companies act 2013. the existing law is over half a century old new law helps to consolidate and...
TRANSCRIPT
Companies Act 2013
• The existing law is over half a century old
• New law helps to consolidate and bring related provisions
under a single roof
• Objective is lesser government approvals, enhanced self
regulation and emphasis on corporate democracy
• In line with the changed national and international economic
environment
• Brings about better transparency and stringent regulations
Why a new Companies Act ?
Background
Structure of the old and new Act
ACT 1956 ACT 2013
13 Parts 29 Chapters
658 Sections 470 Sections
15 Schedules 7 Schedules
• 98 Sections have been notified
• The Draft rules have been placed for comments from
investors on the Ministry of Corporate Affairs website.
• One Person Company (OPC)
• Consolidated financial statements if company has one or
more subsidiaries
• Key Managerial Personnel
• Auditing standards & Secretarial Standards made mandatory
• Participation of directors through video conferencing to count
for quorum
• Definition of a listed company – A company with any of its
securities listed on any recognised stock exchange
• Uniform Financial year – 1st April to 31st March
• Definitions:
• ‘Small Company’
• Widening of definition of ‘Officer in Default’ to include KMP
Highlights of Companies Act 2013
Incorporation
• Definition of Private Company
Object clause of Memorandum of Association
• Only single head objects
• No segregation into Main Objects, Ancillary/ Incidental
objects & Other objects
Certificate of Commencement of Business
Compliance consequent to name change
Companies with Charitable Objects
• All charges on the company’s property, assets or
undertaking require registration
• No exemption from registration of pledges.
• Earlier registration was required only for following:
Charges to be registered
• Securing debenture issue • Uncalled share capital
• Immovable property • Book debts
• Movable property not being pledge
• Floating charge on undertaking
• Calls made but not paid • Ship or share in a ship
• Goodwill, patent, licence under a patent, trademark or copyright or licence under a copyright
• 5 years tenure for auditors appointed at AGM
• Automatic reappointment of existing auditor at AGM where no
auditor is appointed/ reappointed
• Annual rotation of audit partner and his team where members
so resolve.
• Listed companies & Prescribed class of companies-
o An individual as auditor- max 1 term of 5 consecutive
years
o Audit firm as auditor- max 2 terms of 5 consecutive
years
• Auditor unless otherwise exempted by the company shall
attend any general meeting by himself or through his
authorised representative.
Auditors
Auditor not to render following services to auditee company, its holding company, subsidiary company or associate company
•Accounting and book keeping services
•Internal audit
•Design and implementation of any financial information system
•Acturial services
•Investment advisory services
•Investment banking services
•Rendering of outsourced financial services
•Management services
•Any other kind of consultancy services
Auditor not to render foll services
Accounts
ACT 1956 ACT 2013
Consolidation of Accounts not
mandatory
Consolidation of Accounts
mandatory with subsidiaries/
JVs/ associates
Financial Year may end on date
other than 31st March –
extension will be granted by
ROC
Financial year can end only on
31st March – no extension
permitted at present
Financial statements to be
signed by:
• 2 directors + CS
Financial statements can be
signed by:
• Chairperson alone with
Board authorization
Revision of financial statements
Voluntary revision if it appears to director that the financials or
Board’s report are not in line with the relevant sections of the
Act
Requirements
• Should be w.r.t 3 preceding financial years.
• Approval of Tribunal on an application made by company
in prescribed form
• File copy of order of Tribunal with ROC
Tribunal shall give notice or CG and IT authorities, consider their
representations
Shall not be prepared/ filed more than once in a FY
Reasons for revision to be disclosed in Board’s Report of the
year in which revision is made.
Further Issue though Private Placement
• Can be made to maximum of 50 persons in a financial year
excluding QIB
• Through a Private Placement Offer letter
• Intimate ROC of offer within 30 days of Circulation of Private
placement offer letter
• Allotment must be made within 60 days of receipt of
Application money
• If unable to allot, application money to be returned within 15
days of completion of 60 days
• If unable to return application money within 15 days, pay the
applicant interest @12%p.a. from expiry of 60th day
• On allotment, file with ROC a return of allotment.
