What should be the 1st financial year of a newly incorporated Company?
“Financial Year"
For any company or body corporate*:
means the period ending on the 31st day of March every year.
For a newly incorporated Company:
Where a Company has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year.
Summary:
Thus, every Company or body corporate incorporated in India should follow the f.y. Commencing on 1st April and ending on 31st March, i.e. for 12 months
In the case of a newly incorporated Company, which, if incorporated on or after 1st January of a year, can have its first financial statements prepared for more than 12 months- i.e. a maximum of 15 months.
Remember to use the word ‘period’ in the Board’s Report, Auditors Report and elsewhere, wherever the word ‘year’ is being used alongwith financial statements.
Ex: “The Directors of your Company present the Board’s report for the period (and not f.y) from 1st January 2020 to 31st March 2021….”
Holding/ Subsidiary/Associate Company# :
A company or body corporate*, which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Central Government may, on an application made by that company or body corporate in E-Form RD-1 alongwith required documentation, allow any period as its financial year, whether or not that period is a year:
*Body Corporate
Is ‘body corporate’ different from a ‘company’?
No. Not different but is a ‘larger’ concept as compared to a ‘Company’. Body corporate includes a Company incorporated under Companies Act,2013 of India or any other previous Act and Companies incorporated outside India.
"body corporate" or "corporation"
includes a company incorporated outside India, but does not include—
(i) a co-operative society registered under any law relating to co-operative societies; and
(ii) any other body corporate (not being a company as defined in this Act), which the Central Government(CG) may, by notification, specify in this behalf;
Information:
The Asian Development Bank has been recently notified by the CG excluding it from the definition of body corporate or corporation
Its has been held that a body corporate has 5 distinct attributes:
- The entity shall be different from its members
- Perpetual succession
- It must be competent to enter into a contract
- Is capable to sue or being sued in its own name
- Can hold the property in its own name
#"holding company", in relation to one or more other companies, means a company of which such companies are subsidiary companies. The expression "company" includes any body corporate.
#"subsidiary" in relation to any other company (that is to say the holding company), means a company in which the holding company-
● controls the composition of the Board of Directors; or
● exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies
#"associate company", in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
#"significant influence" means control of at least twenty per cent. of total voting power, or control of or participation in business decisions under an agreement;
#"joint venture" means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement;
When to hold the Company’s Annual General Meeting (AGM)
Every Company, other than a One Person Company (OPC) has to hold an Annual General Meeting (AGM).
The calculation of the date to hold an AGM is like a puzzle. There are certain parameters within which it has to be held.
The parameters are as follows:
- Period between 2 AGMS should not exceed 15 months.
- Accounts should be adopted in the AGM within 6 months of the close of the f.y.
- An AGM should be held once in every calendar year.
Other conditions:
- It has to be held either at the Registered Office of the Company or or at some other place within the city, town or village in which the registered office is situated.
- AGM of an unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all the members in advance:
- It has to be held during business hours, i.e., between 9 a.m. and 6 p.m.
- It cannot be held on a National Holiday (26th January, 15th August, 2nd October)
Also, before we begin, it is necessary to understand the concept of financial year for which accounts have to be prepared:
“Financial Year",
For any company or body corporate: means the period ending on the 31st day of March every year.
For a newly incorporated Company: Where a Company has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year.
1st AGM:
A newly incorporated Company has to hold its first AGM within a period of nine months from the date of closing of the first financial year of the Company, alongwith complying with all the ‘Other Conditions’ as stated above.
Further, if the Company holds its first AGM as aforesaid, it shall not be necessary for it to hold any AGM in the year of its incorporation.
Thus, the above three parameters are not applicable on the 1st AGM of a Company.
Case Study 1:
When should a Company incorporated on 3rd January 2020, hold its 1st AGM - in the year 2020 or 2021?
The Company has 2 options.
Option A:
It can prepare its Accounts for the period from 3rd January 2020 to 31st March 2020. Therefore, the Company can hold its 1st AGM latest by 31st December 2020.
Option B:
It can prepare its Accounts for the period from 3rd January 2020 to 31st March 2021. Therefore, the Company can hold its 1st AGM latest by 31st December 2021.
Case Study 2:
When should a Company incorporated on 3rd April 2020, hold its 1st AGM?
The Company has to close its accounts on 31st March 2021. Therefore, the Company can hold its 1st AGM latest by 31st December 2021.
Subsequent AGMs
All the above three parameters have to be complied with to convene a valid AGM, alongwith complying with all the ‘Other Conditions’ as stated above.
Case Study 3:
The Company held its previous AGM on 15th July 2019. When should the Company hold its AGM in 2020?
1st Parameter: Period between 2 AGMS should not exceed 15 months.
Thus, the Company can hold the AGM latest by 15th October 2020.
2nd Parameter: Accounts should be adopted in the AGM within 6 months of the close of the f.y.
Since Accounts have been closed on 31st March 2020 and they have to be adopted within 6 months of their closure, the AGM will have to be held latest by 30th September 2020.
3rd Parameter: An AGM should be held once in every calendar year.
