amendments of companies act

Amendments of Companies Act , 2013

DIBYENDU

Companies Act, 1956 was passed in first decade of free India. In this interim period Business acumen in India has been changed radically.In order to address these changes and subsequent economic issues , India Govt. has adopted certain social & economic policies.The companies bill , 2013 is vibrant steps towards development of companies in India on healthy lines.

INTRODUCTION

Changes in Fundamentals

Sr. No.

Particulars Companies Act, 1956 Companies Act, 2013

1. Types of Companies Privet & Public companies Privet companyPublic CompanyOne Person Company

2. Max. No. of members forPvt. Co.

50 members 200 members

3 One Person Company An OPC means a Co. with one person as member.

Sr. No.

Particulars Companies Act, 1956 Companies Act, 2013

4. Commencement of Business

Provision is applicable Privet companyPublic CompanyOne Person Company

5 Max. No. of Directors 12 15 More can be appointed by passing SR

6 Woman Director NA It is compulsory to appoint a woman director in Every Public/ Listed company .

• Mandatory requirement for consolidated financial statement (CFS) [section 129]• New definition of subsidiary, associate, joint venture Company [sections 2(6) and 2(87)]• Revision in financial statement [sections 130 and 131]• Financial year to be uniform [section 2(41)]• Changes in depreciation regulation [section 123(2) and Schedule II]• Mandatory internal audit and reporting on internal financial controls [section 138]

Major Impact In Finance Domain

Mandatory requirement for consolidated financial statement (CFS)

The 2013 Act mandates preparation of consolidated financial statements for all companies that have one or more subsidiaries. These would be in addition to the separate financial statements and are required to be prepared in the same form and manner as the separate financial statements. For the purpose of this requirement, the word subsidiary would include associate companies and joint ventures.

New definition of Subsidiary, Associate, Joint Venture Company

Holding Company

Owns/controls >50% total share capital or exercises control of board

Susidiary Company

Owns/controls ≥ 20% total share capital or business decisions under agreement

Associates Company

Financial Year to be Uniformed

The 2013 Act also requires all companies to adopt a uniform financial year of 1 April to 31 March with limited exception to a company which is a holding company or subsidiary of a company incorporated outside which may be required to follow a different financial year for consolidation outside India. All exceptions would however require the approval of the National Company Law Tribunal (the Tribunal). As part of transition provisions, Companies would be given a period of 2 years to change their accounting year to 1 April to 31 March.

Revision in financial statement

Under the 1956 Act, companies are generally not permitted to revise or restate financial information presented in their financial statements. Material misstatements in the accounts related to previous years, whether due to occurrence of fraud or error are reported as a ‘prior period adjustment’ in the financial statements of the year / period in which such misstatements are discovered.

The New Act introduces a new provision on re-opening/restatement of financial statements in the following circumstances:-1. A statutory regulatory authority (e.g., Central Government, SEBI, income tax

authorities, etc.) or any person concerned applies to the Tribunal or a court of law when the accounts of the company were prepared in a fraudulent manner or the affairs of the company were mismanaged thereby casting a doubt on reliability of the financial statements.

2. Voluntary restatement is permitted after obtaining approval of the Tribunal in respect of three preceding financial years. Further, such restatement cannot be carried out more than once in a financial.

Revision in financial statement

2. Voluntary restatement is permitted after obtaining approval of the Tribunal in respect of three preceding financial years. Further, such restatement cannot be carried out more than once in a financial.

Related Party Transaction

Most of the provisions under Section 188 of 2013 Act are quite similar to the requirements under sections 297 and 314 of the 1956 Act. Some of key changes envisaged in the 2013 Act include the following:• Need for central government approval has been done away with.• The 2013 Act has widened the ambit of transactions such as leasing of property

of any kind, appointment of any agent for purchase and sale of goods, material, services or property.

• Cash at prevailing market price has now been substituted with ‘arm’s length transaction’ which has been defined in the section.

• Transactions entered into with related parties now to be included in the board’s report along with justification for entering into such contracts and arrangements.

• Penalty for contravention of the provisions of section 297 was covered in general provisions in the 1956 Act. However, this is now covered specifically in the section

itself which now extends to imprisonment.• Central government may prescribe additional conditions.

Certain Highlights of Amendments of companies Act, 2013 :-

Immediate Changes in letterhead, bills or other official communications, as if full name, address of its registered office, Corporate Identity Number (21 digit number allotted by Government), Telephone number, fax number, Email id, website address if any.One Person Company (OPC): It's a Private Company having only one Member and at least One Director. No compulsion to hold AGM. Conversion of existing private Companies with paid-up capital up to Rs 50 Lacs and turnover up to Rs 2 Crores into OPC is permitted.Woman Director: Every Listed Company /Public Company with paid up capital of Rs 100 Crores or more / Public Company with turnover of Rs 300 Crores or more shall have at least one Woman Director.Resident Director: Every Company must have a director who stayed in India for a total period of 182 days or more in previous calendar year. Accounting Year: Every company shall follow uniform accounting year i.e. 1 st April -31st March.Loans to director – The Company CANNOT advance any kind of loan / guarantee / security to any director, Director of holding company, his partner, his relative, Firm in which he or his relative is partner, private limited in which he is director or member or any bodies corporate whose 25% or more of total voting power or board of Directors is controlled by him.


1. Immediate Changes in letterhead, bills or other official communications, as if full name, address of its registered office, Corporate Identity Number (21 digit number allotted by Government), Telephone number, fax number, Email id, website address if any.

2. One Person Company (OPC): It's a Private Company having only one Member and at least One Director. No compulsion to hold AGM. Conversion of existing private Companies with paid-up capital up to Rs 50 Lacs and turnover up to Rs 2 Crores into OPC is permitted.

3. Woman Director: Every Listed Company /Public Company with paid up capital of Rs 100 Crores or more / Public Company with turnover of Rs 300 Crores or more shall have at least one Woman Director.

4.Resident Director: Every Company must have a director who stayed in India for a total period of 182 days or more in previous calendar year.

5. Accounting Year: Every company shall follow uniform accounting year i.e. 1 st April -31st March.


6. Loans to director – The Company CANNOT advance any kind of loan / guarantee / security to any director, Director of holding company, his partner, his relative, Firm in which he or his relative is partner, private limited in which he is director or member or any bodies corporate whose 25% or more of total voting power or board of Directors is controlled by him.

7. Articles of Association- In the next General Meeting, it is desirable to adopt Table F as standard set of Articles of Association of the Company with relevant changes to suite the requirements of the company. Further, every copy of Memorandum and Articles issued to members should contain a copy of all resolutions / agreements that are required to be filed with the Registrar.

8. Disqualification of director- All existing directors must have Directors Identification Number (DIN) allotted by central government. Directors who already have DIN need not take any action. Directors not having DIN should initiate the process of getting DIN allotted to him and inform companies. The Company, in turn, has to inform registrar.


9.Financial year- Under the new Act, all companies have to follow a uniform Financial Year i.e. from 1st April to 31st March. Those companies which follow a different financial year have to align their accounting year to 1st April to 31st March within 2 years. It is desirable to do the same as early as possible since most the compliances are on financial year basis under the new Companies Act.

10. Appointment of Statutory Auditors- Every Listed company can appoint an individual auditor for 5 years and a firm of auditors for 10 years. This period of 5 / 10 years commences from the date of their appointment. Therefore, those companies have reappointed their statutory auditors for more than 5 / 10 years, have to appoint another auditor in Annual General Meeting for year 2014.

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