Corporate Social Responsibility (CSR)• Every company having
o A net worth of Rs. 500 crore or more OR
o A turnover of Rs. 1000 crore or more OR
o A net profit of Rs. 5 crore or more
shall constitute a CSR Committee consisting of 3 or more directors,
out of whom one is independent director.
• shall formulate and recommend CSR Policy which shall indicate the
activities to be undertaken as specified in schedule VII and shall
also recommend the amount of expenditure to be incurred on the
CSR activities.
• At least 2 % of the average net profits of the company in the 3
immediately preceding financial years is spent every year on CSR
activities
• Board’s report disclosures
o Composition of committee
o Reasons for failure to provide or spend such amount
NFRA to be constituted under the ActThe existing National Advisory committee on Accounting and Auditing
Standards (NACAAS) renamed as National Financial Reporting Authority
(NFRA)
It shall have the same powers vested in a Civil Court while trying a suit.
Purpose:
•Make recommendation to the CG on formulation and laying down of
accounting and auditing policies and standards
•Monitoring and compliance of accounting and auditing standards
•Oversee the quality of service of professionals associated with
compliance
Constitution:
•Chairperson – a person having expertise in accounts, auditing, finance or
law – appointed by the CG
•Maximum 15 other members- full time and/ or part time.
DIRECTORS
Key Highlights
• Minimum no of directors retained
• Max no of directors increased to 15 (against the earlier 12)
• No of directorships – increased to 20 (earlier 15 public ltd companies)
• Every company to have at least one director who has stayed in India for
at least 182 days in the previous calendar year
• CEO/ CFO defined
• Prescribed class of companies to compulsorily have at least one woman
director
• Independent director defined and specific related provisions laid down
• Prescribed class of companies to compulsorily have CEO/ CFO and CS
Key Managerial Personnel
• Key managerial personnel means:
- CEO/ MD/ Manager
- CS
- WTD
- CFO
- such other person to be prescribed
• Included in the definition for an Officer who is in default
• Related party includes relative of key managerial personnel
• Section 21 interestingly provides that any document/ contract
requiring authentication by Company can be signed by KMP/
person authorised by the Board
• Annual Return to contain information about KMP and
changes if any thereof and their remuneration
• Relatives of KMP to not be appointed as auditors
• Register of KMP along with securities held by them in
the company to be maintained & particulars of change
in KMP to be filed with ROC
• Section 194 prohibits forward dealings in securities of
companies – punishable with imprisonment and fine
• Whole-time KMP to be appointed by the Board. If the
position becomes vacant the same shall be filled within
six months of such vacancy
Key Managerial Personnel (contd…)
Officer who is in Default
Earlier Now
- MD/ WTD/ Manager/Person in accordance with whose directions the Board is accustomed to act
- No provision to impose liability on all directors
- External parties not counted in the definition for Officer in Default
- WTD/KMP/ Directors specified by the Board – in the absence of such specification, all Directors
- Where there is no specific authorisation by the Board all directors would be held liable. Most importantly, every director who is AWARE of such contravention by virtue of receipt of any proceedings or PARTICIPATION in such proceedings without objecting to the same would be held liable
- Share transfer agents, Registrar to an Issue and Merchant Bankers to Issue to be held liable in the event of default in respect of issue or transfer of shares of a company (shares used and not securities)
Duties of Director
• For the first time duties of directors have been laid down –
includes independent directors
• Must act in good faith, to exercise duties with care, skill and
judgment and shall act in the best interest of the company,
employees, community and environment. Contravention of
this provision entails fine under the Act.
