companies act 2013 vs companies act 1956

Companies Act 2013- A comparison with the Companies Act, 1956

Presentation by- Manoj Kumar E: [email protected] M: +919910688433 Corporate Professionals D-28, South Ex., Part-I New Delhi 110049 (India)

mailto:[email protected]

http://www.corporateprofessionals.com/

http://www.companiesact.in/

History

The Companies Act, 1956 is an act of Parliament that

was enacted in 1956

The Companies Act, 2013 was recently passed by Rajya Sabha on 8th August 2013 and has received Presidential

assent on 29th August 2013.



An Overview

Companies Act, 1956 Companies Act, 2013

The Act is separated into 13 parts having 658 Sections along with 15 Schedules

The Act is separated into 29 Chapters having 470 Sections along with 7 Schedules

The Companies Act has a substantial part of the law prescribed within itself

The Companies Act gives substantial powers to the Government & hence major prescriptions would be in the form of Rules to be notified separately



Companies Act 1956 vs.

Companies Act 2013



The Preliminary Provisions



THE COMPANIES Act, 2013:

The Government has been vested with powers to enforce different provisions of the Act at

different points of time.

The Companies Act, 1956 was however enacted on 1st April, 1956 in its entirety




Introduction of new definitions in the Act which were not existing under the

Companies Act 1956

Key Managerial Personnel

Associate Company

Auditing Standards

CEO & CFO

Independent Director Promoter

Global Depository

Receipt

Related Party

Small Company




Some of the existing definitions in the Act have been modified substantially

Earlier excluded, Corporation sole has now been covered in the

definition of body Corporate

The term “Listed Company” now includes all companies listed on a Stock Exchange

Subsidiary of a Public Co. shall be deemed to be a Public Co.

even if it is a Private Co. by its Articles

The definition of Employee stock Option now covers

Directors, officers & employees of Holding & subsidiaries also

The scope of “Officer in default” has been widened to include Registrars, Merchant Bankers related to the issue

Only “Apr-Mar” to be a Financial Year(exceptions: Foreign

Holding/ Subsidiary subject to tribunal’s approval)




Incorporation and Matters Incidental



Introduction of concept of One Person Company

No approval required for conversion of Private

Company to One Person Company or vice versa

No approval required for conversion of Private Company into Public

Company

Changes - Incorporation

Changes towards Incorporation of Entity



MOA to carry the main objects only. Bifurcation of the Objects

clause into main, ancillary & other objects has been done away

with.

Even the Private Companies have to file the declarations for

Commencement of Business

Subsidiary can hold shares in Holding Company as trustee,

which is not allowed under the Companies Act 1956


Provisions regarding matters incidental to Incorporation




Penalizing Provisions

ROC empowered to strike off the name of a Company incorporated with wrong/incorrect

information

Person deliberately furnishing any false/incorrect information at the time of

incorporation shall be responsible for fraud under section 447 & stringent punishment

Any person can challenge the validity of incorporation before the tribunal in case of such

a Company



Prospectus & Allotment of Securities



Provisions towards Prospectus & Allotment of Securities

Now Company after varying the terms of contract or objects mentioned in the prospectus cannot use amount raised by it through Prospectus for buying/ trading/ otherwise dealing

in Equity shares of other Company

Changes - Prospectus & Allotment of Securities

Scope widened to include all type of securities than

just shares

Specification for raising of funds by Public Company

through:1. IPO/FPO2. Private Placement3. Rights/ Bonus Shares



PRIVATE PLACEMENT OFFER

CONDITIONS

Offer to section of public other than QIBs

Not more than 50 number of people

In compliance of prescribed terms & conditions

Made through Private Placement offer letter and not Prospectus

Conditions

fulfilled?

YES NO

PUBLIC OFFERComply with provisions

of Act, Securities Contract Regulation

Act, 1956 and SEBI Act, 1992

The Act defines the term Private Placement:




Now Any person affected by misleading statement, any inclusion/omission of a

matter in the prospectus can file suit/ take an action :

Person responsible for fraudulently inducing others to invest money now liable for stringent punishment for fraud under

section 447 which shall be non-compoundable

For civil liability for misstatement in Prospectus

For punishment for fraudulently inducing persons to invest money




Power of SEBI to administer provisions related to listed Company or Company going to be listed widened to include:

