I’ve been running my private limited company in India for over a decade now.
What I’ve learned is that compliance is one area where cutting corners will cost you dearly in the long run.
I had to pay a few painful penalties in my early years. So, I’ve become somewhat of a compliance evangelist among my entrepreneur friends.
Today, I’ll share the most critical compliances that every private limited company in India needs to follow.
These aren’t just theoretical. These are the exact issues I’ve seen trip up countless business owners, including myself.
Steps For A Private Limited Company To Begin Complying
- Get the Basics Right: Memorandum of Association & Object Clause
When I started my first company, I thought the Object Clause in our Memorandum of Association was just another legal formality.
Boy, was I wrong!
The Object Clause defines the business activities your private limited company is authorized to undertake.
What many entrepreneurs don’t realize is that since April 2014, the rules have significantly tightened.
How to comply: If you’re carrying out any activities not mentioned in your main objects, you need to alter your MOA to include them. I had to do this when we expanded from software development to training services. So it was either updating the documents or risking our new business line being declared invalid.
Consequences: Activities not listed in your Object Clause are considered ultra vires. This can be beyond the legal capacity of your private limited company. In severe cases, I’ve seen companies forced to change their name entirely. This happens due to having multiple unlisted business activities.
- Displaying Company Identity: CIN on Documents
This might seem trivial, but it’s one of the easiest compliance requirements to implement. And one that still trips up about 30% of the companies I consult with.
How to comply: Section 12(3)(c) of the Companies Act mandates that every letterhead, invoice, and official document must display your:
- Company name
- Registered office address
- Corporate Identity Number (CIN)
- Contact details (phone, email, website)
I’ve set up templates in our accounting software that automatically include these details on every document we generate.
This five-minute fix has saved us from potential daily penalties.
Consequences: Missing the CIN number on official documents can cost you ₹1,000 daily, up to a maximum of ₹100,000. One of my business associates ignored this requirement and ended up with a ₹47,000 fine. That, too, would have taken minutes to implement!
- Strict Rules for Unsecured Loans
This is where many entrepreneurs have gotten into trouble.
The rules around accepting unsecured loans changed dramatically with the Companies Act 2013, and many businesses haven’t caught up.
How to comply: Private limited companies can now only accept unsecured loans from:
- Directors (provided it’s not borrowed money)
- Other body corporates
Any other unsecured loans, including those from relatives of directors or company members, must be refunded immediately. I had to restructure about ₹15 lakhs in funding when these rules changed.
Consequences: Non-compliance treats these funds as “deposits” subject to heavy penalties under Sections 73 to 76. A fellow business owner faced prosecution proceedings that took nearly two years to resolve. All because they didn’t refund family loans promptly.
- Deposits Taken from The Public
If your company has accepted deposits from the public, you’re walking a compliance tightrope that requires careful attention.
How to comply: Companies that accepted public deposits were required to:
- File returns reporting outstanding deposits with the ROC
- Refund these deposits with interest within one year
When we briefly considered this funding route, our legal team’s warnings about the compliance burden convinced us to explore alternative financing options.
Consequences: The penalties here are severe. They range from 1 crore rupees to 10 crore rupees. I know of a mid-sized company that faced regulatory action resulting in 1.25 crore rupees in penalties that nearly bankrupted it.
- Borrowing Money: Special Resolutions Required
This one caught me off guard when we took a significant business loan in 2018.
Private limited companies have specific requirements when borrowing beyond certain thresholds.
How to comply: If you’ve borrowed money exceeding your paid-up capital and free reserves, you need to pass a special resolution where members decide on borrowing limits. This is required under Section 180 of the Companies Act.
When we needed working capital for expansion, we had to convene a special meeting to get this approval.
We had to delay our financing by nearly three weeks. And we faced the consequences for it.
Consequences: Non-compliance can result in fines of ₹10,000 plus ₹1,000 daily for continuing violations. For growing businesses with significant capital needs, these penalties can accumulate quickly.
Additional Critical Compliances for A Private Limited Company
Since I originally wrote this post, several important compliance requirements have been added or updated:
Commencement of Business Certificate
If you registered your company after November 2019, you must obtain this certificate within 180 days of incorporation. My newest venture fell under this requirement, and missing it would have resulted in a ₹50,000 penalty for the company and ₹1,000 daily for directors.
Auditor Appointment
All Indian companies must appoint a statutory auditor within 30 days of incorporation. We’ve found that building a relationship with a qualified auditor from day one saves countless headaches during financial reporting seasons.
Board Meetings
You must hold at least four board meetings annually, with the first meeting within 30 days of incorporation. I calendar these at the beginning of each fiscal year to ensure we’re never scrambling to meet deadlines.
