MCA Compliance Applicability and Thresholds: Companies Act 2013

MCA Compliance Applicability and Thresholds: Companies Act 2013. The Companies Act, 2013, establishes various threshold limits to ensure compliance requirements scale with the size and nature of businesses. These thresholds define when specific provisions of the Act apply to companies, classified based on Paid-Up Capital (PUC), Turnover (TO), Net Worth (NW), Outstanding (O/s) Loans or Deposits, or other parameters. Below is a detailed overview of these thresholds:
1. Small Company (Section 2(85)) 
(A) Applicability: Private Companies
(B) Threshold: Should not cross any one of followings: -
-Paid-Up Capital: Up to Rs.4 Crores
-Turnover: Up to Rs.40 Crores
Exceptions to the Definition of Small Companies under the Companies Act, 2013
While the Companies Act, 2013, provides a framework to classify small companies based on their paid-up capital and turnover, certain entities are explicitly excluded from being classified as small companies, irrespective of their financial thresholds. These exceptions include:
1. Holding Companies: Any company acting as a holding company for one or more subsidiary company does not qualify as a small company.
2. Subsidiary Companies: A company that operates as a subsidiary of another company is also excluded from the definition of a small company.
3. Section 8 Companies: Companies registered under Section 8 of the Companies Act, 2013, which are formed for charitable or not-for-profit purposes, are not considered small companies.
4. Companies or Bodies Corporate Governed by Any Special Act: Entities established and governed under special legislation (such as banking companies, insurance companies, or entities governed by statutes like the RBI Act or SEBI Act) are excluded from the classification of small companies. 
Additionally, companies must note the applicability of ISIN (International Securities Identification Number) and Dematerialisation requirements. Once a company ceases to qualify as a small company or falls outside the definition of Section 2(85), it must ensure compliance with Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, which mandates the dematerialisation of shares. Furthermore, under Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014, every unlisted public company is required to dematerialise its shares. Hence, the company must facilitate the dematerialisation process by obtaining an ISIN (International Securities Identification Number) and maintaining connectivity with a registered depository.
Exemptions:
-Nidhi companies
-Government companies
-Wholly-owned subsidiaries of public companies
2. Acceptance of Deposits (Section 76 & CG Rules): DPT-3 Filing 
(A) Applicability: Public Companies
(B) Threshold:
-Net Worth: Not less than Rs.100 Crores
-Turnover: Not less than Rs.500 Crores
-Requires a Special Resolution in General Meeting (GM)
DPT-3 Filing is also mandatory in case of Non Deposit Item mentioned in  Rule 2(1)(c) provides a definition for the term 'deposit' and lists 19 transactions that are excluded from being classified as deposits. 
These transactions, subject to certain conditions and exceptions, are as follows:
1. Amounts received from the central government, state governments, etc.
2. Amounts received from foreign governments, banks, etc.
3. Loans received from banks, banking companies, etc.
4. Loans received from Private Finance Institutions (PFIs), regional financial institutions, insurance companies, or scheduled banks.
5. Amounts raised through the issuance of commercial paper.
6. Inter-corporate deposits.
7. Subscription money received for securities pending allotment.
8. Amounts received from directors or relatives of directors in the case of a private company.
9. Amounts raised by issuing secured bonds or debentures.
10. Amounts raised through the issuance of unsecured listed Non-Convertible Debentures (NCDs).
11. Non-interest-bearing security deposits received from employees.
12. Non-interest-bearing amounts held in trust.
13. Advances from customers.
14. Amounts brought in by the promoters.
