Micro, Small, and Medium Enterprises (MSMEs) form the backbone of India’s economy, contributing significantly to GDP and employment generation. While running an MSME is rewarding, it also comes with responsibilities—particularly those related to compliance with legal and statutory requirements. Proper compliance ensures smooth operations, risk mitigation, and long-term sustainability of businesses.
This guide provides an in-depth look at the secretarial compliances every MSME founder and leader in India needs to know.
What are Secretarial Compliances?
Secretarial compliances refer to the legal and regulatory frameworks that a business must adhere to. These encompass filings, records, and governance practices mandated by various statutory authorities such as the Ministry of Corporate Affairs (MCA), the Registrar of Companies (RoC), and other bodies.
Compliance requirements for MSMEs include maintaining corporate governance standards, filing periodic reports, and adhering to labor and taxation laws.
Importance of Secretarial Compliances for MSMEs
- Legal Protection: Compliances ensure that your business remains protected from lawsuits and penalties.
- Good Governance: Proper records and filings foster transparency and accountability.
- Investor Confidence: Investors and lenders prefer compliant businesses with sound governance.
- Operational Stability: Non-compliance can lead to fines, disruptions, or in extreme cases, business closures.
For More – Key Compliance Deadlines for the month December’24
Categorization of Secretarial Compliances
1. Entity Formation and Registration Compliances
- Choosing the appropriate legal structure: Proprietorship, Partnership, LLP, Private Limited Company, etc.
- Obtaining registrations like GST, MSME Udyam Certificate, PAN, and TAN.
2. Ongoing Compliance Obligations
- Annual Filings: Filing financial statements, annual returns, and audit reports with RoC and MCA.
- Board Meetings: Holding mandatory board meetings and recording minutes.
3. Employment and Labor Compliances
- Registering under Employee Provident Fund (EPF), Employee State Insurance (ESI), and Professional Tax.
- Adhering to the Minimum Wages Act and other employment laws.
4. Financial and Taxation Compliances
- Filing Goods and Services Tax (GST) returns.
- Compliance with TDS (Tax Deducted at Source) provisions.
- Corporate tax filings.
5. Industry-Specific Regulations
- Additional permits, clearances, or certifications specific to industries like manufacturing, food processing, or IT.
Key Compliance Activities for MSME Leaders
Maintaining Registers and Records
- Statutory registers like registers of members, debenture holders, and directors.
- Share certificates and capital records.
Proper Documentation
- Accurate maintenance of meeting agendas, notices, resolutions, and contracts.
- Filing amendments to the company’s Articles of Association (AoA) or Memorandum of Association (MoA).
Filing Annual Returns
- Submission of MGT-7 (Annual Return) and AOC-4 (Financial Statements) within specified timelines.
Secretarial Audits
- Conducting audits as per Section 204 of the Companies Act, 2013 for applicable enterprises.
Compliance Checklist for MSMEs
- Starting the Business:
- Acquire relevant licenses and certifications (e.g., FSSAI, Factory License).
- Register under Shops and Establishment Act, if applicable.
- Taxation:
- Ensure timely GST registrations and submissions.
- Pay advance tax and file income tax returns.
- Employment Law Adherence:
- Offer gratuity to eligible employees.
- Monitor working hours, overtime, and leave policies.
- Financial Reporting:
- Regularly update financial statements.
- Get books audited by a qualified professional.
- Registrar Notifications:
- Report any significant changes (e.g., shareholding, registered office address).
Impact of Non-Compliance on MSMEs
Legal and Financial Penalties
- Late filing fees and interest payments.
- Prosecution for non-adherence to mandatory provisions.
Damage to Reputation
- Public disclosure of compliance breaches can erode trust.
Operational Challenges
- Freezing of assets or licenses leading to business disruption.
Technology and Automation for Compliance
Digital Platforms for Record-Keeping
- Cloud-based tools for document storage and collaboration.
- Maintaining statutory registers digitally.
Software Solutions
- GST filing and payroll management tools such as Zoho Books , Tally, etc..
- Secretarial compliance solutions like MCA21 portal access.
Advantages of Automation
- Minimizes manual errors.
- Enhances efficiency and ensures on-time filings.
Best Practices for MSME Founders
- Periodic Reviews- Conduct internal compliance audits semi-annually.
- Consult Professionals- Seek advice from Company Secretaries and Chartered Accountants.
- Awareness of Changes- Stay updated with new laws, notifications, and guidelines from MCA and other bodies.
- Set Up a Compliance Calendar- Track deadlines using a comprehensive timeline to avoid missed obligations.
Frequently Overlooked Compliance Areas
- Not maintaining proper employee-related registers.
- Ignoring the filing of director KYC (DIR-3 KYC).
- Delayed updates of significant beneficial ownership (SBO).
Common Challenges in Secretarial Compliances
- Lack of Awareness- MSME owners often struggle with understanding the full spectrum of laws and requirements.
- Limited Resources- Hiring full-time compliance officers might not be financially feasible for smaller MSMEs.
- Frequent Changes in Laws- Amendments in regulatory requirements make it challenging to stay updated.
- Manual Errors- Reliance on non-digital methods increases the likelihood of mistakes in filings or record maintenance.
Role of Company Secretaries (CS) for MSMEs
- Advisory Services- Guiding entrepreneurs on legal requirements during startup and expansion phases.
- Compliance Management- Preparing, certifying, and filing returns with statutory bodies.
- Corporate Governance- Ensuring adherence to boardroom practices, risk management, and disclosure requirements.
- Representative Functions- Acting as a liaison with regulatory authorities like SEBI, RBI, and MCA.
MSME Compliance Reliefs and Benefits
- Simplified Filing Processes- Udyam registration offers a consolidated framework for regulatory submissions.
- Exemptions and Relaxations- MSMEs often receive exemptions in mandatory audits, particularly if turnover falls below the specified threshold.
- Subsidy Schemes- Government schemes like CLCS-TU subsidize costs related to technology upgrades and certifications.
- Ease of Doing Business- India’s rankings in the Ease of Doing Business index have improved, partly due to reduced compliance burdens for smaller enterprises.
Future of Secretarial Compliances for MSMEs
- Trend Toward Digital Transformation- Technologies like AI-driven compliance tools and blockchain for record validation are shaping the future of MSME governance.
- Government Initiatives- ‘Make in India’ and ‘Digital India’ initiatives promise better regulatory support for businesses adopting compliant practices.
- Focus on Sustainability- Compliance frameworks are increasingly including sustainability and ESG (Environmental, Social, Governance) metrics.
Simplifying Compliance for MSME Success
Secretarial compliances for Micro, Small, and Medium Enterprises (MSMEs) extend beyond mere statutory obligations; they are a vital component of successful, scalable, and sustainable business operations. Although navigating these requirements may seem daunting, implementing effective strategies, leveraging technology, and seeking professional guidance can streamline compliance into a seamless aspect of your business processes.
At Finsmart Accounting, we recognize the unique challenges MSME founders face in navigating complex compliance requirements. By outsourcing accounting, payroll, and secretarial tasks to our team, you can focus on driving business growth and success.
Partner with Finsmart Accounting today for a worry-free compliance experience tailored to your specific needs.
Book a consultation today: https://calendly.com/finsmart_accounting/30min
Founder & Director
Shalaka Joshi, a Chartered Accountant passionate about outsourcing and problem-solving, brings over 20 years of extensive experience in accounting, payroll, and MIS reporting to her professional endeavors
