Draft Format of Directors Report: Small Company 2022

All the registered companies are required to hold annual general meetings and file the company’s annual return with the ministry of corporate affairs.  Undoubtedly a director’s report is a very important document for all types of companies. According to the Companies Act, 2013 every board of directors of a company has to attach the reports to its financial statements to be given before the members of the company at the annual meeting. However, this blog will discuss the ‘Director’s Reports: Small Company 2022’.

Directors Report and Abridged Directors Report

The financial documents containing all the details of the company’s state and its compliance with financial and accounting responsibilities are known as the director’s report. As per the Companies Act, 2013 every board of directors of a company has to attach the reports to its financial statements before giving them to the members of the company at the annual meeting. whereas, the one-person companies (OPC) and the small companies don’t need to file the director’s report. Instead of that, they can file an abridged director’s report and the abridged director’s report is the short version of the director’s report. The Ministry of Corporate Affairs (MCA) introduced this kind of report for OPC and small companies in 2018. Moreover, the board reports of these companies are based on the standalone financial statement of the company in the form of abridged director’s reports according to the prescribed rules.

Purpose of the Director’s Report

According to section 134(3) of the companies Act, 2013, the directors of a company report at the end of every financial year. It ensures greater transparency, for this reason, the director’s report helps shareholders of the companies to understand various information like:

• How the company is performing in the market and how the market is performing in general.
• The finances of the company are in good condition or not.
• Whether the company can develop, grow and expand or not.
• Is the company complying with accounting standards, financial regulations, and corporate social responsibility requirements?

Contents of Director’s Report as per Companies Act,2013

The following are the contents of the director’s report according to section 134(3) of the companies Act, 2013:

• The number of meetings by the board of directors  
• Information about annual return extract as provided under section 92(3) of the companies Act, 2013.
• Responsibilities of the director’s as per section134(5) of the act.
• All the details regarding the frauds reported by the auditors as per section 143(12) of the Act other than those reportable to the central government.
• The statement of the declaration provided by the independent directors as per section 149(6) of the Act.
• Particulars of guarantees, Investments or loans made under section 186 of the Act.
• The company’s state of affairs.
• The amount that companies propose to carry to any reserve if any.
• Comments and explanations by the board on every reservation, qualification, adverse disclaimer, or remark made by the auditors. 
• Details of the policies developed and implemented by the company.
• The conservation of energy, technology absorption and foreign exchange earnings, as per the manner given under rule 8(3) of the companies (accounts) rules, 2014.
• Further, such other matters and information of the company are given in the report.

Small Company under the Companies Act

To provide various benefits to companies with less turnover the government introduced the concept of a small company. So, companies with less turnover and paid-up capital are called small companies and these companies have no separate registration, and they will be registered as Public Limited Companies.

Small companies are defined under section 2(85) of the companies Act, 2013, as a company, other than a Public Company having:

• Firstly, paid-up share capital not exceeding Rs. 2 crore or such specified higher amount which shall not be more than Rs. 10 crores. 
• Secondly, a turnover of such companies not exceeding Rs. 20 crore or such specified higher amount which shall not be more than Rs. 100 crores.

The definition of small companies does not include the following companies:

• A company registered under section number 8 of the Companies, Act, 2013.
• A Subsidiary or holding company
• A company or body corporate governed by any special act of both central and state.

Whereas, One-Person Company is defined under section 2(62) of the companies Act, 2013.

Disclosures to be made in the abridged Director’s Report: Small Company 2022

Rule 8A of the Companies (Accounts) Amendment Rules, 2018 states that the following matters should be disclosed in the abridged director’s report of an OPC and small company:  

• It should display the web address where the copy of the annual return is placed as given in section 92(3) of the Act.
• A Total number of the board of directors’ meetings.
• Director’s responsibility statement as per section 144(5) of the companies Act.
•  All the details regarding the frauds reported by the auditors as per section 143(12) of the Act other than those reportable to the central government.
• The company’s state of affairs.
• The summary and highlights are related to the company.
• Comments and explanations by the board on every reservation, qualification, adverse disclaimer, or remark made by the auditors. 
• Details related to appointment and resignation of directors during the year.
• Further, The Other significant orders, details or material passed by the regulations, tribunals and court. Which will impact the company’s status and its future operations.

