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All Limits Under the Companies Act, 2013: A Comprehensive Guide to Compliance

Introduction
The Companies Act, 2013, forms the cornerstone of corporate governance and compliance in India. It prescribes specific thresholds or limits for various obligations, rights, and exemptions, impacting companies of different sizes and structures. These limits govern areas like auditor appointments, board composition, CSR requirements, related party transactions, and more. This article consolidates these limits, providing a one-stop reference to help companies identify their compliance requirements under the Act.

1. Classification of Companies

a. Based on Paid-Up Share Capital:

  • Small Company:
    • Paid-up capital: Not exceeding ₹4 crore.
    • Turnover: Not exceeding ₹40 crore in the preceding financial year.
    • Benefits: Lesser compliance, exemptions from certain provisions.
  • Private Company:
    • Paid-up capital: No prescribed limit.
  • Public Company:
    • Paid-up capital: Minimum of ₹5 lakh.

b. One Person Company (OPC):

  • Can only have one shareholder and paid-up capital not exceeding ₹50 lakh with turnover not exceeding ₹2 crore.

c. Listed Companies:

  • Subject to compliance with SEBI (LODR) Regulations, 2015 in addition to the Companies Act.

2. Board of Directors Composition

a. Number of Directors (Section 149):

  • Minimum:
    • Private Company: 2 directors.
    • Public Company: 3 directors.
    • OPC: 1 director.
  • Maximum: 15 directors (can be increased by passing a special resolution).

b. Independent Directors (Section 149(4)):

  • Mandatory for:
    • Listed companies: At least one-third of the total board.
    • Unlisted public companies meeting any of the following thresholds:
      • Paid-up share capital: ₹10 crore or more.
      • Turnover: ₹100 crore or more.
      • Outstanding loans, deposits, or debentures: ₹50 crore or more.

3. Statutory Auditors and Audit Requirements

a. Appointment of Auditors (Section 139):

  • First auditor to be appointed within 30 days of incorporation.
  • Subsequent appointments: Every 5 years (ratified annually in AGM).

b. Applicability of Audit:

  • Private Companies:
    • Audit mandatory for all.
  • Small Companies and OPCs: Exemptions from filing certain resolutions but not from statutory audit.

c. Rotation of Auditors (Section 139(2)):

  • Applicable to:
    • Listed companies.
    • Unlisted public companies with paid-up share capital of ₹10 crore or more.
    • Private companies with paid-up share capital of ₹50 crore or more.

4. Corporate Social Responsibility (CSR) (Section 135)

  • Applicability:
    Companies meeting any of the following thresholds:
    • Net worth: ₹500 crore or more.
    • Turnover: ₹1,000 crore or more.
    • Net profit: ₹5 crore or more during the preceding financial year.
  • Contribution:
    • At least 2% of the average net profits of the preceding three years to CSR activities.

5. Related Party Transactions (RPTs) (Section 188)

  • Prior board approval required for all RPTs.
  • Shareholder approval required if transaction value exceeds:
    • Sale, purchase, or supply of goods: 10% of turnover or ₹100 crore, whichever is lower.
    • Availing/rendering of services: 10% of turnover or ₹50 crore, whichever is lower.
    • Sale/lease of property: 10% of net worth or ₹100 crore, whichever is lower.

6. Borrowings and Deposits

a. Borrowing Limits (Section 180):

  • Board approval: Up to the company’s paid-up share capital + free reserves.
  • Beyond this: Special resolution required.

b. Deposits (Section 73):

  • Private companies: Can accept deposits from members up to 100% of paid-up capital, free reserves, and securities premium without public deposit compliance.

7. Annual General Meeting (AGM)

  • Applicability:
    • Mandatory for public companies.
    • Not required for OPCs or small companies.
  • Timeline:
    • First AGM: Within 9 months of the end of the first financial year.
    • Subsequent AGMs: Within 6 months of the end of the financial year, but not exceeding 15 months between two AGMs.

8. Filing Requirements

a. Financial Statements (Section 137):

  • Filing of audited financial statements within 30 days of AGM.

b. Annual Return (Section 92):

  • Filing Form MGT-7 within 60 days of AGM.
  • Applicability:
    • All companies, except OPCs and small companies (file simplified Form MGT-7A).

