties. The Companies Act 2013 is rigorous and leaves no room for error.

"Ignorantia juris non excusat" means "ignorance of the law is not an excuse". This is a legal maxim which goes on to say that under the pretext of unconsciousness of law, one cannot escape liability. The directors and shareholders will, therefore, need to be aware of the legal compliance involved after the company is incorporated.

Compliances and Penalties associated

Following are the necessary actions to be taken after the incorporation of the company:

First meeting

According to section 173(1) of The Companies Act 2013, the company shall hold a Board of Directors meeting within less than 30 days from the date of its incorporation. Directors may attend the meeting in person or via video-conferencing.

Bank account

Companies must have a bank account even before they approach the enterprise incorporation authorities. As the company is an artificial entity, the transactions can not be carried out on behalf of any natural person.

Official address

A company shall have a registered office within 15 days of the date of incorporation, as provided for in Section 12(1). This address is used for receiving all official communications from the different authorities. The company shall inform the Registrar of the same within 30 days from the date of incorporation. Failure to comply with this provision attracts a penalty of one thousand rupees for every day but not exceeding one lakh rupees to the company and every officer in default.

It's all in the name

Each company shall be required to affix its name to every place from which it carries on its business. It is to be displayed in the language commonly used in the locality. Besides, the company must have a seal with its name inscribed on it, letterheads with relevant information and negotiable printed instruments.

Auditor

Under Section 139(1), the Board of Directors (BOD) shall appoint the first auditor, except for a government company, within 30 days of the company being registered. In the absence of which, the members shall appoint the auditor to an extraordinary general meeting within 90 days. The term of the first auditor is until the first annual general meeting has been concluded.

Interest disclosure

Each director shall, at the first board meeting, disclose his or her interest in any company/firm / corporate/individual association, as outlined in section 184(1) of the Companies Act 2013. Any amendments to the disclosures shall be notified to the Board at its first meeting during each financial year. An independent director, if any, must state that he fulfils the independence criteria as director during the first board meeting.

Statutory registers

The firm is required to keep statutory registers at the company's registered office. The same shall be maintained in the prescribed form failing which penalties will apply to the company.

Share certificate

A shareholder shall receive the share certificate within 60 days of the date of incorporation. If additional shares are allocated, the period shall be taken as 60 days from the date of allocation.

Books of Accounts

Each company shall maintain proper books of accounts as per section 128, which shall represent an accurate and fair view of the company's state of affairs. The double entry system is followed, and accounting is performed on an accrual basis.

Commencement of business certificate

The company shall obtain a business commencement certificate within 180 days. There is a requirement for the company's directors to file a disclosure stating that each subscriber has paid the amount due on the shares.

Penalty for non-filing of Annual Return

The government fee for filing or registering any document with the Registrar is generally Rs. 200 under the Companies Act. Every year a private limited company must file the MGT-7 form and the AOC-4 form. The Government fee applicable would be Rs. 400.

The need for Consulting an Expert

Increased standards and substantial investments have increased the size and scope of risk and compliance responsibilities. Expansion is often fertile ground for risk inefficiencies and ample room for efficiency across all three defence lines while stabilizing or reducing costs. Risk management and regulatory compliance are often overlooked as success factors and are intended to drive growth and act as enablers of business strategy. When properly implemented, they create not only greater confidence but also the greater speed of value.

While many companies have assumed managerial responsibility for compliance issues in a Chief Compliance Officer, as opposed to the General Counsel, it is clear that the development and implementation of effective compliance and ethics programs should be led by the company's legal team, both in-house and outside law firms.

Conclusion

The need to have a structured compliance management process has been emphasized by tightening compliance requirements and improving the enforcement structure being put in place by regulators around the globe.