impact of companies act 2013 on business

Impact of the Companies Act

2013 on Business

1.

Presented by –Pavan Kumar Vijay

http://www.corporateprofessionals.com/

http://www.companiesact.in/

Note: This presentation uses the word “prescribed” in many slides. It refers to that part of the law, which will be prescribed later through Rules.

1.


INTRODUCTION

The Companies Act 2013 will impact some of below given areas of corporate behaviour & conduct of business:

Raising Money

Shares & Securities

Restructuring & Revival

Accounts & Audit


INTRODUCTION

Compliance & Disclosures Governances

Management & Meeting

New Concepts


Raising of Money

4.


RAISING OF MONEY

Fund Raising

Through Securities

Through Deposits

Initial/ Follow on Public Offers (IPO/FPO)

Private Placement

Rights/ Bonus Shares

The Act seeks to regulate raising of money through all types of securities, and not just shares or debentures

The Act also requires all listed companies or companies intending to get listed have to comply with the provisions of The SEBI Act, 1992

Only prescribed companies with a prescribed credit rating allowed this route


RAISING OF MONEY

Changes in provisions regarding fund raising through SECURITIES

6. RAISING OF MONEY


PRIVATE PLACEMENT OFFER

CONDITIONS

To a section of public other than QIBs and Employees under ESOP

To not more than 50 people or such higher number as may be prescribed

Should comply with prescribed terms & conditions

Invitation through private placement offer letter and not prospectus

Conditions fulfilled?

YES NO

PUBLIC OFFER

Comply with provisions of Companies Act, Securities

Contract Regulation Act, 1956 and SEBI Act, 1992

RAISING OF MONEY


PROCEDURAL ASPECTS OF PRIVATE PLACEMENT

Funds to be received only through the banking channel, and not as cash

Allotment to be made within 60

days of receipt of funds

Offer to be made by name and to those

whose name is recorded by the

company prior to invitation

Offer to be made only after

allotments under any previous offer

have been completed

RAISING OF MONEY


Significant changes in the provisions of PROSPECTUS

9.

VARIATION IN TERMS OF CONTRACTS OF PROSPECTUS OR

OBJECTS OF ITS ISSUE WILL BE :

Subject to Special Resolution

Require Mandatory Exit Option to dissenting shareholders

Face restriction on use of amount raised by it for buying, trading or dealing in equity shares of another company

RAISING OF MONEY


ISSUANCE OF SHELF PROSPECTUS

SEBI to prescribe list of the Companies allowed to issue a Shelf Prospectus

The provision will no more be limited to Public Financial Institutions, Public Sector Banks or Scheduled Banks

RAISING OF MONEY


Separate Provisions with respect to offer of Sale by existing shareholders

Subject to prescribed conditions, Global Depository Receipts may be

issued by passing a Special Resolution under the current scenario Preferential

Guideline is to be followed

RAISING OF MONEY


A Company may pay commission to any person in connection with subscription

of its securities but subject to prescribed conditions

RAISING OF MONEY


Changes in provisions regarding fund raising through DEPOSITS

RAISING OF MONEY


The provisions relating to acceptance of deposits will not apply to NBFCs. They will be governed by rules issued by the

Reserve Bank of India.

Only those companies fulfilling the prescribed conditions and carrying a prescribed credit rating are eligible to

accept deposits

RAISING OF MONEY


RAISING OF MONEY- By Deposits

Prohibition on accepting deposits from public, except in the prescribed manner

Accepting deposits from members subject to approval by shareholders only


Shares & Securities

16.


