Companies Act 2013 Why a new Companies Act ? • 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 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. Highlights of Companies Act 2013 • 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 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 Key Managerial Personnel • 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 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 is mandatory for every company Charges to be registered • 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: • Securing debenture issue • Uncalled share capital • Immovable property • Book debts • Movable property not being pledge • Floating charge on undertaking • Calls made but not paid • Goodwill, patent, licence under a patent, trademark or copyright or licence under a copyright Auditors • 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. Auditor not to render full services 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 • Actuarial services • Investment advisory services • Investment banking services • Rendering of outsourced financial services • Management services • Any other kind of consultancy services Accounts ACT 1956 ACT 2013 Consolidation of Accounts not Consolidation of Accounts mandatory mandatory with subsidiaries/ JVs/ associates Financial Year may end on date Financial year can end only on 31st other than 31st March – extension March – no extension permitted at will be granted by ROC present Financial statements to be signed Financial statements can be signed by: by: • 2 directors + CS • Chairperson alone with Board authorization 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 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 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 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 Loan to Directors – Section 185 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 member 4. 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 more 5. 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. Loans & Investments by Company- Sec 186 • 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. Investment Limits: Loan Limits not requiring Shareholder Not more than two layers of investment Approval: companies Not exceeding 60% of paid up This shall not affect: capital + free reserves -A company can acquire any other company incorporated in a country outside India, with + securities premium OR subsidiaries beyond 2 layers as per the laws of 100% of free reserves such country. - A subsidiary company having any investment subsidiary to meet the requirement under law. + Securities premium whichever is MORE Board Committees1. 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. Winding Up- Section 271 Companies Act, 1956 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. Companies Act, 2013 Certain criteria for winding-up deleted like minimum number of members falling below prescribed limit, non commencement of business for 1 year etc. 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. Commencement of Business PARTICULARS ACT 1956 ACT 2013 APPLICABILITY Only to PUBLIC companies To all Companies having SHARE CAPITAL 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 Companies with Charitable Objects etc. PARTICULARS O B J E C T S ACT 1956 ACT 2013 Can be incorporated for the following objectives: • • • • • Art Science Religion Charity Any other useful object Additionally for the following • • • • • Sports Education Research Social welfare Environment Protection If license is revoked • Company maybe wound up OR • Amalgamated with another Clause 8 company with similar objects Thanks
