What do you mean by Compliance?
Compliance at the corporate level involves adhering to a wide range of rules, regulations, laws, and standards that are designed to protect every aspect of your business.
This concept covers all the policies, rules, internal and external controls to which an organization must adhere. When in compliance, an organization's activities will be in full accordance with the rules and laws applied to its processes.
The Government along with the organization established to overlook the companies (ROC) sets out various compliances under the act which every company needs to follow. Gone are those days where there was hardly any compliance or reporting by the companies and they would misuse such absence of watch and indulge in various unfair work. Every Year the laws are amended, compliances are added to the list, policies are changed in order to safeguard the interest of the society, stakeholders, government.
What do you mean by the term non-compliance?
The Term Non-Compliance means a failure or refusal to comply with something (such as a rule or regulation); a state of not being in compliance.
Nearly every business has rules, regulations, and standards to uphold to operate lawfully. The requirements exist to protect the company, employees, stakeholders, and customers. Compliance obligations vary according to the industry, location of the business, business activities, and entity type.
Why is it necessary to identify non-compliance?
Recently, the Government struck off more than 2 Lakh companies and disqualified more than 3 Lakh directors for non-compliance of various provisions of the Companies Act, 2013. Such type of historic action came at a time when the government came to know about the various techniques used by corporate entities to evade taxes.
Apart from striking-off, the companies had to pay heavy fines and penalties, and even their Directors and other KMP had to face Imprisonments. The goodwill of the companies got affected for not complying with the regulations and this, in turn, affected many company's profitabilities. Many of these had to face severe consequences.
Despite the fact, various private companies do not comply with all regulations applicable to them, the smaller ones are not aware of all the applicable compliances. The basic thinking of private companies is that as they do not have to outrightly upload documents on public portals, they try to escape complying with the rules and regulations until necessary. This is very wrong in the spirit of Law.
Some of the basic Noncompliance:
1) The biggest of all such be Adhering to Deposit Rules
Majorly private companies take funds or loans from either their Director or Shareholders or fellow corporates. These Companies never check whether the loan obtained from the director is either from owned funds or borrowed funds. The Deposit rules say every amount received by the company is Deposit under Act and they should comply with respective rules. Additionally, Private Companies have various exemptions. Hardly any companies rightfully disclose their details of money received and make the required disclosures. Major companies don't even pass any resolutions for accepting the money.
What a company can do is maintain a register for money received and accordingly pass resolutions.
2) Borrowing powers
No company can borrow money along with existing borrowed money more than its paid-up share capital, free reserves, and securities premium apart from temporary law. The private companies are ignorant of this provision and do not check whether they have crossed their borrowing limit. When a company exceeds its borrowing power it needs to pass a Special Resolution.
3) Notional Conduct of meeting
There's a basic practice that's going on with Private Companies where they do not actually hold meetings. Even when they do, no proper adherence to Secretarial Standards and Companies Act is followed. There's no proper numbering to meetings and resolutions. The minutes aren't printed and maintained in a register. Apart from cases where they have to upload or submit a resolution, every private company ignores to conduct meetings. The company can make a Calendar of Event where they can specify the Serial Number of meetings, Directors present, the business conducted. Companies can maintain a register of meetings in the following manner.
Name of the Company
BM Sr. No.
Day and Date of Meeting
Day and Date of Notice
Place of Meeting
4) Maintaining of Registers
Under the companies act, every company is required to maintain various Registers. However, not many companies actually have even created a register. Companies can also maintain registers in electronic format.
5) Director Disclosures
Every Director is required to give a Disclosure of Non-Interest and that he is not disqualified to be a Director to every company in which he is a Director at the first Board Meeting of each Financial Year and during any business conducted where it is shown that Director may have an interest.
6) Filing of Board Resolutions
Every Company needs to file MGT-14 within 30 days of passing a Special Resolution Along with the resolution. Additionally, various other resolutions like Change in Director or Auditors needs to be filed with the Registers. But resolution like the opening of a Bank Account isn't required to be filed. The company should maintain a register where they keep a record of all resolutions passed.
Ways to tackle Non-Compliances
1) Hire A Compliance Officer/ Professional
A compliance officer is a dedicated employee well-versed in the rules and regulations of your industry. According to Rule 8A, Every Company having Paid Up Share Capital of more than 5cr is required to appoint a whole-time company secretary. However, those companies that do not fall under the requirement can either voluntarily appoint a whole-time CS or take the guidance of Practicing Company Secretary/Chartered Accountant to manage their compliances under the ACT.
2) Change your corporate culture
Another tip for ensuring compliance is to change your company culture. As a small business owner, you're the leader of your firm, and you set the example for others. If you neglect compliance, then others will follow the suit.
3) Maintain paperwork and hire a trustworthy registered agent
Every business is required to have paperwork on file in the state in which they conduct business. Reporting requirements include things like annual reports and licensing forms. Many of these forms require yearly submissions. Even worse, the deadline for filing these forms can vary from state to state.
4) Prepare a Compliance Calendar
Every company can make their own compliance calendar for which helps them to be updated on upcoming compliances, whether any compliances are outstanding. The Directors of the company should hold meetings occasionally to discuss the status of compliances adhered by the company. Here is a link for the same (Click Here)
5) Conduct Annual Due Diligence
The company can either in-house conduct due diligence or hire a professional to conduct the same. Such activity shall help the company be at bay and be aware of the level of compliance adhered and where are they lacking so that they can take a targeted approach.
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