Insider Trading
• Directors/ KMP shall not enter into insider trading
• Insider trading defined – act of subscribing, buying, selling, dealing
or agreeing to subscribe to the securities of the company by any
director if he/ she has access to non-public sensitive information
OR an act of counseling about procuring or communicating non-
public price-sensitive information to any person
• Price sensitive information – any information which published
could materially affect the price of the securities of the company
• Loose ends – not defining ‘non-public’/ ‘materially affect the price
of the securities’
MEETINGS
Board Meetings – Key Highlights
• Gap between two BMs to not exceed 120 days
• Board Meetings to have at least seven days’ notice – shorter
notice is allowed with the presence of at least one
independent director. If held without an independent director,
then the transaction is not approved until ratified by at least
one independent director
• BMs are permitted through video conferencing – capable of
being recorded and stored
Board Meeting Minutes
• In addition to other matters – directors present at the Meeting,
names of dissenting directors to be mentioned
• “All appointments made at Board Meetings” shall be recorded
– unclear
• Secretarial standards with regard to BM – to be followed
AGMs and EGMs
• Provisions of earlier Act retained to a large extent (gap between
two AGMs, extension of time for holding AGM, notice of AGM)
• Secretarial Standards for AGM also to be made mandatory
• Provisions relating to persons who may call for an EGM, persons
who may give consent for shorter notice, ordinary & special
businesses
• Notice of AGM to also be given to directors of the company (in
addition to the members and auditors)
AGM Notice
• Where any business to be transacted affects any other
company, where the extent of shareholding every promoter,
director, manager, KMP is not less than two per cent of
the paid up share capital of that company shall be set
out in the explanatory statement to the notice.
• Quorum – five (public co), 15 (1000-5000), 30 (>5000)
personally present, two (private co)
• Secretarial standards with regard to AGM to be followed
(i) registered office, principal business activities, particulars of its holding, subsidiary and associate companies;
(ii) shares, debentures and other securities and shareholding pattern;
(iii) indebtedness;(iv) members and debenture-holders along with changes therein
since the close of the previous financial year;(v) promoters, directors, key managerial personnel along with
changes therein since the close of the last financial year;(vi) meetings of members or a class thereof, Board and its various
committees along with attendance details;(vii) remuneration of directors and key managerial personnel;(viii) penalties imposed on the company, its directors or officers
and details of compounding of offences;(ix) matters related to certification of compliances, disclosures as
may be prescribed;(x) details in respect of shares held by foreign institutional
investors;
Disclosures in Annual Return – Section 92
Signing of Annual Return :
(i) A director and the Company Secretary, or where there is no
Company Secretary, by a Company Secretary in whole-time
practice.
(ii) in addition to the above, the annual return, filed by a listed
company or by a company having such paid-up capital and
turnover as may be prescribed, shall be certified by a company
secretary in practice that the annual return discloses the facts
correctly and adequately and that the Company has complied
with all the provisions of the Act.
No Company shall directly or indirectly advance any loan including book debt or give guarantee or provide security to its directors or to any other person in whom the director is interested.
‘any other person in whom the Directors is interested’:
1.any director of the lending Company or its holding co or any partner or relative of any such director 2.any firm in which such director or relative is a partner 3.Any private co of which any such director is a director or member4.Any body corporate at a GM of which not less than 25% of total voting power is exercised/controlled by any such director, or by two or more5.Any body corporate, the Board, MD or manager, whereof is accustomed to act in accordance with the directions or instruction of the Board, or of any director or directors, of the lending company.
Loan to Directors – Section 185
Exception:
The said section does not apply to:-
a. Loan to MD/WTD
•As a part of contract of services extended to all its
employees; or
•Pursuant to scheme approved by members by special
resolution
b. A Company which in the ordinary course of its business
provides loans or gives guarantees or securities for the due
repayment of any loan and in respect of such loans an
interest is charged at a rate not less than the bank rate
declared by RBI
• List of exemptions taken off (Private Ltd & Subsidiary Companies)
• Scope no longer limited to inter-corporate loans & investments, but
expanded to include loans to persons.
• Rate of interest on loans to be linked to government securities
instead of prevailing bank rate.
• The full particulars of the loan given, investment made or guarantee
given or security provided and the purpose to be disclosed in the
financial statement.