9. Managerial Remuneration (Section 197)

  • Overall limit: 11% of net profits of the company.
  • Individual limits:
    • Managing Director/Whole-Time Director/Manager: 5% of net profits (if one), 10% (if more than one).
    • Non-executive directors: 1% of net profits (if company has MD/WTD/Manager), 3% (if not).

10. Maintenance of Registers and Records

  • Register of Members (Section 88): Mandatory for all companies.
  • Minutes of Meetings (Section 118): Minutes of every board and shareholder meeting to be maintained.

11. Applicability of Secretarial Audit (Section 204)

  • Secretarial audit is mandatory for:
    • Listed companies.
    • Public companies meeting any of these thresholds:
      • Paid-up capital: ₹50 crore or more.
      • Turnover: ₹250 crore or more.

12. Thresholds for Applicability of Internal Audit (Section 138)

Internal audit mandatory for:

  • Listed companies.
  • Unlisted public companies with:
    • Turnover: ₹200 crore or more.
    • Outstanding loans or borrowings: ₹100 crore or more.
  • Private companies:
    • Turnover: ₹200 crore or more, or
    • Borrowings: ₹100 crore or more.

13. Other Limits and Thresholds

ComplianceThreshold/LimitRemarks
Applicability of Women Directors₹100 crore turnover or ₹300 crore net worthAt least one woman director (Section 149).
Voting via Postal BallotMore than 200 membersRequired for listed and public companies.
Acceptance of Unsecured LoansPrivate companies onlyAllowed from directors or their relatives.
XBRL FilingNet worth of ₹5 crore or moreMandatory for certain companies.

14. Limits on Share Capital and Allotment

a. Private Placement (Section 42):

  • Number of Allottees: Private placement is limited to a maximum of 200 persons in a financial year, excluding qualified institutional buyers and employees under ESOP.
  • Minimum Investment Size: Each offer must involve a minimum investment of ₹20,000 per person.

b. Issue of Sweat Equity Shares (Section 54):

  • Limit: Sweat equity shares cannot exceed 15% of the paid-up equity capital in a year or an aggregate of 25% of the paid-up equity capital at any time.
  • Applicability: Allowed only after the company has been in operation for 1 year or more.

15. Acceptance of Deposits (Section 73 and 76)

a. Acceptance of Deposits by Private Companies:

  • Can accept deposits from members up to 100% of paid-up share capital, free reserves, and securities premium without complying with public deposit rules.

b. Eligible Public Companies:

  • Net worth: ₹100 crore or more, or
  • Turnover: ₹500 crore or more, can accept deposits from the public following prescribed rules.

16. Filing of Resolution with ROC (Section 117)

  • Resolutions to be filed within 30 days of passing, including those related to:
    • Borrowing in excess of paid-up share capital and free reserves.
    • Approval of financial statements and board reports.

17. Charge Creation and Registration (Section 77)

  • Charges must be registered with the Registrar of Companies (RoC) within 30 days of creation.
  • Additional time up to 300 days may be granted on payment of fees and additional penalty.

18. Loan and Investment Limits (Section 186)

  • A company can provide loans, guarantees, or securities to other entities up to:
    • 60% of paid-up share capital, free reserves, and securities premium, or
    • 100% of free reserves and securities premium, whichever is higher.
  • For amounts exceeding these limits, prior approval by a special resolution of shareholders is mandatory.

19. Limits on Dividend Declaration (Section 123)

  • Interim Dividend: Can be declared only if the company has sufficient profits for the current or immediately preceding financial year.
  • Dividend Out of Reserves: Allowed only if profits are inadequate or absent, and with compliance with prescribed rules.

