The financial year of a company is usually of 12 months but the same may not be true all the time. In case of a newly incorporated company financial statements are prepared from date of incorporation to the year end date in such a case the financial year of a company may not be of 12 months. Similarly in case of subsequent change of financial year by the company, the financial year in the year of such change may not necessarily be of 12 months.
Meaning of financial year:
Section 2(17) of Companies Act 1956 defines financial year of a company as under:
“Financial year” means, in relation to any body corporate, the period in respect of which any profit and loss account of the body corporate laid before it in annual general meeting is made up, whether that period is a year or not.
The profit and loss account shall relate:
(a) in the case of the first annual general meeting of the company, to the period beginning with the incorporation of the company and ending with a day which shall not precede the day of the meeting by more than nine months; and
(b) in the case of any subsequent annual general meeting of the company, to the period beginning with the day immediately after the period for which the account was last submitted and ending with a day which shall not precede the day of the meeting by more than six months, or in cases where an extension of time has been granted for holding the meeting under the second proviso to sub-section (1) of section 166, by more than six months and the extension so granted.
Further Section 166 of Companies Act also provides that:
Every company shall in each year hold in addition to any other meetings a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it; and not more than fifteen months shall elapse between the date of one annual general meeting of a company and that of the next
Provided that a company may hold its first annual general meeting within a period of not more than eighteen months from the date of its incorporation; and if such general meeting is held within that period, it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation or in the following year:
Provided further that the Registrar may, for any special reason, extend the time within which any annual general meeting (not being the first annual general meeting) shall be held, by a period not exceeding three months.
Points to be noted:
(i) In the case of first AGM, gap between last day of the financial year and the date of AGM should not exceed nine months.
(ii) In the case of any subsequent AGM, gap between last day of the financial year of a company and the date of AGM should not exceed six months without the permission of the ROC and nine months with the permission of the ROC.
(iii) The maximum period of financial year can be fifteen months. However, with the permission of the ROC it can be extended upto eighteen months.
Maximum period of first financial year of a company
Section 210 provides that normally a financial year can consist of not more than 15 months. However, with the permission of the Registrar it can be extended upto 18 months. It is true for first financial year also.
Steps to decide period of first financial year of a company
Step-I: Decide year-end date of financial year of the company.
It may be noted that Companies Act 1956 does not mandate a company to follow a uniform accounting year as has been done in case of Income Tax Act 1961. In case of Income Tax Act 1961 a company has to get its accounts prepared and audited as at the end of 31st March every year. However, under Companies Act 1956 the company is free to follow any accounting year of its choice. Most of the companies close their books on 31st March every year to take care of requirements of both the Acts. However, some companies due to various reasons still close their books on 30th June or 31st December and so on.
Step-II: Working out options available considering provisions of Sections 166 and 210:
All companies can have the period from date of incorporation of the company to the immediately following year-end date as the first financial year of the company without going into details. However, if such financial year is too short, company may not like to get the accounts audited for such short period. In such situation one has to find out whether the company can choose to have next subsequent year-end date as the last day of the first financial year considering the provisions of Sections 166 and 210 of the Act.
Power of ROC to extend time for holding AGM:
On a combined reading of Sections 166 and 210 of Companies Act 1956 it becomes clear that the first AGM must be held within 18 months from date of incorporation and within 9 months from close of the financial year. An AGM other than the first AGM should be held on the earliest of the following dates:
a) 15 months of the date of last AGM
b) The last day of the calendar year
c) 6 months from the close of the financial year
However, ROC can grant extension of time for holding AGM u/s 166(1) upto 3 months. Further where the company experiences genuine difficulty in holding its AGM within 6 months of the close of the financial year though it can hold it within the time limit prescribed u/s 166, the Registrar can on merits of each case, allow extension u/s 166, even though the period prescribed u/s 166 are not likely to be exceeded, so that the company can take advantage of the extension and is enabled to hold its AGM beyond the period of 6 months prescribed u/s 210 and upto 9 months of the financial year of a company
Meaning of financial year:
Section 2(17) of Companies Act 1956 defines financial year of a company as under:
“Financial year” means, in relation to any body corporate, the period in respect of which any profit and loss account of the body corporate laid before it in annual general meeting is made up, whether that period is a year or not.
The profit and loss account shall relate:
(a) in the case of the first annual general meeting of the company, to the period beginning with the incorporation of the company and ending with a day which shall not precede the day of the meeting by more than nine months; and
(b) in the case of any subsequent annual general meeting of the company, to the period beginning with the day immediately after the period for which the account was last submitted and ending with a day which shall not precede the day of the meeting by more than six months, or in cases where an extension of time has been granted for holding the meeting under the second proviso to sub-section (1) of section 166, by more than six months and the extension so granted.
Further Section 166 of Companies Act also provides that:
Every company shall in each year hold in addition to any other meetings a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it; and not more than fifteen months shall elapse between the date of one annual general meeting of a company and that of the next
Provided that a company may hold its first annual general meeting within a period of not more than eighteen months from the date of its incorporation; and if such general meeting is held within that period, it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation or in the following year:
Provided further that the Registrar may, for any special reason, extend the time within which any annual general meeting (not being the first annual general meeting) shall be held, by a period not exceeding three months.
Points to be noted:
(i) In the case of first AGM, gap between last day of the financial year and the date of AGM should not exceed nine months.
(ii) In the case of any subsequent AGM, gap between last day of the financial year of a company and the date of AGM should not exceed six months without the permission of the ROC and nine months with the permission of the ROC.
(iii) The maximum period of financial year can be fifteen months. However, with the permission of the ROC it can be extended upto eighteen months.
Maximum period of first financial year of a company
Section 210 provides that normally a financial year can consist of not more than 15 months. However, with the permission of the Registrar it can be extended upto 18 months. It is true for first financial year also.
Steps to decide period of first financial year of a company
Step-I: Decide year-end date of financial year of the company.
It may be noted that Companies Act 1956 does not mandate a company to follow a uniform accounting year as has been done in case of Income Tax Act 1961. In case of Income Tax Act 1961 a company has to get its accounts prepared and audited as at the end of 31st March every year. However, under Companies Act 1956 the company is free to follow any accounting year of its choice. Most of the companies close their books on 31st March every year to take care of requirements of both the Acts. However, some companies due to various reasons still close their books on 30th June or 31st December and so on.
Step-II: Working out options available considering provisions of Sections 166 and 210:
All companies can have the period from date of incorporation of the company to the immediately following year-end date as the first financial year of the company without going into details. However, if such financial year is too short, company may not like to get the accounts audited for such short period. In such situation one has to find out whether the company can choose to have next subsequent year-end date as the last day of the first financial year considering the provisions of Sections 166 and 210 of the Act.
Power of ROC to extend time for holding AGM:
On a combined reading of Sections 166 and 210 of Companies Act 1956 it becomes clear that the first AGM must be held within 18 months from date of incorporation and within 9 months from close of the financial year. An AGM other than the first AGM should be held on the earliest of the following dates:
a) 15 months of the date of last AGM
b) The last day of the calendar year
c) 6 months from the close of the financial year
However, ROC can grant extension of time for holding AGM u/s 166(1) upto 3 months. Further where the company experiences genuine difficulty in holding its AGM within 6 months of the close of the financial year though it can hold it within the time limit prescribed u/s 166, the Registrar can on merits of each case, allow extension u/s 166, even though the period prescribed u/s 166 are not likely to be exceeded, so that the company can take advantage of the extension and is enabled to hold its AGM beyond the period of 6 months prescribed u/s 210 and upto 9 months of the financial year of a company
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