SHARES & SECURITIES

GENERAL CHANGES

Changes regardingVOTING RIGHTS

Changes regardingISSUE OF SHARES

Various changes regarding Shares & Securities


Act seeks to regulate all type of securities as

opposed to equity and debentures only, causing

an increase in procedural

and compliance burden

C ALL TYPES OF SECURITIES

SHARES & SECURITIES


Company can issue shares with differential rights

to other matters

and not just voting or dividend

VARIATIONS IN SHAREHOLDERS’ RIGHTS

SHARES & SECURITIES


SHARES & SECURITIES – General Changes

Recognition and enforceability of contract between 2 or more persons regarding transfer of

securities, enabling shareholders to restrict other shareholders from transferring their shares

even in a public company

RESTRICTION ON TRANSFER OF SHARES in Public Companies also


Can be used for limited purposes by a

prescribed class of companies that

comply with accounting standards prescribed for such

companies

USE OF SHARE PREMIUM

SHARES & SECURITIES


GENERAL CHANGES




SHARES & SECURITIES


SHARES & SECURITIES – Voting Rights

Equitable voting rights for equity and preference

shareholders with respect to their paid up capital

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


GENERAL CHANGES




SHARES & SECURITIES


Private companies have to comply with provisions for further issue of

shares that were applicable to public companies only

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

SHARES & SECURITIES


ISSUE OF SHARES AT DISCOUNT

Shares cannot be issued at a discount, except as Sweat Equity, which can be issued at a

discount even now

SHARES & SECURITIES


Company can dispose off only those shares in a Rights issue that haven’t been subscribed to by shareholders in a

manner advantageous to the company

DISPOSAL OF RIGHTS SHARES

SHARES & SECURITIES


A company cannot go for a bonus issue if it has defaulted in payment of:

Interest or principal on fixed deposits or debt securities issued by it

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

PROHIBITION ON BONUS ISSUE

SHARES & SECURITIES


Issue price of shares offered to persons other than existing shareholders and employees under ESOP shall be computed

on the basis of Registered Valuer’s report

CALCULATION OF SHARE PRICE

SHARES & SECURITIES


Restructuring & Revival

31.


RESTRUCTURING & REVIVAL32.

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 conforms with the accounting standards

No reduction allowed if the company is in arrears for payment of deposits

RESTRUCTURING & REVIVAL



Notice of any meeting in this matter required by the Tribunal to also be given to the Central Government, Income Tax Authorities, RBI, 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

MEETINGS



Additional Disclosures in the notice for

Compromise/Arrangement

35.

Valuation Report

Effect on creditors, KMPs, members, debenture holders

Effect on material interests of the directors

or the debenture trustees




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 or associate company


Abolition of Treasury Stocks


Additional information to be included in affidavit for the compromise/arrangement application

Reduction in Share Capital of company, if

any

Scheme of Corporate Debt Restructuring

(CDR) consented by at least 75% secured

creditors



Affidavit for Scheme of Corporate Debt Restructuring (CDR) should include

Creditor’s Responsibility

Statement

Safeguards for protection of

other secured/ unsecured Creditors

Auditor’s Report certifying that fund

requirements post CDR will confirm

to liquidity test

Statement if RBI guidelines for CDR adopted

Valuation Report for all assets by a Registered Valuer



Fast Track Merger

Shorter route prescribed for merger between two or more small companies or a holding and its wholly owned subsidiary or some other class of companies

Power to central government to approve & effect the scheme if the Official Liquidator and the Registrar to the scheme have no objections



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 companies in any combination of cash and depository receipts

Fast Track Merger of certain Companies



Sick Company

Applicability: Any company, and not just an industrial unit, can be declared as a sick company

Criteria for declaring sickness: Erosion of 50% of net worth no longer a criteria

Inability to repay 50% or more of secured debts within 30 days of being served notice by the creditors. Application to declare a company sick may be moved by:

The company itself, OR

The creditors representing 50% or more of secured debts



Accounts & Audit

42.


ACCOUNTS & AUDIT

Financial Statements

Cash Flow Statement and statement of changes in company’s equity now to be parts of Financial Statements

Uniform Financial Year i.e. Apr-Mar to be adopted by all the companies. (Relaxation only to foreign companies and subsidiaries of overseas companies subject to Tribunal’s approval)

Unlisted companies, like listed companies, to prepare Consolidated Statements combining accounts of subsidiaries, associates and joint ventures


Re-opening/ Revising Books of Accounts

Allowed subject to Tribunal/ Court’s directions, which shall also notify Central Government & Income Tax Authorities

Can also be done by Tribunal/Court in case of frauds, mismanagement or financial irregularities