20. Penalties and Compounding of Offences

a. Non-Filing of Annual Returns (Section 92):

  • Penalty: ₹100 per day for each day the default continues.

b. Non-Compliance with CSR Provisions (Section 135):

  • Penalty for Company: Twice the amount of unspent CSR funds or ₹1 crore, whichever is less.
  • Penalty for Officers in Default: ₹2 lakh or imprisonment of up to 3 years.

c. Late Filing of Financial Statements (Section 137):

  • Fine for Company: ₹1,000 per day up to ₹10 lakh.
  • Fine for Directors: ₹50,000, plus ₹1,000 per day during default.

d. Non-Appointment of Women Director (Section 149):

  • Penalty: ₹50,000 for the company, plus ₹500 per day for continuing default.

21. Compulsory Appointment of Key Managerial Personnel (KMP) (Section 203)

  • Applicable to:
    • Listed companies.
    • Public companies with:
      • Paid-up share capital: ₹10 crore or more.
  • KMP includes:
    • Managing Director or Chief Executive Officer (CEO) or Manager.
    • Company Secretary.
    • Chief Financial Officer (CFO).

22. Applicability of Cost Records and Cost Audit (Section 148)

  • Companies engaged in specified industries (e.g., pharmaceuticals, engineering, or telecom) must maintain cost records if:
    • Turnover: ₹35 crore or more.
  • Cost audit applies if:
    • Regulated sectors: Aggregate turnover exceeds ₹50 crore.
    • Non-regulated sectors: Aggregate turnover exceeds ₹100 crore.

23. Limits for Preferential Allotment (Section 62(1)(c))

  • Preferential allotments require approval via special resolution.
  • Pricing: The price must be determined based on valuation by a registered valuer.

24. Buyback of Shares (Section 68)

  • Maximum Buyback Limit:
    • Up to 25% of total paid-up capital and free reserves in a financial year.
    • Debt-equity ratio post-buyback cannot exceed 2:1.
  • Time Limit: Buyback to be completed within 12 months of passing the resolution.

25. Dormant Company Compliance (Section 455)

  • A company can apply for dormant status if:
    • It is not carrying out significant accounting transactions.
  • Compliance:
    • Annual filing of financial statements and returns is still mandatory.

26. Applicability of XBRL Filing

  • Mandatory for:
    • Companies with net worth of ₹5 crore or more.
    • Companies listed on a stock exchange or subsidiaries of listed companies.

27. Restrictions on Political Contributions (Section 182)

  • Contributions must not exceed 7.5% of average net profits during the three immediately preceding financial years.

28. Limits on Managerial Remuneration (Section 197)

  • Total managerial remuneration:
    • 11% of net profits of the company.
  • Exceeding limits requires approval by shareholders and/or the central government, depending on circumstances.

29. Applicability of Internal Audit (Section 138)

Internal audit is mandatory for the following companies:

  1. Listed Companies: Applicable to all listed entities.
  2. Unlisted Public Companies:
    • Turnover: ₹200 crore or more during the preceding financial year.
    • Paid-up share capital: ₹50 crore or more.
    • Outstanding borrowings or loans: ₹100 crore or more from banks or financial institutions.
  3. Private Companies:
    • Turnover: ₹200 crore or more during the preceding financial year.
    • Outstanding borrowings or loans: ₹100 crore or more.

30. Applicability of Women Directors (Section 149)

Mandatory Appointment:

  • Listed companies.
  • Other public companies meeting any of the following thresholds:
    • Paid-up share capital: ₹100 crore or more, or
    • Turnover: ₹300 crore or more.

31. Quorum for General Meetings (Section 103)

  1. Private Company:
    • 2 members personally present.
  2. Public Company:
    • Up to 1,000 members: 5 members personally present.
    • 1,001–5,000 members: 15 members.
    • More than 5,000 members: 30 members.

32. Restrictions on Loans to Directors (Section 185)

Limits on Loans:

  1. Prohibition: Companies cannot advance loans, guarantees, or securities directly or indirectly to directors or their relatives, except:
    • Loan to a wholly-owned subsidiary or guarantee/security to its subsidiary for loans taken from banks or financial institutions.
  2. Penalty:
    • Company: Fine of ₹5 lakh to ₹25 lakh.
    • Officer in Default: Imprisonment up to 6 months or fine of ₹5 lakh to ₹25 lakh, or both.

33. Voting Limits via Postal Ballot (Section 110)

Postal Ballot Required for:

  • A company with 200 or more members must use postal ballots for specified resolutions (e.g., alteration of object clause, buyback, issuance of shares with differential rights).

