Overview:

Even though a company be regarded as a separate entity in the eyes of the law, the requirements for such entity shall be determined and regulated by the concerned legal regime where the company is incorporated. In such cases, the companies act of 2013, the income tax act etc., have, time and again, ensured that such a corporate entity makes sure the legal conditions and rules are complied with adequately from time to time. This article will give a brief overview of various legal compliances under the companies act and also under the tax due diligence that is to be ensured by a company in India.

Statutory compliances:

As part of statutory compliance, a company shall be required to follow the rules and regulations of any law in place. In this case, since it is a corporate entity, we talk about a company’s requirements to be complied with regularly, which are provided under the companies act of 2013. We exclude the compliances such as pre-incorporation requirements such as the number of persons for a private or a public company or a one-person company. What we will be looking at is the compliances post the incorporation of a company that is to be compulsorily complied by any separate legal entity under the Companies act of 2013.

Let us start with chapter 4 of the Companies act of 2013, which deals with the registration of charges by a company. Section 77(1) of the act vests a duty on every company, which has created a charge within or outside India on either its property or on its assets or on its undertakings, to ensure it is registered and signed by such company and its charge holder with the registrar of the company within a period of 30 days from the date of creation of the charge.

These two compliances form part of statutory registers that a company should possess under the companies act of 2013.

  • Section 85 of the act talks about the company’s register of charges. It requires the company to keep the register of charges which includes the total charges created on the properties or on the assets of the company, and indicate such particulars in the prescribed form and in such manner. Such register shall always be kept at its registered office , and it must be open for any inspections during the business hours by any member of the creditor on payment of fees or by any other person on the payment, subject to reasonable restrictions.
  • Similarly, section 88 of the act deals with the register of members of the company. Subsection 1 states that then it shall be the duty of every company to keep and maintain the registers, which include the – register of members indicating each separate class of equity and the preference shares held by each of the members residing within or outside India, register of debenture-holders and lastly the register of other security holders.

Annual Return:

Section 92 of the act provides for annual return, whereby the corporate entity is required to prepare a return on the particulars such as its registered office, principal business activity, particulars of its own holding, subsidiary and the associate companies, the shares, debentures and the securities held by the company and also its indebtedness. The return shall also contain the members, the shareholders, promoters, directors, persons in the key managerial position of the company in previous financial years. Subsection 2 also states that the annual return filed by the listed company, a company with the prescribed paid-up capital or the turnover, shall require the certification from a company secretary who is in practice stating the genuineness of the facts mentioned in the respective return and making sure that the return has complied with the provisions of the act of 2013.

Annual General Meeting:

One of the most critical compliance as part of the functioning of a company is to conduct an annual general meeting. Section 96 of the companies act requires a company other than a one-person company to hold an annual general meeting (AGM) apart from other meetings between an interval where the time shall not exceed 15 months between two meetings. In case of first Annual general meeting, the time period is not more than nine months from the date of closure of the first financial year of a company. As per section 96, If the company completes its first financial year by the end of January, then an annual meeting should be conducted in or before October. It is also important to note that the meeting shall not be necessary for a company in the year of its incorporation.The above are essential corporate compliances and their relevant provisions under the companies act of 2013.

Tax due Diligence:

As part of tax due diligence, both direct and indirect taxes need to be complied with and paid as prescribed by the taxation authorities. Direct taxes include the taxes paid from the profits and on the basis of turnover etc. Indirect taxes include the service taxes, excise duties, customs duty etc., shall be levied on these corporate entities under business taxation. To note, Income tax returns of a company incorporated as per the companies act shall require the filings to be done at the end of every financial year. It is reported that 30th September 2021 was notified as to the last date for filing income tax returns for the financial year 2020 to 2021.Auditing is another measure through which the company’s financial statements and its conditions are reported as and when required by law.

 This makes sure that a corporate entity complies with legal compliances. During any merger and acquisition, it is important to pay the taxes for those transactions, which gave some amount of capital gains to the buyer. So if there is any benefit received out of such merger transactions or from the sale of assets of the company, then such transactions require tax liability for the buyers.