Abridged Directors’ Report for Small Company and OPC

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. 

Small Company and One Person Company Under the Companies Act

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:

• A paid-up share capital not exceeding Rs.2 crore or such specified higher amount which shall not be more than Rs.10 crores
• A turnover not exceeding Rs.20 crore or such specified higher amount which shall not be more than Rs.100 crore 

The definition of a small company does not apply to the following companies:

• A holding or a subsidiary company
• A company registered under section 8
• A body corporate or company governed by any special act

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.

Mandatory Directors’ Report by Board of Directors

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. 

Disclosures to be made in the Abridged Director Report

Rule 8A of the Rules states that the following matters should be disclosed in abridged directors’ report of an OPC and small company:

• The web address where the copy of the annual return is placed as provided in Section 92(3) of the Act 
• Number of the board of directors meeting
• Directors responsibility statement as provided in Section 134(5) of the Act
• Details regarding frauds reported by auditors under Section 143(12) of the Act except those which are to be reported to the Central Government
• Comments or explanations by the board on every reservation, qualification, or adverse disclaimer or remark made by the auditor in his/her report
• The state of the company’s affairs
• The financial highlights and summary 
• Material changes in the nature of business from the date of closure of the financial year and their effect on the company’s financial position 
• The details of directors appointed or resigned during the year
• The details or material and significant orders passed by the courts, regulators or tribunals, impacting the going concern status and company’s operation in future. 

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.

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.
 

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