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The Board of Directors of a company have to prepare the directors’ report and file it at the end of every financial year under the Companies Act, 2013 (‘Act’). It is a financial document containing details of the company’s state and its compliance with financial and accounting responsibility.
The small companies and One Person Companies (OPCs) need not file the directors’ report; instead, filing the abridged director’s report is sufficient. The abridged director report is the directors’ report that is not vast but in an abridged (short) form.
The Ministry of Corporate Affairs (MCA) introduced the abridged directors’ report for a small company and OPC in Rule 8A of the Companies (Accounts) Amendment Rules, 2018 (‘Rules’) on 31st July 2018. The board’s report of the OPC and small company should be prepared based on the standalone financial statement of the company in an abridged form as prescribed by the Rules.
The government introduced the small company concept to provide various benefits to companies with less turnover. The companies with turnover and paid-up capital below a specified limit will be considered small companies. There is no separate registration for small companies, and they will be registered as private limited companies.
Section 2(85) of the Companies Act, 2013 defines a small company as a company, other than a public company having:
The definition of a small company does not apply to the following companies:
Section 2(62) of the Companies Act, 2013 defines an OPC as a company that can have only one person as a company member. The same person can be the director of the company.
The Companies Act, 2013 provides that a report by the Board of Directors (directors’ report) should be attached with every company’s financial statements. The directors’ report should be prepared according to Rule 8 of the Companies (Accounts) Rules, 2014. However, the Companies (Accounts) Amendment Rules, 2018, provided that this Rule 8 will not apply to a small company and OPC and introduced new Rule 8A.
Rule 8A of Companies (Accounts) Amendment Rules, 2018 prescribes the matters to be disclosed in the board’s report for an OPC and small company, which shall be in abridged form. The board of the OPC and a small company can prepare an abridged directors’ report as per Rule 8A and submit it with the MCA.
Rule 8A of the Rules states that the following matters should be disclosed in abridged directors’ report of an OPC and small company:
The abridged directors’ report should contain the particulars of arrangements or contracts with related parties as provided in Section 188(1) of the Act in Form AOC-2. Rule 8A acts as a relief for OPC and small companies, which are not required to give detailed disclosures in their directors’ report as stipulated under Rule 8 of the Companies (Accounts) Rules, 2014. They can only specify the details mentioned above in their directors’ report.
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