Draft Format of Director’s Report: Small Company 2022

To,

The Members

Xyz Private Limited (name of the company)

Your Directors have the pleasure of presenting the annual report together with the audited statement of accounts of the company for the ended March 31, 2022.

1) Financial Results

The financial performance, for the year ended March 31, 2021:

2). State of companies Affairs

The company engaged in the business of __(work of company)__. There are no changes in the business of the company during the financial year ended 31st March 2021.

Constitution of the board: There has been no change in the constitution in the Board during the year under review. The composition of the Board of the company follows: –

1.__________

2.__________

3). Meeting of the Board Directors

During the financial year 2021-22, the Board of Directors of your company duly met 4(Four) times as per the provisions of Section -173 of Companies Act, 2013 and rules made thereunder.

4). Statutory Auditors

____________& Associates, Chartered Accountants, have been appointed as statutory auditors of the company at the Annual General Meeting held on _____________ for Five years’ subject to ratification by members at every consequent Annual General Meeting.

The Companies (Amendment) Act, 2017 published in the Gazette of India on January 3, 2018, amended a few sections of the Companies Act, 2013 including the omission of the first proviso to Section 139(1) of the Companies Act, 2013 which provided for ratification of the appointment of Statutory Auditors by members at every AGM. The Amendment to said section is already effective from May 7, 2018.

Given the above, the Board of Directors of the Company have proposed partial modification of the previous resolution of the members passed at the 1st AGM of the company on the appointment of Statutory Auditors and recommended to continue the appointment of ____________Associates, Chartered Accountants, Jaipur, as statutory auditors of the company for five years commencing from the conclusion of 1st AGM till the conclusion of 6th AGM of the Company, without seeking any further ratification of their appointment from members at this AGM and ensuing AGM till the tenure of the Statutory Auditors

The Notes on financial statements referred to in Auditor’s Report are self-explanatory and do not call for any further comments.  The Auditor’s Report does not contain any qualification, reservation or adverse remark.

5). Directors Responsibility statement

According to, Section 134(5) of the Companies Act, 2013 the Board of Directors of the Company confirms that-

• In the preparation of the annual accounts for the year ended March 31, 2022, the applicable accounting standards read with requirements set out under Schedule III to the Act, have been followed and there are no material departures from the same.

• The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent to give a true and fair view of the state of affairs of the Company as of March 31, 2022, and of the profit of the Company for the year ended on that date.
• The Directors have taken proper and sufficient care for the maintenance of adequate accounting records by the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.
• The directors had prepared the annual accounts on a going concern basis; and
• The Company being unlisted, under sub-clause (e) of section 134(3) of the Companies Act, 2013 about laying down internal financial controls does not apply to the Company.
• The directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

6). Board of comments on auditor’s report

The notes on accounts referred to in the Auditor’s Report are self-explanatory and there are no adverse remarks or qualifications in the Report and therefore, do not need any further comment.

 7). Material Changes and Commitments

No material changes and commitments affecting the financial position of the Company occurred between the end of the financial year to which this financial statement relates and the date of this report.

9). Details of significant material orders passed by the regulation, courts and Tribunals

No significant and material order has been passed by the regulators, courts, or tribunals impacting the going concern status and Company’s operations in future.

10). Sexual Harassment

The Company has in place prevention of Sexual Harassment Policy in line with the requirements of the Sexual Harassment of women at the workplace (Prevention, Prohibition and Redressal) Act,2013.

During the Financial Year, 2021-22 were No complaints related to sexual harassment in the company. 

11). Acknowledgement

Your Directors place on record their sincere thanks to bankers, business associates, consultants, and various Government Authorities for their continued support extended to your Companies activities during the year under review. Your Directors also acknowledge gratefully the shareholders for their support and confidence reposed on your Company.

FOR ____________ PRIVATE LIMITED

__________                                       _________

Director                                             Director     

DIN ________                     DIN____________

Date: ____________

Conclusion

Thus, it is clear that the director’s report is a very important document that not only contains information about the company but also acts as a guidebook for the shareholders. Further, the one-person companies (OPC) and the small companies don’t need to file the director’s report. Instead of that, they can file an abridged director’s report and the abridged director’s report is the short version of the director’s report, the format of which is given above. 

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