Case Study on Changing the Financial Year of the Company under the Companies Act, 2013
As per Section 2(41) of the Companies Act, 2013 (Act), “financial year” means:
- the period ending on the 31st day of March every year,
- and where a company has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statements of the company is made up.
Provided that where a company which is a holding or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Central Government (CG) (i.e., Regional Director) may, on an application made by that company, allow any period as its financial year, whether or not that period is a year.
In this regard, the Companies incorporated in India are mandated to follow the financial year beginning on 1st April to 31st March under Companies Act, 2013. However, relaxation has been provided for the company which is a holding company, or a subsidiary of a Company incorporated outside India to facilitate the Corporate Secretarial compliance.
In view of the above, the pre-requisites for changing the financial year are:
- The Company must have been incorporated in India,
- It must be an associate or holding or subsidiary company of other company incorporated outside India,
- Reason – For consolidation of its accounts outside India,
- Prior approval from the Central Government
Client requirement –
SimplyBiz has assisted a client in changing its financial year to start from 1st January and conclude on 31st December instead of 1st April – 31st March. The client is primarily engaged in the business of providing HR and payroll services to companies in Northern Europe, the Baltic region, UK, Ireland, Germany and Poland. The holding company of the client is headquartered in Oslo, Norway.
The client approached us intimating the reasons for such change which was to sync the financial year of the Indian entity in line with the financial year of its holding company. After understanding the facts of the case in detail, we initiated the process. We provided the client a detailed note and an action plan with the steps involved in this exercise.
Changing the financial year of the Company involves series of activities which were undertaken by us and the same are mentioned below:
- As a first step, we had to analyse whether the reasons for changing the financial year are in line with the requirements of Section 2(41) of Companies Act, 2013
- In the present case, the holding company of the client was a listed entity in Norway and had its Financial Year starting from 1st January and concluding on 31st In this regard, difficulties were being faced by the holding company in consolidation of accounts its subsidiary and complying with the time bound reporting requirements of the stock exchange.
- Therefore, on receipt of instructions from the holding company, the client decided to change its financial year. We initiated the process by coordinating with the client and preparing the requisite documentation i.e., letters from the holding company, Board meeting related documents, detailed Application, covering letters and other miscellaneous documents. Thereafter, filed Form RD -1 with the respective RD and arranged for physical submission of the documents.
- Post filing of the application, rigorous follow up was done by us with the RD officials for approval of the Form RD – 1. However, some additional questions/queries were raised by the RD officials on the application and the Form RD-1 was put up for resubmission. Maximum of two re-submissions are allowed under Rule 40 of The Companies (Incorporation) Rules, 2014. We replied to the queries raised by RD and submitted replies in the Form RD-GNL-1. Thereafter, the Form RD-1 was approved and application was put up for hearing.
- We represented the client before the RD for hearing and favourable order was passed. Post hearing, we arranged for the certified true copy of the order.
- After receipt of the order, we assisted the client in filing of the order with the RoC in form INC 28.
The entire assignment was completed in a smooth & seamless manner. Our experience of handling various assignment of changing the financial year has given us considerable exposure on the critical aspects to be looked into, in the process. We have undertaken similar assignments for other companies as well and the process has been smooth & seamless.
If you are looking for compliance support, we can help you with the same. SimplyCorp is a solution that offers comprehensive and end-end management of Corporate Governance & Secretarial Compliances covering all stages of entity life cycle. If want to know more on the compliance requirements and outsource the same to us, please write to our Product Head – Vaishali Vohra at the mail ID email@example.com or SimplyCorp@simplyBiz.in.