1. Kind of Share Capital to be issued2. Nature of Shares/Debentures3. Voting Right4. Variation of Shareholders’ Rights5. Further Issue of Capital

In Companies Act, 1956, only Public Financial Institutions, Public sector Banks or Scheduled Banks with main object as “financing”

were allowed to issue Shelf Prospectus

The government shall now prescribe the type of Companies that can issue Shelf Prospectus




Penalizing Provisions

Persons authorizing the issue of the prospectus having misleading information

shall also be criminally liable besides holding the civil liability

Civil liability for misstatement in prospectus has been extended to experts

also




Share Capital & Debentures



General Changes - Share Capital & Debentures

Various changes in respect to Shares & Securities

Changes with respect to

VOTING RIGHTS


ISSUE OF SHARES

Various changes in respect to Shares & Securities

GENERAL CHANGES




Various changes in respect to Shares & SecuritiesCOVERAGE OF

ALL TYPES OF SECURITIES

Act seeks to regulate all type of Securities as

opposed to Equity and Debentures only




NEW VARIATIONS IN

SHAREHOLDERS’ RIGHTS

Company can issue shares with differential rights

as to other things also

in addition to voting or dividend

rights



Voting Right Changes

Equitable Voting rights for Equity and Preference share

holders with respect to their paid up capital

For vote on resolutions affecting rights of both

categories

Preference shareholders allowed to vote on every resolution placed before shareholders’

meeting

If dividend payable to any class of preference

shareholders in arrear for more than 2 years

No classification between cumulative and

non-cumulative preference shares

For identification of voting rights




Various changes in respect to Shares & SecuritiesVarious changes in respect to Shares & Securities

GENERAL CHANGES


VOTING RIGHTS


ISSUE OF SHARES



Issue of Shares

Private Companies also to comply with the provisions of further issue of

shares, which were applicable to Public Companies only

New provision for allotment of ESOP, rules will be provided soon



Changes - Share Capital & Debentures

Issue of Shares on Discount

No other shares except Sweat Equity Shares to

be issued at discount

No provision has been made for issue of shares on discount with the approval of Central Government




PROHIBITION ON BONUS ISSUE

Prohibition on Bonus Issue if the Company has defaulted in payment of:

Interest/ Principal in respect of Fixed Deposits or Debt Securities issued by it

Statutory dues of employees such as contribution to provident fund, gratuity , Bonus



Changes - Share Capital & Debentures

Other Changes

No reduction in Capital allowed if the Company is in arrears for payments of

deposits, accepted either before or after the Commencement of Act



Acceptance of Deposits



Acceptance of Deposits

NBFCs will be governed only by the rules issued by the Reserve Bank of India

Deposits from persons other than members not allowed

Shareholders’ approval required for accepting deposits from members

The concept of Small Depositors done away with



Charges



Changes – Registration of Charges

All types of Charges to be registered as per the Act:

Whether created within or outside India1. On property, or2. On assets, or 3. On any undertaking whether tangible/otherwise4. Whether situated within/outside India

Under The Companies Act, 1956, specific events are provided when the charge has to be registered



Management & Meetings



The new law brings about changes in respect of some very important components of a Company

DIRECTORS & KEY MANAGERIAL

PERSONS

SHAREHOLDERS’ MEEETING

BOARD MEEETING

Requirement for appointment

Maximum number

Condition for Removal

Extended Duties

Quorum

Postal Ballot

Notice

Participation of Directors

Number & Timing

Changes - Management & Meetings




A prescribed class of Companies will be required to have:

Managing Director/ CEO/ Manager

Whole Time Director in the absence of MD/CEO/Manager

Company Secretary

A mandatory requirement to appoint such persons will ensure proper Governance of the Company

DIRECTOR’S APPOINTMENT



A Company can have maximum 15 Directors at Board instead of earlier 12 directors

Central Government’s approval for increase in number of directors has been dispensed with

MAXIMUM NUMBER OF DIRECTORS

Any increase beyond 15 will require an approval of shareholders by way

of Special Resolution




Only prescribed number of members can pass a resolution for removal of a Director in the following cases

A great relief to Company from frivolous application for removal of directors by small shareholders holding 1 share only

REMOVAL OF DIRECTORS

Company with Share Capital Other Company

Members holding 1/10th of the voting power

Members holding shares valued at an aggregate of Rs. 5 lakh or

more

OR

ONLY




DUTIES OF A DIRECTOR

To not assign his office (any such assignment will be void)