Loans & Investments by Company- Sec 186
Investment Limits:Not more than two layers of investment companies
This shall not affect:-A company can acquire any other company incorporated in a country outside India, with subsidiaries beyond 2 layers as per the laws of such country.
- A subsidiary company having any investment subsidiary to meet the requirement under law.
Loan Limits not requiring Shareholder Approval: Not exceeding 60% of paid up capital + free reserves whichever+ securities premium is OR MORE 100% of free reserves + Securities premium
New Provisions:
Combines sections 297 and 314 –both the sections dealt with 2 different scenarios
Definition of related party widened
Purview of related party transaction widened – sale, purchase, leasing of property included
Arms length transaction defined
CG approval replaced with prior approval of shareholders for prescribed class of companies
Related party contracts to be explained in the Board’s report along with justification for the contract
Related Party Transactions- Section 188
No Company shall enter into any contract or arrangement, except with the consent of the Board, with a related party with respect to:
sale, purchase or supply of any goods or materials;
Selling or otherwise disposing of, or buying, property of any kind;
Leasing of property of any kind;
Availing or rendering of any services;
Appointment of any agent for purchase or sale of goods, materials, services or property;
Such related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company and
Underwriting the subscription of any securities or derivatives thereof,
Exemption - Transactions in the ordinary course of business except those not entered into on arm’s length basis
Related Party means:
•A Director or his relative;
•A Key Managerial Person or his relative;
•A Firm, in which director, manager or his relative is a partner
•A Private Company, in which director, manager is a director or member;
•A Public Company, in which director or manager is a director or holds along with his relatives more than 2% of paid-up capital;
•Any body corporate whose Board of Directors, Managing Director or Manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
•Any person on whose advice, directions or instructions a director or manager is accustomed to act;
•Any company which is a holding, subsidiary or an associate company of such company or a subsidiary of a holding company to which it is also a subsidiary.
Board Committees-
1.Audit Committee: Section 177
-Applicable in case of Listed Companies and such other class of
Companies as may be prescribed
-Minimum of 3 directors with independent directors forming a
majority
-Majority of members including its Chairperson shall be
persons with ability to read and understand the financial
statement.
-The Company to establish a vigil mechanism for Directors and
Employees to report genuine concerns.
2. Nomination and Remuneration Committee -
Section 178
-Mandatory in the case of listed companies and such other
class or classes of companies as may be prescribed.
-The Committee shall formulate the criteria for determining
qualifications, positive attributes and independence of a
director and recommend to the Board a policy, relating to the
remuneration for the directors, key managerial personnel and
other employees
-It shall consist of three or more non-executive director(s) out
of which not less than one half shall be independent directors.
3. Stakeholders Relationship Committee:
Where the combined membership of the shareholders,
debenture holders, deposit holders and any other security
holders is more than one thousand at any time during the
financial year, the company shall constitute a Stakeholders
Relationship Committee.
It shall consider and resolve the grievances of security holders
of the company.
**The chairperson of each of the committees or, in his
absence, any other member of the committee authorised by
him shall attend the general meetings of the company.
Criteria provided for winding-up of company such as:-
• If the company has, by special resolution, resolve that the company be wound up
• If the company is unable to pay its debt
• If a company does not commence its business within 1 year from its incorporation or suspends its business for a whole year
• If the minimum no. of members is reduced below 2 in case of private and 7 in case of public company.
Certain criteria for winding-up deleted like minimum number of members falling below prescribed limit, non commencement of business for 1 year etc.
Companies Act, 1956 Companies Act, 2013
Winding Up- Section 271
Additional ground providing for winding-up:-
On an application made by the Registrar or any other person authorized by CG by notification under this Act, the tribunal is of the opinion that:
The affairs of the company have been conducted in a fraudulent manner or
Company was formed for fraudulent and unlawful purpose or
The persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith.
Dormant Company – Section 455Where a company is formed and registered under this Act:
-for a future project or to hold an asset or intellectual property and
-has no significant accounting transaction
may make an application to the registrar for obtaining the status of Dormant company.
