204(1) of Companies Act, 2013 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
Secretarial Audit is an audit to check compliance of various legislations which the company has to comply in its routine working. It helps the company in early detection and prevention of non -compliances. In addition to this, it also provides status of the compliances which are inadequate or incomplete. It reduces penalties & imprisonment which the company would have to incur if it fails to make the timely compliances. It’s is based on the concept “Prevention is better than Cure”.
Companies which are prescribed have to annex Secretarial Audit report with the board report. Introduction of this new class of audit has increased the scope for the members of ICSI but at the same time have placed burden on the companies. Only a member of the Institute of Company Secretaries of India holding certificate of practice (company secretary in practice) can conduct Secretarial Audit and furnish the Secretarial Audit Report to the company.
Secretarial Audit Report has to be given in Form MR-3 by the Company Secretary in Practice for the following class or classes of companies:
- Every listed company;
- Every public company having a paid-up share capital of fifty crore rupees or more; or
- Every public company having a turnover of two hundred fifty crore rupees or more.
The compliances to which every startup should know of
Startups are by and large formed as private limited companies. In the eye of law, this makes them separate legal entities governed by various statutes of the place where they are registered.
The registration of a startup is the first step to meeting legislative guidelines for starting your business, but there are some other requirements that have to be complied with to avoid any scrutiny from regulatory bodies after the incorporation.
Compliance with local laws, in any country, depends upon the nature of business and industry in which startups operate.
If you start counting, there are innumerable compliances needed, but to make it easier, here is a compact list of mandatory compliances:
- Bank Account: It is an indispensable requirement to do business.
- Appointment of a Company Secretary (“CS”): The appointment of CS is mandatory for the companies, which have paid up a share capital of Rs. 5 crore or more. Even those companies that are not mandated to appoint a CS should because of the extensive knowledge of Corporate Law he or she possesses. CS is one of the key managerial personnel (“KMP”) under the Companies Act, 2013. They are considered Corporate Governance professionals who advise the Board of Directors on critical aspects of corporate laws to dispense their duty effectively.
- Board Meetings (“BM”): As cited earlier, normally startups are formed as a limited company, be it private limited or public limited. There must be at least four board meetings having proper quorum and other incidental compliances prescribed under Companies Act.
- Appointment of First Auditor: An auditor has to be mandatorily appointed by the company. He or she audits the business’s book of account and ensures reliability.
- Hold one Annual General Meeting (“AGM”): There has to be one AGM in each year to transact ordinary business and special business, if any.
- Maintain Statutory Registers: It is mandatory to maintain some of the statutory registers as prescribed under Companies Act, 2013 such as the Members register, Director and Key Managerial Personnel (“KMP”).
- Filing of Annual Returns and Financial statements to ROC: Each year, the company has to submit its annual return and financial statements to the Registrar of Companies (“ROC”).
- Filing of Income Tax Return: There is a mandatory requirement to file income tax returns before the due date as prescribed under Income Tax Act, 1961.
- Filing returns under VAT, Service Tax and Labour laws, if applicable.
- Minutes Book: All the proceedings of the meeting have to be recorded in the form of minutes, which are legal records/evidence of the business conduct. Companies Act, 2013 prescribes elaborative guidelines to keep of different minutes books for different purpose such as AGM, BM, remuneration committee, and audit committee.
These are a few mandatory compliances every startup has to take care of. Besides these, there is long list of compliances, the applicability of which depends upon so many factors such as form of business, place of registration, and type of industry.
So, to be a compliant business, it would be advisable either to appoint a Company Secretary, who takes care of all compliances on a daily basis and protects the business from legal tangles or get in touch with firms who can help you out.