Most startups in India go for a business entity as a Private Limited Company. According to studies, 95% startups in India register as a Private Limited Company due to its various benefits such as ease of raising equity funds, clear definition between the management and owners of the company, stock options for employees, etc.

Before you register you company you need to understand the compliances that you will have to face throughout the year. Based on that you can take a decision. Limited liability partnership and simple partnership firm have a smaller number of compliances as compared to private limited companies. But when you compare other benefits of it, you will realise that it is the best suited entity type for a startup which has expansion and growth plans.

What are the mandatory compliances for a Private Limited Company startup?

For startups registering for a Private Limited Company, they will have to face compliances which are categorised by accounting and secretarial compliance.

Most of the compliances are based on the nature of business and type of registrations and licenses the company has acquired. For starters, we can say that GST registration is mandatory only if the company’s turnover is more than 20 Lakh rupees per annum or the company is doing interstate transactions. Only in these cases the company will have to take the GST registration.

Accounting, secretarial compliances will further be divided into Monthly, Quarterly and Annual compliances.

Mandatory Accounting Compliances

Bookkeeping: Every company or firm needs to maintain the books of accounts, where each and every transaction detail needs to be mentioned, such as money flowing inside and outside of the company. You can maintain the books of accounts physically or you can use a software to do that such as Tally.

Monthly GST Filings: Every company who has a taken a Goods and Service Tax Registration needs to file GST returns every month. Even if the company does not have any transactions in that particular month, they have to file Nil returns.

Monthly TDS Returns: If a company crosses more than INR 30,000/- with a single vendor or employee, the company needs to deduct 6% TDS on the invoice amount and file the same with government by end of the month. (TDS of salary and invoices vary based on the amount and state).

Monthly PT Filings: Every Private limited company who has more than 1 employee needs to take Professional tax registration (some states do not have professional tax). And every month professional tax from the employee’s salary needs to be deducted and filed with the government for the same.

Quarterly GST Filings: Companies and firms who have GST registration needs to file for GST returns every quarterly.

Annual ITR filing: Private limited companies after completion of a financial year needs to file for Income Tax returns. This is a mandatory compliance for all kinds of firms.

Annual Statutory Audit: Every private limited company needs to appoint an auditor for the company and that particular auditor will conduct and audit and prepare an audit report of the company for that financial year. And same needs to be filed with the government.

TAX and GST Audit: Tax and GST audit is mandatory for those private limited companies whose annual turnover is more than 5 crore and 10 crore respectively.

Mandatory Secretarial Compliances

Quarterly Board Meetings: Four board meetings are supposed to be held by private limited companies every financial year such that the gap between two consecutive board meetings isn’t more than 120 days.

Annual DIR3 KYC: Every Director needs to complete the Directors KYC every year, declaring the current address, phone number, email address, etc.

Annual Filing of e-form MGT-7: This form is issued by the ministry of corporate affairs (MCA) to all the companies to fill their annual return details. Every company registered as a private limited company must file this form.

Annual Filing of eform AOC-4: This form is meant to file for financial statement of each financial year. This form needs to be filed with the Registrar of Companies (ROC). Every company registered under the Companies Act 2013 needs to file this form.

Conclusion

There are number of compliances that you need to follow when you operate a startup. It is advised to follow and file for the compliances to keep the companies record clean and to avoid hefty penalties from the government.

However, list of compliances varies from business to business depending on the nature of business and nature of entity, and scale of the business.

Also read: MCA lays down mandatory use of Accounting Software having audit trail

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