Limit based ROC compliances for private limited companies

We have already discussed the ROC compliances that have to be undertaken by a private company on incorporation and the compliances that have to be undertaken irrespective of any event happening or limits being breached. Please click here to access the following writeups:

ROC Compliance by A Private Limited Company (PLC)

ROC Compliances by One Person Company (OPC)

As per Companies Act, 2013 related Rules, sections, rules and their provisions will be applicable to a company only when the company reaches certain limits of turnover, borrowings, paid up capital, net profit etc.

What's in Store

In this article, we will be highlighting the various limits that will attract the provisions of certain sections.

Legend: 

Paid Up Capital- PUC

Turnover- TO

FY- Financial year

Small company-

Section 2(85) read with Specification of Definitions Details Rules, 2014

A company will be called a small company when:

its PUC is upto Rs. 4 crore

And

TO- is upto Rs.40 crore

Both the PUC and TO together will make the company a small company. Thus, if even one of these limits are breached, it will not be a small company.

This definition of a small company is not applicable to:

• holding company(ies) 
• subsidiary company(ies)
• section 8 company(ies)
• any company/body(ies) corporate incorporated or regulated by a special Act. Ex. Life Insurance corporation of India (LIC)

Many companies would like to be a small company as they have lesser compliances or the compliances are reduced as compared to a company that is not a small company.

Issue of Sweat Equity

Section 54 and Rule 8 of Share Capital and Debentures Rules, 2014

A company is not allowed to issue:

in any year sweat equity for more than 15% of the existing PU equity share capital 

or 

Sweat equity shares of the issue value of Rs.5 crores

whichever being higher:

Overall limit:

Sweat Equity can at any given time be only 25% of the PUC.

Exception

For a startup company, as registered with DPIIT this can be upto 50% of its PUC, but this limit available only for 10 yrs from date of incorporation of the company or registration with the DPIIT platform, whichever is earlier.

Acceptance of deposits by a Company

Section 73 read with Rule 3 of Acceptance of Deposits Rules, 2014

A private company may take deposits for short term as follows:

10% of its PUC + Free Reserves + securities premium account 

and

the total amount of all deposits as standing in its books on the date of accepting or renewing the new short term deposits does not go beyond 35% of the aggregate of the PUC + Free Reserves + securities premium account 

A private company can take deposits from its shareholders not more than 100% of PUC + Free Reserves + securities premium account of the company

Exemptions

• a start-up registered with DPIIT till ten years from the date of its incorporation;
• To an associate company or a subsidiary company of any other company

and

its borrowings is less than 2 times of its PUC

or 

Rupees 50 Crore

whichever is lesser

and

its has not defaulted in repayment of any borrwoings.

AR - Annual Return

Section 92 and Rule 11 of Management and Administration Rules, 2014, also called the MAD Rules

A private company will have to attach a certificate in form MGT-8, from a Practising company Secretary if, as on 31-Mar of that year, it has:

PUC of Rs.10 crore or more 

or 

TO of Rs.50 crore or more 

Committee on Corporate Social Responsibility

Section 135

A company has to make a CSR committee, which has in its financial report of the immediately preceding year:

net worth of Rs.500 crore or more 

or 

Turnover of Rs.1000 crore or more 

or 

Net profit of Rs.5 crore or more 

Spending under Corporate Social Responsibility

Section 135

If a company that has made a CSR committee (as stated above), then this company will have to spend a minimum 2% of its average net profits of the previous 3 years as per its CSR Policy (drafted by the CSR committee)

XBRL filing of Financial Statement, Board’s Report, etc.

Section 137 read with read with Rule 3 of the Companies (Audit and Auditors) Rules, 2014

A private company will file AOC-4 XBRL if it has:

PUC of Rs.5 crore or more;

or

TO of Rs.100 crore or more;

or

IAS (Indian Accounting Standards) are required to be followed in preparing financial statements 

Once a company has filed financial statements in XBRL mode, even if they no longer hit the limits as stated above, they have to continue to file in XBRL mode.

Appoint Internal Auditor

Section 138 read with read with Rule 13 of Audit and Auditors Rules, 2014

Internal Auditor will be required to be appointed by a private company, if the Company has:

either

Turnover (TO) of Rs. 200 crore or more during the previous FY

or

Borrowings more than Rs.100 crore or more any time in the previous financial year:

Appointment of Statutory Auditor for one term or two terms

Section 139(2) and Rule 5 of Audit and Auditors Rules, 2014

A private company that has a PUC of Rs.50 crore or more, 

It should appoint an individual as its statutory auditor for only one term of 5 consecutive years. 

If the statutory auditor is a firm, then such a firm should be appointed only for 2 terms of 5 consecutive years.

Appoint Cost Auditor:

Section 148 and Rule 3 of Cost Records and Audit Rules, 2014

A company having a TO from all its products and/or services of Rs.35 crore or more during the immediate previous financial year, has to appoint a Cost Auditor and will have to file the cost audit report with the MCA.

No of companies in which an individual may hold the post of a Director

Section 165 

A person may hold maximum upto 20 directorships at any given time. This includes OPC, small companies, private companies, public companies, Nidhi companies, producer companies, and section 8 companies. 

It does not include LLP as the individual is appointed as a Designated Partner and not a Director, even though the DIN is to be submitted for being appointed as a designated Partner.

An individual can only hold a maximum of 10 directorships in a public company- this can be unlisted or listed, both inclusive. 

Charitable Contributions 

Section 181 

A private company, after taking prior approval from the shareholders in a shareholders general meeting, can make charitable contributions of more than 5% of its average net profit of the 3 immediately previous years, 

Loan, investment, corporate guarantee and borrowings by company.

Section 186

A private company cannot:

• Give loans to others, be it individuals or a business entity
• Give corporate guarantee, security etc for a loan taken by an individual or a business entity
• Invest and hold in its name securities of other body corporates’

Which is more than:

60% of its PUC+ free reserves + securities premium account 

or 

100% of its free reserves + securities premium account

whichever is higher.

Enter into related party transaction(s)

Section 188 and Rule 15 of Meetings of Board and its Powers Rules, 2014

If a private company wants to enter into a transaction or enter into a contract with a related party (RP), then if the limits, as mentioned below, are crossed, then the private company has to first take approval from the shareholders at a general meeting:

A.   for sale, purchase or supply of goods / material or services, directly or through an agent, amounting to 10% or more of its TO. 

B.   For selling or disposing off or buying property of any kind, directly or through an agent, amounting to 10% or more of its net worth 

C.   For leasing of property amounting to 10% or more of its TO

D.   To avail or render any services, directly or through agent, amounting to 10% or more of its TO

E.    If appointed to any office or place of profit in

• the company
• Company’s subsidiary 
• Associate company 

at a remuneration (monthly) exceeding Rs. 2.50 Lakh 

F.    underwriting the subscription of any securities etc, of the company exceeding 1% of its net worth

Appointment of CS (Company Secretary) in a private company

Rule 8A of Appointment and Remuneration of Managerial Personnel Rules, 2014

Any private company having PUC of Rs.10 crore or more has to have a whole -time CS (Company Secretary) in its employment.

SAR (Secretarial Audit Report) in MR-3 

Section 204 and Rule 9 of Appointment and Remuneration of Managerial Personnel Rules, 2014

Any private company which has loans/ borrowings in its accounts and the outstanding of loans etc. (including interest) adds to Rs.100 crore or more, then, such a company has to get a Secretarial Audit done and a report in MR-3 has to be taken from a PCS. The same has to be a addressed in the Board report as well as be a part of the financials report to be filed in e-form AOC-4.