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
Background
2009
2011
2012
2013
2013
• Bill withdrawn due to numerous amendments
• Introduced Companies Bill 2011 in December 2011
• Companies Bill passed by Lok Sabha on 18th December 2012
• Passed by Rajya Sabha on 8th August 2013
• Received assent of Hon’ble President on 29th August 2013
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
• Definitions:
•
‘Small Company’
•
Widening of definition of ‘Officer in Default’ to include KMP
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
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
• Ship or share in a ship
• 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 companieso 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 foll 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
• Acturial 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
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 Act
The 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
Key Managerial Personnel (contd…)
• 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
Officer who is in Default
Earlier
Now
- MD/ WTD/ Manager/Person in
- WTD/KMP/ Directors specified by the
accordance with whose directions the
Board – in the absence of such
Board is accustomed to act
specification, all Directors
- No provision to impose liability on all - Where there is no specific
directors
authorisation by the Board all
- External parties not counted in the
directors would be held liable. Most
definition for Officer in Default
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
Disclosures in Annual Return – Section 92
(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;
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.
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.
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
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
Related Party Transactions- Section 188
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
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 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.
Dormant Company – Section 455
Where 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
Grounds of Strike Off – Section 248
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.
National Company Law Tribunal- 408 & 410
The 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 Limited
IITM 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
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
Compliances consequent to name change
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.
Impact
Change of name of IFMR Rural Channels and Services (IRCS) w.e.f.
28.11.2011.
(within the last 2 years)
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
Impact: Pudhuaaru Kshetriya Gramin Financial Services