15. Any amount accepted by a Nidhi company.
16. Amounts received by way of subscription in respect of a chit.
17. Amounts received by the company under any collective investment scheme.
18. Amounts received by a start-up company through convertible notes.
19. Amounts received from Alternate Investment Funds (AIFs), Venture Capital Funds (VCFs), Real Estate Investment Trusts (REITs), etc.
3. Annual Return (Section 92(2) & Rule 11): MGT-8 Reporting
(A) Applicability:
-Listed, Public, and Private Companies
(B) Threshold for PCS Certification:
-Paid-Up Capital: Rs.10 Crores or more
-Turnover: Rs.50 Crores or more
4. Formal Annual Evaluation (Section 134(3)(p)) 
(A) Applicability:
-Listed Companies
-Public Companies with Paid-Up Capital of Rs.25 Crores or more
5. Corporate Social Responsibility (Section 135) 
(A) Applicability: Every Company
(B) Threshold:
-Turnover: Rs.1,000 Crores or more
-Net Worth: Rs.500 Crores or more
-Net Profit: Rs.5 Crores or more
6. XBRL Applicability (Section 137 & Rule 3) 
(A) Applicability:
-Listed Companies and their Indian Subsidiaries
(B) Threshold:
-Paid-Up Capital: Rs.5 Crores or more
-Turnover: Rs.100 Crores or more
-Financial Statements must follow Ind AS Rules
7. Internal Auditor (Section 138 & Rule 13) 
(A) Applicability:
(i) Listed Companies
(ii) Unlisted Public Companies meeting any of these:
-Paid-Up Capital: Rs.50 Crores or more
-Turnover: Rs.200 Crores or more
-Outstanding Loans/Borrowings: Exceeding Rs.100 Crores
-Outstanding Deposits: Rs.25 Crores or more
(iii) Private Companies with Turnover of Rs.200 Crores or Outstanding Loans/Borrowings exceeding Rs.100 Crores
8. Appointment of Auditors (Section 139 & Rule 5) 
(A) Applicability: All Companies
(B) Threshold:
-For Public Deposits or Borrowings: Rs.50 Crores or more
9. Women Directors (Section 149 & Rule 3) 
(A) Applicability:
(i) Listed Companies
(ii) Public Companies meeting either:
-Paid-Up Capital: Rs.100 Crores or more
-Turnover: Rs.300 Crores or more
10. Independent Directors (Section 149 & Rule 4) 
(A) Applicability:
(i) Listed Companies
(ii) Public Companies meeting either:
-Paid-Up Capital: Rs.10 Crores or more
-Turnover: Rs.100 Crores or more
-Outstanding Loans/Deposits exceeding Rs.50 Crores
11. Vigil Mechanism (Section 177(9) & Rule 7) 
(A) Applicability:
-Companies with Borrowings exceeding Rs.50 Crores
-Companies accepting Deposits from the public
12. Audit Committee (Section 177 & Rule 6) 
(A) Applicability: Listed and Public Companies
(B) Threshold:
-Paid-Up Capital: Rs.10 Crores or more
-Turnover: Rs.100 Crores or more
-Outstanding Loans/Deposits: Exceeding Rs.50 Crores
13. Nomination and Remuneration Committee (Section 178) 
(A) Applicability: Listed and Public Companies with similar thresholds as the Audit Committee.
14. Stakeholders Relationship Committee (Section 178(5)) 
(A) Applicability: Companies with more than 1,000 security holders.
15. Appointment of Key Management Personnel (Section 203) 
(A) Applicability:
-Listed Companies
-Public Companies with Paid-Up Capital: Rs.10 Crores or more
16. Secretarial Audit (Section 204) 
(A) Applicability:
(i) Listed Companies
(ii) Public Companies with:
-Paid-Up Capital: Rs.50 Crores or more
-Turnover: Rs.250 Crores or more
(iii) Any Company with Outstanding Loans/Borrowings exceeding Rs.100 Crores
Therefore, as the financial year ends on March 31, it is mandatory or important for every company to carefully review the compliance requirements applicable to their business under the Companies Act, 2013 subject to the help of Due Diligence services at Compliance Calendar LLP. The applicability of various provisions depends on specific threshold limits such as paid-up capital, turnover, net worth, outstanding loans or deposits, and other parameters. Ensuring complying to these compliances not only avoids legal penalties from MCA and Adjudication Notice from MCA but also fosters good corporate governance, instilling confidence among stakeholders. Companies must prioritize this review to align their operations with regulatory mandates and maintain seamless functioning in the upcoming financial year.