The Company can hold on any date latest by 31st December 2020.
Thus, based on the above the AGM can be held on three differing dates, but only 1 date fits all three parameters, that date being 30th September 2020. 15th October does not satisfy the 2nd parameter nor does 31st December 2020.
Case Study 4:
The Company held its previous AGM on 23rd June 2019. When should the Company hold its AGM in 2020?
1st Parameter: Period between 2 AGMS should not exceed 15 months.
Thus, the Company can hold the AGM latest by 23rd September 2020.
2nd Parameter: Accounts should be adopted in the AGM within 6 months of the close of the f.y.
Since Accounts have been closed on 31st March 2020 and they have to be adopted within 6 months of their closure, the AGM will have to be held latest by 30th September 2020.
3rd Parameter: An AGM should be held once in every calendar year.
The Company can hold on any date latest by 31st December 2020.
Thus, based on the above the AGM can be held on three differing dates, but only 1 date fits all three parameters, that date being 23rd September 2020. 15th October does not satisfy the 1st parameter nor does 31st December 2020.
What is the process to call a Board Meeting?
All the Directors of the Company together form the Board of Directors of the Company. The Company is run by this Board of Directors. All decisions are taken by passing resolutions at Meetings that are duly called and attended. At times the shareholders of the Company’s approval are also required for certain decisions. Please refer to our write up on Board’s powers and Items requiring Shareholders approval
Therefore, it is important to know and understand how a Board Meeting can be called.
Who can call a Board Meeting:
The Companies Act, 2013 is silent on who can call a Board Meeting. As per SS-1 Any Director of a company may, at any time, summon a Meeting of the Board, and the Company Secretary or where there is no Company Secretary, any person authorised by the Board in this behalf, on the requisition of a Director, shall convene a Meeting of the Board, in consultation with the Chairman or in his absence, the Managing Director or in his absence, the Whole-time Director, where there is any, unless otherwise provided in the Articles.
The First Meeting of the Board of Directors can be called by any of the First Directors of the Company, immediately on receipt of the Certificate of Incorporation to transact the business as required. Please refer to Agenda: Items of Business to be covered in the First Board meeting of a Company.
How will a Board Meeting be called:
The Meeting has to be called by sending a Notice in writing. To refer to the contents of a Notice for a Board Meeting please refer to our write up on Board Meeting Notice- Dos and Don'ts. This Notice has to be sent at least seven days before the scheduled Meeting or as stated in the Articles of the Company.
The Board Meeting can also be called at a shorter Notice, i.e. less than 7 days or as prescribed by the Articles, to transact urgent business. If the Company has Independent Director(s) on board, then at least one independent director has to be present at such a meeting.
To Whom and Where to send the Notice:
The Notice shall be sent to every Director of the company to the postal address or e-mail address, registered by the Director with the company or in the absence of such details or any change thereto, any of such addresses appearing in the Director Identification Number (DIN) registration of the Director.
How shall the Notice to sent
It shall be sent by hand or by speed post or by registered post or by facsimile or by e-mail or by any other electronic means.
Where a Director specifies a particular means of delivery of Notice, the Notice shall be given to him by such means. However, in case of a Meeting conducted at a shorter Notice, the company may choose an expedient mode of sending Notice.
How many Board Meetings should be held in a year?
On receiving the Certificate of Incorporation of the Company, the first Board Meeting should be held within 30 days to be calculated from the date of incorporation stated in the Certificate of Incorporation.
Thereafter a Company requires to hold a minimum number of four meetings of its Board of Directors every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board.
In general practice, Companies divide the financial year into 4 quarters:
April to June
July to September
October to December
January to March
One meeting is held in every quarter and the next meeting is so scheduled that not more than 120 days elapsed between 2 meetings.
So what we understand is that a minimum of 4 meetings have to take place in a financial year. A Company may call as many Board Meetings as are required for it to function property.
Exceptions:
A One Person Company, small company and dormant company* are required to hold a minimum of one meeting of the Board of Directors in each half of a calendar year.
The gap between the two meetings should not be less than ninety days.
The above provision is equally applicable in case of a private “start-up Company”*. (MCA Notification G.S.R. 583(E) dated 13th June, 2017)
If more than two Meetings are held in a year where the gap between the first and the last Meeting in a year exceeds 90 days then it would be sufficient compliance of the requirement.
Illustration
In case a small company holds the first Meeting of the Calendar Year 2015 on 1 st June, 2015, it would be sufficient if it holds one more Meeting on any day before 31st December, 2015, but on or after 30th August 2015. If it holds the next Meeting on 30th July, 2015, it should hold at least one more Meeting on or after 30th August, 2015, but before 31st December, 2015
*Definitions:
"One Person Company" means a company which has only one person as a member
“small company" means a company, other than a public company,—
(i) paid-up share capital of which does not exceed fifty lakh rupees and
(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
“Dormant company” means where a company is formed and registered under the Companies Act, 2013 for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar for obtaining the status of a dormant company.
“inactive company” means a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years;
“start-up company” means a private company incorporated under the Act and recognised as start-up in accordance with the notification issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry.