Industry-Specific Considerations
One area my original post didn’t cover is industry-specific compliances. For example:
- Manufacturing companies need environmental clearances and factory licenses
- Tech companies like mine must comply with data protection regulations
- Financial services face additional RBI regulations
I recommend creating an industry-specific compliance checklist alongside these general requirements.
Leveraging Technology for Compliance
One of the best investments I’ve made was implementing compliance management software. For about ₹25,000 annually, we:
- Get automated reminders for all filing deadlines
- Generate compliant documents with proper CIN information
- Track director KYC and other requirements
This has reduced our compliance management time by approximately 70% while virtually eliminating penalties.
Conclusion
Compliances for a private limited company might seem like bureaucratic red tape, but I’ve learned to view it as business insurance.
The few hours spent ensuring these requirements are met can save you lakhs in penalties and preserve your company’s reputation.
I always tell new entrepreneurs: “Start with good accounting software and a reliable compliance partner.”
These two investments have saved my business more money than almost any other operational decision I’ve made.
After testing several options, I’ve found ProfitBooks accounting software to be particularly effective for Indian businesses.
It automatically handles many compliance requirements, including proper CIN display on documents and financial statement preparation for regulatory filings.
What private limited company compliance challenges are you facing with your private limited company? I’d love to hear about your experiences in the comments.
Frequently Asked Questions
What are the penalties for not filing annual returns for a private limited company?
Believe me, this is one penalty you don’t want to face. Not filing your annual returns (Form MGT-7) will cost you ₹100 daily starting from the due date. I once delayed filing by just 45 days and ended up paying ₹4,500 in late fees. That’s money that could have gone toward growing my business!
How do I appoint an auditor for my private limited company?
You’ll need to appoint an auditor within 30 days of incorporation through a board resolution. After that, file Form ADT-1 with the ROC within 15 days. When I first started, I didn’t realize the auditor needs to be a Chartered Accountant with a valid Certificate of Practice who isn’t involved in your day-to-day accounting.
What is the due date for filing Form AOC-4?
Form AOC-4 (your financial statements) must be filed within 30 days of your AGM. If your financial year endson March 31st, like mine, that typically means October 30th is your deadline. I’ve set a recurring calendar reminder for October 1st to give our team ample time to prepare.
What are the consequences of not obtaining a commencement of business certificate?
This is a costly mistake I’ve seen new entrepreneurs make. Failure to obtain this certificate results in penalties of ₹50,000 for the company plus ₹1,000 per day for directors. One of my mentees ignored this requirement and faced a ₹87,000 penalty before their business even generated revenue!
How can technology help in maintaining compliance for my private limited company?
I’ve personally found compliance software to be a game-changer. It automates filing reminders, maintains standardized templates, and even assists with digital form submissions. Our team used to spend about 15 hours monthly on compliance tasks. Now it’s down to just 4 hours, with zero missed deadlines in the past three years.
How can small private limited companies manage compliance costs effectively?
When I was starting with limited resources, I found outsourcing to be the most cost-effective approach. I hired a part-time private limited company compliance professional who charged ₹8,000 monthly to handle all our filings.
As we grew, we gradually transitioned to in-house compliance management.
Another option is joining local entrepreneur groups to split compliance resource costs. This is something that saved us about 40% in our early years.
What is the process for filing the MSME-1 form?
If your private limited company works with MSME vendors like mine does, you’ll need to file the MSME-1 form half-yearly to report any outstanding payments. I use the MCA portal and typically set aside the first week of October and April for this. Missing this filing was one of my early mistakes that resulted in a ₹25,000 penalty. It’s a lesson I won’t forget!
How often must a private limited company hold board meetings?
You need at least four board meetings annually, with no more than three months between consecutive meetings. I’ve found it easiest to schedule these quarterly at the beginning of each financial year. My team blocks the third Wednesday of the first month of each quarter for these meetings, ensuring we never miss this requirement.
What are the tax audit requirements for a private limited company?
If your company’s turnover exceeds ₹10 crore (like mine did in 2023), you’re required to get your accounts audited. I was caught off-guard by the additional documentation requirements the first time we crossed this threshold. Now, we start preparing for tax audits at least two months before the deadline to ensure smooth compliance.
How do I ensure international compliance if my private limited company operates globally?
This is something I had to learn when expanding into Southeast Asia and Europe. I recommend creating a separate compliance checklist for each country you operate in and consulting with local legal experts. For my private limited company, I found that allocating about 3% of our international revenue toward compliance management prevented costly legal issues down the road.
