Directors Report of Company

Directors Report - Overview 

Directors Report is one of the most important ways to communicate between the board and the members. It helps in explaining the overall financial performance, its operation and scope of activities. Every company is required to prepare a board’s report based on financials statement of the company disclosing contents as prescribed under the act every financial year. Section 134 of companies act, 2013 requires all the companies to attach its Board’s report along with the financial statements which shall be laid before the Annual General Meeting (AGM) of the company.

Board’s report helps a stakeholder to understand and compare the change in financials status, change in activities, the potential of the company and the overall activities of the company as a whole. To allow the members to analyze the various factors, the company has to disclose the net profit, the principal objective and future plans, any dividend paid, the directors and their changes, any significant changes that happened which shall affect the growth of company etc. 

When the Directors Report shall be prepared?

The company has to attach the board’s report with the financial statements which shall be sent to the members along with the notice of the Annual General Meeting (AGM). The AGM shall be held within 6 months from the closure of financial year. Hence, it is advisable to keep the board’s report ready at least one month before the date of the AGM to send it along with the notice of the AGM. The Board’s report shall also be filed with the registrar in Form AOC-4 as a separate attachment within 30 days of conducting the AGM.

Approval of Board’s Report

The board’s report prepared by the directors has to be approved by the board before it’s sent to the members. The approval can be taken only in a board meeting which means that it cannot be done through circular resolution or by a committee. Further, the approval of board’s report cannot be done through video conferencing.

Who can sign the Board’s Report? 

The Board’s report shall be signed by the Chairperson of the company if authorized by the Board. In case he is not authorized the report shall be signed by at least 2 directors out of which one shall be a Managing Director or by one director in case of One Person Company.

Contents of Board’s report

The contents of Board’s Report shall vary depending on the type of the company. A One Person Company (OPC) and Small Company are exempted from disclosing the full-fledged details as compared to a private limited or listed company.  The board’s report shall be addressed to the members of company and the matters to be included in a Board’s Report are:

1. The financial highlights including profit, tax, dividend paid etc.
2. The web address where the annual return in MGT-9 if it’s placed or it shall be attached along with board’s report
3. State of Affairs of company which includes key business development, any diversification, modernization, acquisition, and merger happened etc.
4. Amount transferred to reserves, if any
5. Dividend if any is declared. If the board doesn’t declare the dividend, mention the reason of future business plans and expansions.
6. Subsidiary, Associate and Joint Venture companies and the percentage of holding
7. Number of board meetings held
8. Details of directors or KMP appointed or resigned during the year
9. Director’s Responsibility Statement as prescribed
10. Declaration statement given by independent directors
11. Adequacy of internal financial control
12. Loans, guarantees and investment made by the company
13. Details of deposits accepted, unpaid, any default made under the act and not covered under the act
14. Change in nature of business
15. Change in share capital
16. Particulars of related party transaction in Form AOC-2
17. Comments by the board for remarks given by the auditors and PCS in audit reports.
18. Material changes affecting the financial position of the company
19. Conservation of energy, technology absorption and forex incoming and outgoing
20. Development and implementation of a risk management policy
21. Details of corporate social responsibility initiatives
22. Details of significant and material orders passed by the regulators or courts or tribunals
23. Disclosure relating to maintenance of cost records
24. Provisions relating to constitution of Internal Complaints Committee under the Sexual Harassment of Women at Workplace

Note: Every listed company and every other public company having paid up capital of ₹25 Crore or more at the end of the preceding financial year shall disclose a statement how the annual evaluation of its own performance, its committees and individual directors are made by the Board.

Penalty for Contravention

The company acting in contravention of any of the provisions shall be punishable with fine from ₹50,000 to ₹25, 00,000 and every officer of the company in default shall be punishable with imprisonment for a term extending to 3 year or with fine of ₹50,000 to ₹5, 00,000 or with both.