The Companies Act, 2013, establishes various threshold limits to ensure compliance requirements scale with the size and nature of businesses. These thresholds define when specific provisions of the Act apply to companies, classified based on Paid-Up Capital (PUC), Turnover (TO), Net Worth (NW), Outstanding (O/s) Loans or Deposits, or other parameters. Below is a detailed overview of these thresholds:

1. Small Company (Section 2(85))

(A) Applicability: Private Companies

(B) Threshold: Should not cross any one of followings: -

-Paid-Up Capital: Up to Rs.4 Crores

-Turnover: Up to Rs.40 Crores

Exceptions to the Definition of Small Companies under the Companies Act, 2013

While the Companies Act, 2013, provides a framework to classify small companies based on their paid-up capital and turnover, certain entities are explicitly excluded from being classified as small companies, irrespective of their financial thresholds. These exceptions include:

1. Holding Companies: Any company acting as a holding company for one or more subsidiary company does not qualify as a small company.

2. Subsidiary Companies: A company that operates as a subsidiary of another company is also excluded from the definition of a small company.

3. Section 8 Companies: Companies registered under Section 8 of the Companies Act, 2013, which are formed for charitable or not-for-profit purposes, are not considered small companies.

4. Companies or Bodies Corporate Governed by Any Special Act: Entities established and governed under special legislation (such as banking companies, insurance companies, or entities governed by statutes like the RBI Act or SEBI Act) are excluded from the classification of small companies.

Additionally, companies must note the applicability of ISIN (International Securities Identification Number) and Dematerialisation requirements. Once a company ceases to qualify as a small company or falls outside the definition of Section 2(85), it must ensure compliance with Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, which mandates the dematerialisation of shares. Furthermore, under Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014, every unlisted public company is required to dematerialise its shares. Hence, the company must facilitate the dematerialisation process by obtaining an ISIN (International Securities Identification Number) and maintaining connectivity with a registered depository.

Exemptions:

-Nidhi companies

-Government companies

-Wholly-owned subsidiaries of public companies

2. Acceptance of Deposits (Section 76 & CG Rules): DPT-3 Filing

(A) Applicability: Public Companies

(B) Threshold:

-Net Worth: Not less than Rs.100 Crores

-Turnover: Not less than Rs.500 Crores

-Requires a Special Resolution in General Meeting (GM)

DPT-3 Filing is also mandatory in case of Non Deposit Item mentioned in Rule 2(1)(c) provides a definition for the term 'deposit' and lists 19 transactions that are excluded from being classified as deposits.

These transactions, subject to certain conditions and exceptions, are as follows:

1. Amounts received from the central government, state governments, etc.

2. Amounts received from foreign governments, banks, etc.

3. Loans received from banks, banking companies, etc.

4. Loans received from Private Finance Institutions (PFIs), regional financial institutions, insurance companies, or scheduled banks.

5. Amounts raised through the issuance of commercial paper.

6. Inter-corporate deposits.

7. Subscription money received for securities pending allotment.

8. Amounts received from directors or relatives of directors in the case of a private company.

9. Amounts raised by issuing secured bonds or debentures.

10. Amounts raised through the issuance of unsecured listed Non-Convertible Debentures (NCDs).

11. Non-interest-bearing security deposits received from employees.

12. Non-interest-bearing amounts held in trust.

13. Advances from customers.

14. Amounts brought in by the promoters.

15. Any amount accepted by a Nidhi company.

16. Amounts received by way of subscription in respect of a chit.

17. Amounts received by the company under any collective investment scheme.

18. Amounts received by a start-up company through convertible notes.

19. Amounts received from Alternate Investment Funds (AIFs), Venture Capital Funds (VCFs), Real Estate Investment Trusts (REITs), etc.

