The Companies Act, 2013, requires the Board of Directors of every Company to attach its report to the financial statements to be laid before the members at the annual general meeting. The Board’s Report is an important means of communication by the Board of Directors of a company with its stakeholders.
Earlier, the Report of the Board of Directors of the Small Company and One Person Company (“OPC”) required a lot of disclosures and was drafted on the same front as that of a big Company or a Public Company. Then the Ministry of Corporate Affairs vide its notification dated 31st July, 2018 introduced Rule 8A of Companies (Accounts) Amendment Rules 2018. Accordingly, the said rules minimizes the drafting of report of the Board of Directors of OPC and small Company and requires only certain specific things to be included therein and thereby reducing the paper work, time and costing. In this article, we shall discuss about the specific contents to be included in the Report of the Board Directors:
Let’s first start with the basic understanding of what are an OPC and Small Company:
ONE PERSON COMPANY
In accordance with the section 2(62) of Companies Act, 2013 a one-person company means a company that has only one person as to its member. To be brief, there can be only one shareholder in a One Person Company. However, there can be more than one Director.
SMALL COMPANY
In accordance with the section 2(85) of Companies Act, 2013 small company means a company, other than a public company–
- Paid up share capital of which does not exceed Rupees 50 lakhs rupees, or
- Turnover of which as per its pervious profit and loss account does not exceed Rupees 2 crore rupees
Except:
- A holding company or a subsidiary company;
- A company registered under section 8; or
- A company or body corporate governed by any special Act.
SIGNING OF BOARD’S REPORT:
| S. No. | Particulars | No. of Directors |
| 1. | Small Company | Two directors or a Chairman of the Company |
| 2. | One Person Company | One director of the Company |
POINTS TO BE INCLUDED IN BOARD’S REPORT OF OPC AND SMALL COMPANY:
It should be prepared based on the stand alone financial statements of the Company, which shall be in abridged form and contain the following:-
1. The web address, if any, where annual return referred to in sub-section (3) of section 92 has been placed.
2. Number of meetings of the Board.
3. Directors’ Responsibility Statement as referred to in sub-section (5) of section 134.
4. Details in respect of frauds reported by auditors under sub-section (12) of section 143 other than those which are reportable to the Central Government.
5. Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.
6. The state of the company’s affairs.
7. The financial summary or highlights.
8. Material changes from the date of closure of the financial year in the nature of business and their effect on the financial position of the company.
9. The details of directors who were appointed or have resigned during the year.
10. The details or significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company’s operations in future.
11. The Report of the Board shall contain the particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the Form AOC-2.
In addition to this, in the event any specific section is applicable on the Company such as dividend distribution, issue of shares, etc. then the respective Company shall disclose such other information as required as well.
FREQUENTLY ASKED QUESTIONS (FAQs):
Q 1. Whether a Company can add more information other than mentioned in the Act?
Ans: It is important to understand that a Report of the Board of the Directors is basically a communication between the Directors and its stakeholders. Accordingly, it is always a very good corporate governance practice to draft it in the most comprehensive way and include as much disclosures and information as possible.
Q 2. Can a public limited Company be a small Company?
Ans: No, only a private limited Company can be a small Company.
Q 3. Does the Company required to comply with the additional disclosures as mentioned in the Secretarial Standards?
Ans: The Secretarial Standards on Report of the Board of Directors also requires that an OPC and Small Company shall comply only with the requirements mentioned above and provide that the Directors Report shall be an abridged form.
{The author i.e. Kajal Goyal is a Company Secretary in Practice at Kajal Goyal and Associates and can be reached at (M) 9999952595 and (E) cskajalgoyal@gmail.com}
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