Revision allowed for up to three preceding financial years but detailed reasons for change to be mentioned in the Board’s report

Change allowed to rectify mistakes or on change of accounting policy

ACCOUNTS & AUDIT


Auditors

To be appointed for a term of 5 years

In case of an audit firm, the auditing partner and team to be rotated annually, if the shareholders desire

ACCOUNTS & AUDIT


Auditor’s Duty

Additional reporting in the Auditor’s report

Reporting to the central government

Qualification/ reservation or remark regarding maintenance of

accounts

Remarks on adequacy & effectiveness of internal financial

controls

Addition disclosures requirements for certain companies to be

prescribed by the central government

1

2

3

Any offence/ fraud committed by company’s officers noticed during

the course of audit

ACCOUNTS & AUDIT


Management & Meeting

47.


MANAGEMENT & MEETING

The new law brings about changes to aspects of management of a company and infuses more

accountability

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


A prescribed class of companies required to have:

Managing Director/ CEO/ Manager

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

Company Secretary

Appointment of such persons to ensure better governance of the company

DIRECTOR’S APPOINTMENT



A company can have maximum 15 directors on the board instead of 12 earlier

No need for the central government’s approval for increase in number of directors

MAXIMUM NUMBER OF DIRECTORS

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

of Special Resolution



DUTIES OF A DIRECTOR

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

To act in accordance with the Articles of Association

To act in good faith 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 avoid getting involved in situations 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



EXPRESS DUTIES OF DIRECTORS

Bring accountability in the functioning of director

Ease of finding the case of negligence by directors



Shareholders Meeting



QUORUM shall now be considered as:

QUORUM (No. of Members

personally Present)

NUMBER OF MEMBERS AS

ON THE DATE OF MEETING

5 ≤ 1000

15 1000 < number ≤ 5000

30 ≥ 5000

A higher quorum, as compared to the earlier requirement, will ensure greater participation by shareholders



POSTAL BALLOT

Apart from the prescribed resolutions, any other resolution can be passed by postal ballot except

that of ordinary business or that where a director /auditor has right to be heard

Provision now applicable to all companies whether listed or not



Board Meeting



BOARD MEETING- SOME NEW PROVISIONS

Notice of the Meeting

Minimum 7 days notice

To be given to all directors, whether in India or not

Can be sent through any means: hand delivery, post or electronically

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 two meetings

1 2 3

Meeting at shorter notice allowed, subject to attendance by at least one independent director or subsequent ratification of decision by all directors

59. MANAGEMENT & MEETING


Compliance & Disclosures

60.


COMPLIANCE & DISCLOSURES

Enactment of the Companies Act 2013 will bring:

Increased compliances and disclosures

Stringent penalties for contravention of law


62.

Enhanced disclosures have been mandated in:

Annual Return

Director’s Report



Additional disclosures required in the Annual Return of a company

Details regarding:

PRINCIPAL BUSINESS ACTIVITIES

of the company, its subsidiary, holding and associates

PROMOTERS and KMPsof the company & changes regarding them

since closure of last financial year



FIIs’shareholding, their names, addresses &

other details

PENALTIES

imposed on the company, directors & officers and the compounding of

offences



Additional Disclosures in the Director’s Report of the Company

Company’s policy and selection criteria for appointment of directors

Details of Loans, Guarantees and Investments u/s 186



Contracts & arrangements with related parties & justification

CSR policy and reason failure to spend 2% on CSR, if applicable

Remuneration policy for Directors and KMPs and ratio of each director’s

remuneration to employees’ median remuneration



A Return on change in shareholding of promoters and top ten shareholders to be filed with Registrar within 15 days of such change

A Report on every Annual General Meeting and inclusion of confirmation that meeting was convened, held and conducted as per the Act and Rules there under.

Other Compliances



The increased disclosures

will improve the manner in whichannual general

meetings are held and lead to more

transparency



Governance

69.


