Every company which is registered under the Companies Act, 2013, is required to attach director’s report with financial statement and required to submit before members of the company during annual general meeting of the company. As per the provisions of section 134 of the companies act, 2013 every company after getting the company registration done, needs to make certain disclosures about the financial status of the company, further, it is obligation of every listed company to comply with certain provisions to make a disclosure to SEBI under Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.
What is the director’s report, and how is it defined?
Director’s report is a financial disclosure made by director to the shareholders of the company. It is envisaged to disclose financial status of the company by disclosing company’s affairs and scope of work along with its subsidiaries. It is basically financial summary of the company for the whole financial year and future vision too.
In erstwhile companies act, 1956 provisions related to director report as defined under section 217, but in new companies act, 2013, these terms have been defined under many sections.
The objective of Directors’ report
A director of the company needs to prepare and submit a said report to shareholders of the company at every annual general meeting every year in order to maintain transparency in the company. It helps stakeholders of the company understand the current financial status of the company and future scope and understand:
- The current financial health of the company
- Company’s capability to diversify and grow
- Company’s status and position in the current market and future scope and growth
- Whether company is following current regulations, standards, and social responsibility as required by various regulators like ROC, RBI, SEBI, etc.
What does directors’ report covers?
- Company’s description and details of current shareholders and other key managerial personnel’s
- Directors description submitting director’s report
- Description of companies trading activity
- Future vision and prospectus of the company
- Submission and description of financial records and statement of the company before members
- Current Balance sheet, profit and loss, and cash flow description along with auditor’s report
- Dividend recommendation for current financial year
- Any financial incidence that may affect company’s financial position in the future
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What disclosure needs to be made in Director’s Report for private limited companies?
- As per section 134(3) of the companies act, the 2013 Directors report shall include annual financial records of the company for current year. The report shall have mention of Profit and loss of the company, net turnover for sales, income, and expenses, and other important financial records of the company. Web records of such transactions also need to be enclosed with report
- Description of board meeting of the company during financial year as per section 134(3) of the company’s act, which mentions total board meetings conducted during the year along with mentioning about date and timing of the meeting. Further description of the presence of director in each board meeting.
- Mentioning of compliance w.r.t. Inter-corporate loans and investments along with guarantees of the company as per section 186 of the companies act.
- Description regarding transactions w.r.t related parties along with justification given for entering into such arrangement as per section 188 of companies act.
- Statement about joint venture or cessation of any subsidiary or associate company during the year as per Rule 8(5)(IV).
- Submission of report and statement of any subsidiary, joint venture, or any associate company about its performance and financial position.
- Board report regarding appointment or resignation or termination of any director or member during the financial year
- Auditor’s qualification and appointment along with its description and recommendation w.r.t to dividend.
- Any material changes which have affected financial position of the company and further statement that indicates implementation of any risk management policy in the company and identification of any elements of risks to the company as per section 134(3) of the companies act.
- Report regarding the transfer of any reserves stating amount which proposes to carry out such transaction such as debenture redemption etc.
- Highlight any changes in nature of business of financial summary of the company as per Rule 8(5) (1&2).
- Constitution of committees like Sexual Harassment at the workplace for women and other related employees benefit schemes in the report.
- Statement of director responsibility W.r.t Company and description of accounting standards and policies of the company and other related duties of director in the company.
- Description Of maintenance of financial records for the company and furnish details about the same.
Is it mandatory to submit director’s report?
A director of the company is liable to submit director report every financial year before shareholders of the company. Companies act, 2013 has made it mandatory to file this report as per many sections embedded in the act whereas, in the erstwhile act, only section 217 talked about director’s report.
Who can sign director’s report?
As per the provisions of section 134(6) of the companies act, 2013[1] chairperson of the company shall sign director/board’s report and in case of his absence or as authorized by board of directors by at least 2 directors. One of 2 directors shall be Managing director of the company.
Conclusion
Companies act, 2013 has made it mandatory provision to submit Director Report during annual general meeting, and several related provisions have been embedded in the new companies act. In order to make sure that every company shall follow this, penal provisions have also been made in this regard. As per section 134(8) of the companies’ act, 2013, if any company fails to comply with the provisions as made under section 134 of the companies act, then fine amount of Rs. 50000- which may extend up to Rs. 25 lakh can be imposed on the company. Further, any officer in default can be imprisoned for a term which may extend to 3 yrs or a fine of Rs. 50,000 to Rs.5 lakh or both.
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