Disclosures in Board’s Report in Private Limited Company

Disclosures in Board’s Report in Private Limited Company

Introduction

A company is regulated by the Board of Directors. And Board of Directors are responsible for the management of the company, and are appointed by the Shareholders for efficient management, but have you wondered, how these Shareholders get to know about the Company Affairs?

It is important for the Board to give necessary and timely disclosures to the shareholders as shareholders have right to know where their funds is getting used and how is that helping the business to grow.

The Annual Report consisting of Notice of Annual General Meeting, Board Report, Audit Report, Financial Statements, Disclosures of Related party transactions, and other related annexure(s) is the best way to make the shareholders aware about the business and the stakeholders including the management of the company transparent and corruption free.

In this article we will peep into the certain provisions and amendments regarding Board Reports. 

FAQ’s on-Board Report: -

What is Board Report?

Board Report means report by collective body of the Directors of the company. It is also called Director’s Report.

It is basically a gist of all the financial activities done during the financial year and is attached to the financial statement of the company which is laid before the members in the General Meeting, after the board approval in Board Meeting.

When Board Report is to be signed?

A board report is required to be signed on or after the date of Board Meeting wherein the financials got approved, i.e. the date of signing of board report should be either on the date of approval of financials or after the date of approval of financials.

Who to sign Board Report?

Every Company should make sure that the board report be signed by its chairperson of the company if he is authorized by the Board and where he is not so authorized, be signed by at least two directors, one of whom shall be a managing director or by the director where there is one director. In case of OPC where there is only one Director, Board Report can be signed by only one Director.

Is Board Report of a company available to be viewed by Public?

After the company files the Annual Report, it can be viewed by the stakeholders by View public documents at MCA

Let’s discuss about the Mandatory items to be disclosed in the Board Report

a)     State of Company Affairs i.e. Financial Summary or Highlights

b)     The web address, if any, where annual return has been placed

c)     Number of meetings of the Board

d)     The details of directors who were appointed or have resigned during the year

e)     Directors’ Responsibility Statement

f)      Details in respect of frauds reported by the auditors (other than the ones reportable to central govt)

g)     Subsidiaries, JVs or Associate Companies

h)     Report on performance of subsidiaries, associates companies and joint ventures

i)       Statement on declaration given by independent directors

j)       Company’s policy on directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other related matters

k)     Appointment or Re-Appointment of Independent Director

l)       **A disclosure, as to whether maintenance of cost records as specified under Section 148(1) of the Act, is required by the Company and accordingly such accounts and records are made and maintained**

m)   **A statement that the company has complied with provisions relating to the constitution of Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013**

n)     Comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the Auditor/ Practicing Company Secretary

o)     Particulars of Loans, guarantees or investment

p)     Particulars of contracts or arrangements with related parties referred to in Section 188(1) in Form AOC-2.

q)     The state of the company’s affairs

r)      The conservation of energy, technology absorption, foreign exchange earnings and outgo

s)     Details about the Corporate Social Responsibility (CSR)

**Newly inserted sub clause by The Companies (Accounts) Rules, 2014**

The Additional items that can be included in Board Report (Optional and to be added when applicable)

a)     The amounts, if any, which it proposes to carry to any reserves

b)     The amount, if any, which it recommends should be paid by way of dividend

c)     Material changes and commitments after the closure of financial year up to the date of Board Meeting in which the report got approved

d)     Orders passed by the regulators or courts or tribunals impacting the going concern status and company’s operations in future.

e)     A statement indicating development and implementation of a risk management policy

f)      In case of a listed company and every other public company having such paid-up share capital, and a statement of annual evaluation of performance of its Board and its committees

g)     Details Relating to Deposit

h)     Disclosure about ESOP and Sweat Equity Share

i)       Disclosure of Vigil Mechanism in board Report

j)       Disclosure if MD/WTD is receiving remuneration or commission from a MD/WTD or subsidiary Company

k)     General Disclosures

l)       Such other matters as may be prescribed

Now moving towards the changes, the MCA has amended the Companies (Accounts) Rules, 2014 which got effective from 31st July, 2018.

Approximately, there are 30-40 transactions that are required to be mentioned in the Board Report (as per Rule 8 of The Companies (Accounts) Rules, 2014), but with the introduction of New Sub Rule that is Rule 8(6), One Person Company or Small Company are exempted from this rule, and also with the introduction of New Rule i.e. Rule 8A, the OPC or Small Company is required to disclose 10 transactions in its Board Report.

As per New Rule 8A – Matters to be included in Board’s Report for One Person Company and Small Company

S.NO	PARTICULARS	SMALL COMPANY/OPC
1.	Basis of Preparation- Stand alone financial statement of the company	Included
2.	The Web Address, if any, where annual return 92(3) has been placed	Included
3.	Number of Board Meeting	Included
4.	Directors Responsibility statement 134(5)	Included
5.	Details in respect of frauds reported by auditors 143(12), other than those reportable to Central Govt	Included
6.	Explanation or comments by Board on every qualification, reservation or adverse marks made by auditor	Included
7.	State of companies affairs	Included
8.	Financial summary or Highlights	Included
9.	Material changes from date of closure of financial year in the nature of business and the effects they have on the financial position of the company	Included
10.	Details of directors appointed or resigned during the year	Included
11.	Details of significant and material order passed by regulators, courts or tribunal effecting the status of companies operation	Included
12.	Contracts and arrangement with related party in AOC-2 188(1)	Included

This amended has relieved small companies/OPC by limiting the number of transactions to be included in Board Report; moreover, requirement to prepare MGT-9 by small companies/OPC has been done away with.