Annual Compliance of Public Limited Company
In India, Public Limited Companies are subject to strict regulations that dictate their annual obligations to maintain transparency, accountability, and good governance. Meeting these obligations is crucial for maintaining the reputation of the company and protecting the rights of shareholders and stakeholders. This article offers a detailed guide on the specific annual compliance requirements relevant to Public Limited Companies in India. Adhering to these obligations is vital for legal and regulatory compliance, avoiding penalties, and building trust with investors and the public.
1. Annual General Meeting (AGM)
In India, public limited companies are required by law to hold an Annual General Meeting (AGM), as per the Companies Act of 2013. This stipulates that the AGM must be held within six months following the end of the financial year. The key goals of the AGM are:
1.1 The financial statements, which comprise the balance sheet, profit and loss account, and cash flow statement of the previous fiscal year, must be authorized by the shareholders.
1.2. Selection of Auditors: The shareholders authorize the selection or reselection of auditors to review and assess the company’s financial statements in the upcoming fiscal year.
1.3. Dividend Declaration: Shareholders have the option to declare dividends in the annual general meeting if the company has generated profits.
2. Financial Statements and Audit
Financial statements of public limited companies must be created and exhibited in a manner that accurately portrays their financial status and achievements. Vital components of financial statements comprise:
2.1 The balance sheet is an overview of the company’s assets, liabilities, and anshareholder’ss’ equity as of the conclusion of the fiscal year.
2.2 The profit and loss account summarizes a company’s financial performance by presenting its earnings, costs, and final profit or loss during a specific financial year.
2.3 The cash flow statement presents the details of cash and cash equivalents received and spent throughout the fiscal year, with a breakdown of the sources into three main categories: operating, investing, and financing activities.
2.4 The financial statements are presented with notes that offer further details, clarifications, and disclosures concerning the financial statements.
For public limited companies to comply with regulations, their financial statements must undergo an audit conducted by a certified chartered accountant or a company of such accountants. The resulting report from the audit must be included with the financial statements and submitted to the Registrar of Companies (RoC).
3. Board Meetings and Resolutions
To ensure compliance, public companies are mandated to organize regular board meetings where they discuss company issues and make strategic decisions. The critical factors relating to board meetings and findings include:
3.1 The Companies Act states that there must be a minimum number of board meetings held each year with no more than 120 days between each meeting. Public limited companies must usually have a minimum of four board meetings per year, but this number might differ according to the company’s demands.
3.2 The board meetings must be arranged by providing written notice to all directors that detail the meeting’s date, time, and location. The board must also send the meeting’s agenda and related documents to the directors beforehand.
3.3 To have a valid board meeting, there needs to be a minimum number of directors present’s mandated by the Companies Act. Directors can participate in the meeting either physically or through video conferencing, depending on the regulations.
3.4. Accurate documentation of the resolutions made during board meetings is essential and must be included in the minutes. The board meeting minutes should be kept as a permanent record of the company’s proceedings.
4. Directors’ Report
Public companies with limited liability must produce a report from their directors that offers an extensive summary of the company’s activities, monetary progress, conformity, and potential outlook. This report from the directors generally incorporates:
4.1. Overview of Finances: A brief recap of how the company has performed financially, highlighting significant financial ratios and other pertinent details.
4.2 If relevant, the report must give particulars about the company’s engagements in Corporate Social Responsibility (CSR), such as the sum of money expended, the schemes launched, and the consequences generated.
4.3 The report needs to describe how the company manages its affairs, maintains its ethical standards, and follows the applicable laws and regulations. This is known as corporate governance.
4.4 The section on Management Discussion and Analysis involves evaluating the company’s achievements, possibilities, dangers, and potential future growth.
5. Annual Return Filing
Within 60 days of the Annual General Meeting, public limited companies are required to submit an annual return to the Registrar of Companies (RoC). This document encompasses extensive information about the company’s activities, such as data regarding shareholders, directors, share capital, and any modifications in the company’s structure over the year. The annual return filing involves:
5.1 Form MGT-7 is required to be filed by public limited companies and it contains essential information such as registered office address, details about directors, shareholders, share capital, and indebtedness along with the disclosure of penalties or convictions imposed on the company or its directors.
5.2 Public limited companies are required to submit Form AOC-4 when filing their annual return. This form should contain their financial statements, director’s report, and auditor’s report.
6. Compliance with Securities Laws
Publicly traded companies are required to follow securities laws which leads to an increase in their compliance responsibilities. The primary areas of compliance include:
6.1 Publicly traded companies are obligated to abide by insider trading regulations that forbid engaging in securities trading using undisclosed material that could impact the value of the investment.
6.2 Companies that are listed on stock exchanges are obligated to meet the requirements of the listing agreement, which includes the timely communication of important information and following the norms of corporate governance.
6.3 Publicly traded companies are obligated to provide shareholders with regular updates, which may include an annual report, financial records, and any other pertinent details.
Publicly traded corporations are obligated to fulfill disclosure obligations mandated by regulatory bodies, including the Securities and Exchange Board of India (SEBI).
7. Consequences of Non-Compliance
There can be severe repercussions if public limited companies do not meet their annual obligations. These can take the form of various negative outcomes, such as:
7.1. Regulatory bodies have the power to levy fines, penalties, and extra charges for failure to adhere to statutory or regulatory obligations.
7.2 Failing to comply with legal obligations may have serious consequences for both the company and its directors. This could lead to legal action being taken against them, resulting in court cases, legal disagreements, and damage to their reputation.
7.3 Regulatory bodies can start the process of revoking a company’s registration in situations where there are constant breaches of regulations or severe violations.
Non-compliance with regulations can have a detrimental effect on a company’s reputation, investor trust, and market value. This, in turn, can hinder its capacity to secure funding and draw in new investments.
Public limited companies in India must prioritize annual compliance to comply with legal and regulatory requirements, and ensure transparency and accountability. By fulfilling these obligations, such companies can exhibit good governance practices, safeguard shareholder interests, and maintain investor and public trust. Undertaking proactive compliance measures such as holding AGMs, preparing financial statements, convening board meetings, submitting annual returns, and adhering to securities laws is critical for the sustained achievement, viability, and expansion of public limited companies in India.