3. Annual Return (Section 92(2) & Rule 11): MGT-8 Reporting

(A) Applicability:

-Listed, Public, and Private Companies

(B) Threshold for PCS Certification:

-Paid-Up Capital: Rs.10 Crores or more

-Turnover: Rs.50 Crores or more

4. Formal Annual Evaluation (Section 134(3)(p))

(A) Applicability:

-Listed Companies

-Public Companies with Paid-Up Capital of Rs.25 Crores or more

5. Corporate Social Responsibility (Section 135)

(A) Applicability: Every Company

(B) Threshold:

-Turnover: Rs.1,000 Crores or more

-Net Worth: Rs.500 Crores or more

-Net Profit: Rs.5 Crores or more

6. XBRL Applicability (Section 137 & Rule 3)

(A) Applicability:

-Listed Companies and their Indian Subsidiaries

(B) Threshold:

-Paid-Up Capital: Rs.5 Crores or more

-Turnover: Rs.100 Crores or more

-Financial Statements must follow Ind AS Rules

7. Internal Auditor (Section 138 & Rule 13)

(A) Applicability:

(i) Listed Companies

(ii) Unlisted Public Companies meeting any of these:

-Paid-Up Capital: Rs.50 Crores or more

-Turnover: Rs.200 Crores or more

-Outstanding Loans/Borrowings: Exceeding Rs.100 Crores

-Outstanding Deposits: Rs.25 Crores or more

(iii) Private Companies with Turnover of Rs.200 Crores or Outstanding Loans/Borrowings exceeding Rs.100 Crores

8. Appointment of Auditors (Section 139 & Rule 5)

(A) Applicability: All Companies

(B) Threshold:

-For Public Deposits or Borrowings: Rs.50 Crores or more

9. Women Directors (Section 149 & Rule 3)

(A) Applicability:

(i) Listed Companies

(ii) Public Companies meeting either:

-Paid-Up Capital: Rs.100 Crores or more

-Turnover: Rs.300 Crores or more

10. Independent Directors (Section 149 & Rule 4)

(A) Applicability:

(i) Listed Companies

(ii) Public Companies meeting either:

-Paid-Up Capital: Rs.10 Crores or more

-Turnover: Rs.100 Crores or more

-Outstanding Loans/Deposits exceeding Rs.50 Crores

11. Vigil Mechanism (Section 177(9) & Rule 7)

(A) Applicability:

-Companies with Borrowings exceeding Rs.50 Crores

-Companies accepting Deposits from the public

12. Audit Committee (Section 177 & Rule 6)

(A) Applicability: Listed and Public Companies

(B) Threshold:

-Paid-Up Capital: Rs.10 Crores or more

-Turnover: Rs.100 Crores or more

-Outstanding Loans/Deposits: Exceeding Rs.50 Crores

13. Nomination and Remuneration Committee (Section 178)

(A) Applicability: Listed and Public Companies with similar thresholds as the Audit Committee.

14. Stakeholders Relationship Committee (Section 178(5))

(A) Applicability: Companies with more than 1,000 security holders.

15. Appointment of Key Management Personnel (Section 203)

(A) Applicability:

-Listed Companies

-Public Companies with Paid-Up Capital: Rs.10 Crores or more

16. Secretarial Audit (Section 204)

(A) Applicability:

(i) Listed Companies

(ii) Public Companies with:

-Paid-Up Capital: Rs.50 Crores or more

-Turnover: Rs.250 Crores or more

(iii) Any Company with Outstanding Loans/Borrowings exceeding Rs.100 Crores

Therefore, as the financial year ends on March 31, it is mandatory or important for every company to carefully review the compliance requirements applicable to their business under the Companies Act, 2013 subject to the help of Due Diligence services at Compliance Calendar LLP. The applicability of various provisions depends on specific threshold limits such as paid-up capital, turnover, net worth, outstanding loans or deposits, and other parameters. Ensuring complying to these compliances not only avoids legal penalties from MCA and Adjudication Notice from MCA but also fosters good corporate governance, instilling confidence among stakeholders. Companies must prioritize this review to align their operations with regulatory mandates and maintain seamless functioning in the upcoming financial year.