34. Limits on CSR Expenditures (Section 135)

  1. Unspent CSR Funds:
    • Any unspent CSR amount must be transferred to a fund specified under Schedule VII within 6 months from the end of the financial year.
  2. Ongoing Projects:
    • Unspent CSR funds related to ongoing projects must be transferred to a separate account within 30 days and spent within 3 financial years.

35. Applicability of Secretarial Audit (Section 204)

Secretarial audit is mandatory for:

  1. Listed Companies.
  2. Other Public Companies meeting any of the following thresholds:
    • Paid-up share capital: ₹50 crore or more.
    • Turnover: ₹250 crore or more.

36. Maintenance of Registers and Records

  1. Register of Charges (Section 85):
    • Every company creating a charge must register it within 30 days of creation.
  2. Register of Members (Section 88):
    • Mandatory for all companies, irrespective of size.
  3. Records of Minutes (Section 118):
    • Companies must maintain records of board meetings and general meetings permanently.

37. Filing of Financial Statements (Section 137)

  1. Filing Deadlines:
    • Financial statements must be filed with the Registrar within 30 days of the AGM.
  2. Exemption:
    • OPCs and small companies can file simplified financial statements.

38. Appointment of Auditors (Section 139)

  1. First Auditor:
    • Must be appointed by the Board within 30 days of incorporation.
  2. Subsequent Auditors:
    • Appointment for a term of 5 years, subject to ratification at every AGM.
  3. Mandatory Rotation of Auditors:
    • Applicable to:
      • Listed Companies.
      • Public companies with paid-up share capital of ₹10 crore or more.
      • Private companies with paid-up share capital of ₹50 crore or more.

39. Maximum Number of Directorships (Section 165)

  1. Limits:
    • Maximum of 20 directorships, of which not more than 10 can be in public companies.
  2. Penalty for Non-Compliance:
    • Fine up to ₹5,000 per day for the director holding excess positions.

40. Consolidation of Financial Statements (Section 129)

  1. Applicability:
    • Mandatory for companies with one or more subsidiaries, associates, or joint ventures.
  2. Compliance Requirement:
    • Consolidated statements must adhere to Indian Accounting Standards (Ind AS) and be filed along with standalone financial statements.

41. Limits on Managerial Remuneration (Section 197)

  1. Total Remuneration Cap:
    • Cannot exceed 11% of net profits without shareholder approval.
  2. Remuneration Limits for Individual Directors:
    • Managing Director, Whole-Time Director, or Manager: 5% of net profits (if one director) or 10% (if more than one).

42. Limits for Calling EGM (Section 100)

  1. Who Can Call an EGM:
    • Board of Directors.
    • Shareholders holding at least 10% of paid-up share capital or 10% of voting power.
  2. Notice Period:
    • Minimum 21 days.

43. Penalty for Non-Maintenance of Books of Accounts (Section 128)

  1. Requirement:
    • Books must be maintained at the registered office for at least 8 financial years.
  2. Non-Compliance Penalty:
    • Company: Fine of ₹25,000 to ₹5 lakh.
    • Officer in Default: Imprisonment up to 6 months or fine of ₹50,000 to ₹5 lakh, or both.

44. Compliance with Deposit Rules (Section 76A)

  1. Maximum Deposit Limits:
    • Cannot exceed 25% of paid-up share capital, free reserves, and securities premium.
  2. Penalty for Violations:
    • Fine of up to ₹10 crore for the company and ₹2 crore or imprisonment for officers in default.

Conclusion

The Companies Act, 2013, prescribes detailed thresholds and limits to ensure that corporate entities comply with their governance and operational responsibilities effectively. While these limits aim to balance flexibility with accountability, understanding and adhering to them is essential to avoid penalties and ensure smooth operations. Companies should proactively monitor their status concerning these thresholds and seek professional advice to navigate complex compliance landscapes.

By consolidating these limits, this article provides a comprehensive compliance checklist, helping companies streamline their obligations under the law. For specific queries or advice, consulting a Chartered Accountant or a legal professional is highly recommended.

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