To act in accordance to the Articles of Association

To act in good faith in order to promote the objects of the Company in the best interests of its members, shareholders, employees, community and environment

To exercise duties with due and reasonable care, skill and diligence

To not involve in a situation in which he may have a direct/ indirect interest that conflicts or may conflict with the interest of the Company

To not achieve or attempt to achieve any undue gain or advantage to himself or his relatives/ partners or associates




Bring accountability in the functioning of Director

Ease of finding the case of negligence by directors

EXPRESS DUTIES OF DIRECTORS




Shareholders Meeting




Management & Meetings

QUORUM shall now be considered as:

QUORUM (No. of Members

personally Present)

NUMBER OF MEMBERS AS ON THE DATE OF MEETING

5 ≤ 100015 1000 < number ≤ 500030 ≥ 5000

Fixing of a higher quorum as compared to the earlier requirement will ensure greater participation by shareholders



Board Meeting




Changes - Management & MeetingsSOME NEW PROVISIONS

Notice of the Meeting

Minimum 7 days Notice

To be given to all directors whether or not in India

Can be sent through any means; hand delivery, post or e-form

Participation of Directors

In person, or

By video conferencing, or

Any other audio-visual means capable of recording, recognizing and storing the participation of director with date & time

Number & Timing of Meetings

At least 4 meetings in a year

Not necessary to be held in every quarter

Time gap of not more than 120 days between 2 meetings

1 2 3

Meeting at shorter notice allowed subject to attendance by at least 1 Independent director or subsequent ratification of decision by all directors



Audit & Auditors



Changes - Audit & Auditors

Listed & other prescribed companies shall not appoint or reappoint:

An individual auditor for more than 1 term of 5 consecutive years

An auditor firm for more than 2 terms of 5 consecutive years

A gap of at least 5 years should elapse after completion of the aforesaid term before the same

auditor can be reappointed

A period of 3 years available as a transition period for compliance after enactment of this law



Changes - Audit & Auditors

Auditor shall not provide the following services whether directly/ indirectly to Company and its

Holding & subsidiary Companies:

Design & Implementation of Financial Information system Accounting & book Keeping Services

Internal Audit Actuarial Services

Investment Banking & Advisory Management Services



Payment of Dividend



Changes - Payment of Dividend

No dividend shall be declared or paid by a Company from its reserves other than free

reserves.

Instead of transferring a fixed percentage of Profits to reserves before declaring dividend, the Company can transfer the amount as it deems fit

(Also, Such a transfer is not mandatory now)



Restructuring & Revival



Changes - Restructuring & Revival

Sick Company

Fast Track Merger

Compromise or Arrangement

Reduction of Capital




Reduction of Capital

No application to be sanctioned unless accounting treatment proposed by the Company for such reduction is in conformity with the accounting standards

No Reduction Allowed if the Company is in arrears for payment of deposits





Notice of any meeting in this matter also to be given to Central Government, Income Tax Authorities, Reserve Bank of India, SEBI and CCI

Calling of meeting of members or creditors now mandatory (after consent received by postal ballot) for approval of compromise by persons representing at least 3/4th of the value of members of creditors





Abolition of Treasury Stocks

Any shares arising out of arrangement or compromise to be cancelled and extinguished and not to be held by the Transferee Company in its own or a Trust’s name whether on its behalf or on behalf of a subsidiary/associate Company




Fast Track Merger

Shorter route prescribed for merger between 2 small Companies or a holding and its wholly owned subsidiary and some other class of Companies

Power to Central Government to approve & effect the scheme if no objections by Official Liquidator and the Registrar to the scheme




Fast Track Merger

Cross mergers allowed between Indian Companies and Foreign Companies incorporated in prescribed jurisdictions

Prior approval from RBI required and the scheme must provide for payment to shareholders of the merging Company in any combination of cash and IDRs




Sick Company

Applicability: Any Company can be declared as a Sick Company and not necessarily an Industrial Unit

Criteria for application: Criteria of 50% Net Worth erosion dispensed with A Company unable to repay 50% or more of secured debts within 30 days

of notice served by the Creditors can be declared sick on application moved by:

The Company itself, OR The Creditors representing 50% or more of secured debts




“ It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. ”

Charles Darwin

011-40622214/+91- 981027551 [email protected]



Thank You

33.

Manoj Kumar




companies act 2013 vs companies act 1956

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