The Registrar will issue a certificate to that effect.
To retain the status the Company shall have such minimum number of directors, file such documents and pay such annual fee as may be prescribed to the Registrar.
On an application it may become an active company.
In case of failure to comply with the requirements, the Registrar may strike off the name from the register of dormant companies
A company may be struck off by ROC for below reasons:-
• Company has failed to commence its business within 1 year
of its incorporation
• Subscribers to the memorandum have not paid the
subscription money within 180 days from the date of
incorporation
• Company is not carrying on any business or operation for a
period of 2 immediately preceding financial years and has
not made any application within such period for obtaining
the status of a dormant company.
Grounds of Strike Off – Section 248
National Company Law Tribunal- 408 & 410The act proposes to go away with the jurisdiction of the High Court and Company Law Board and replace the same with a single forum called the National Company Law Tribunal (NCLT- yet to be set up), appeals from which will lie with the National Company Law Appellate Tribunal.
Constitution: Bench of Judicial and Technical Members
Special Courts (Section 435 & 436)
•Will be established for the speedy trial of offences.• All offences under this Act shall be triable by the Special Court
Mediation and Conciliation Panel (Section 442)
A panel of experts for mediation between the parties during the pendency of any proceedings before the Central Government or the Tribunal or the Appellate Tribunal under this Act.
Thank you
IFMR Rural Channels and Services Private LimitedIITM Research Park | A1 | 10th Floor | Kanagam Village | Taramani | Chennai – 600 113 | Tamil Nadu | India
http://ruralchannels.ifmr.co.in/
Small Company
Small company means a company other than a public company
i.paid-up share capital of which does not exceed Fifty Lakh or such
higher amount as may be prescribed not exceeding Five Crore;
or
i.turnover of which as per its last profit and loss account does not
exceed Two Crore or such higher amount as may be prescribed not
exceeding Twenty Crore.
Exemptions:
•Holding company or subsidiary company
•Company registered under section 8
•Company or body corporate governed under Special Act
Private Company
Definition:
A company having minimum paid-up share capital of one lakh
rupees or such higher number as maybe prescribed and which by
its articles;
•Restricts the right to transfer its shares;
•Except in case of One Person Company, limits the number of
its members to two hundred;
•Prohibits any invitation to public to subscribe for any securities
of the company
•Silent about acceptance of deposits
Deposits – Who can accept?
Only the following companies may invite, accept or renew deposits from the public:
•Banking companies•NBFCs•Notified companies•Public company having prescribed net worth or turnover
A company not covered above may invite, accept or renew deposits from MEMBERS subject to:
•Passing resolution at general meeting•Compliance with RBI rules•Terms of security and repayment of deposit and interest agreed upon between company and members
Fulfilment of following conditions:
•Circular to members with financial position of company, credit rating obtained, amount due towards deposits previously accepted, other prescribed matters•Filing a copy of circular with the statements with Registrar within 30 days before issue of circular
Applicable companies not to commence business until:
•A declaration is filed by a director that every subscriber has
paid the value of shares subscribed by him
•The paid up capital of the private company is not less than Rs.
100,000
•Company has filed a verification of registered office address
Commencement of Business
PARTICULARS ACT 1956 ACT 2013
APPLICABILITY Only to PUBLIC companies To all Companies having SHARE CAPITAL
If the name change happened in the preceding 2 years,
the former name along with the new name must be:
•Painted or affixed outside every office or place of business
•Printed on business letters , bill heads, letter papers, notices and
other official publications.
•Displayed along with telephone numbers, e-mail IDs and website
addresses.
Compliances consequent to name change
Impact
Change of name of IFMR Rural Channels and Services (IRCS)
w.e.f. 28.11.2011.
(within the last 2 years)
If license is revoked
•Company maybe wound up OR
•Amalgamated with another Clause 8 company with similar
objects
Impact: Pudhuaaru Kshetriya Gramin Financial Services
Companies with Charitable Objects etc.