GOVERNANCE

Considering the fact that Corporate Governance forms the main thrust of the Companies Act, various provisions have been

modified or added relating to:

Unpaid Dividend

Internal Audit

Loan & Investment

Related Party Transaction

Restrictions on Board

Forward Dealing


Unpaid Dividend

Every company to list names of shareholders, their addresses and dividend unpaid to them on the

company’s website within 30 days of transferring funds to unpaid

dividend account

Shares on which unpaid dividend or other amount have been transferred to IPEF, are to be transferred in the name of IPEF

GOVERNANCE


Forward Dealings

Forward dealings in securities of the company by key managerial

personnel now prohibited

Concept more important for unlisted companies as listed companies already governed by insider

trading laws

GOVERNANCE


Internal Audit

Prescribed companies to appoint internal auditor being a chartered accountant or a cost accountant or any other prescribed professional

Such professional to carry out internal audit functions and ensure establishment of internal financial

control system

GOVERNANCE


Loan and Investment by any Company

Loans & advances to any company or person allowed only if there is a specific purpose for the use of such

loans/advances

Company in default of repayment of deposits or interest thereon not allowed to give loans/deposits

Capital market intermediaries not allowed to accept inter-corporate loans or deposits above a

prescribed limit

GOVERNANCE


75.

NBFCs in the business of acquiring shares & securities exempt from these provisions in respect of such acquisition

Companies restricted from making investment through more than 2 layers of investment companies. The provision

will not effect:

Indian company acquiring an overseas company that has more than two layers of investment subsidiaries

A subsidiary company with investment subsidiary for the purpose of compliance to a law in force

GOVERNANCE


Restrictions on the Board

Private companies will now also be required to take permission of shareholders through special resolution for following matters:

Borrow money in excess of paid capital and capital reserves

Remit or give time for a payment due from director

Sell/lease or dispose whole or substantially whole of the undertaking

GOVERNANCE


Restrictions on the Board

77.

An undertaking has now been defined under the law. An undertaking under the Act means an undertaking:

That generates at least 20% of the company’s income

In which the company’s investment exceed 20% of its networth as per the last audited Balance Sheet

GOVERNANCE


New Concepts

78.


NEW CONCEPTS

Constitution of CSR Committee by a company having any of the following:

NET WORTH of Rs 500 crore

or moreTURNOVER

of Rs 1,000 crore or more

NET PROFITof Rs 5 crore

or more


Companies to spend on CSR activities at least 2% of the average net profit

of the preceding 3 financial years.

Reasons in case of failure to be disclosed in the

Board report

NEW CONCEPTS


Who can seek registration as a Dormant Company:

A company incorporated under the new law for: A future project Holding an asset Holding Intellectual Property

And that has no significant accounting transaction

1.

An inactive Company i.e., one which has Not been carrying out any business or operation Not made any significant accounting transaction during last 2 financial years Not filed financial statements and annual returns during last 2 financial years

2.

NEW CONCEPTS


Dormant Company, which otherwise

has very few compliance requirements, can become

an active company by applying

to the Registrar of Companies

NEW CONCEPTS


Who can file a class action?

Any class of members or depositors

When can it be filed?

If they believe that the conduct of the company’s affairs by its management:

Is prejudicial to the interests of :

The company

Any class of members

Any class of depositors

NEW CONCEPTS


ORDERS THAT CAN BE SOUGHT

Declaration of a resolution altering MOA/AOA as void if passed with

suppression of material information/ misstatement

Restrain the company from breaching any provision of AOA or

MOA

Restrain the company from an act ultra vires the AOA or MOA

Restrain the company from an act contrary to the provisions of the

Companies Act

Restrain the company from any action contrary to the resolution

passed by members

Claim any damages/ compensation or demand any other suitable action in cases of wrongful/ fraudulent/ unlawful act by directors/ auditors/experts

NEW CONCEPTS


To operate as MCA’s premier agency for investigating frauds related to

companies

SFIO:

To consist of experts from specified fields and other officers as prescribed

NEW CONCEPTS


The central government may also refer cases where investigation into affairs of

a company is needed to the SFIO

In such a case, no other investigating agency of the state or central government

will proceed with the concerned investigation

NEW CONCEPTS


Thank You

33.

Pavan Kumar Vijay


http://www.companiesact.in/