companies act 2013 updates and way forward

COMPANIES ACT 2013 UPDATES ,

WAY FORWARD

From

CS GAURAV KUMAR SHARMA

www.csgauravsharma.com

[email protected]

9990694230

W W W . C S G A U R A V S H A R M A . C O M

Amendments

Under Companies

Act,2013


Associate

Company

New Concepts

Introduced In

The Act

Auditing Standards

CEO & CFO

CEO & CFO

Promoter

Key Managerial

Personnel

Global Depository

Receipt

Related Party

Small Company

Independent

Director

Corporate Social

Responsibility

One Person

company

Secretarial

Audit

Women

Director

Regulators

Dormant

Company Entrenchment

of Articles W W W . C S G A U R A V S H A R M A . C O M

Company

Incorporation


ONE PERSON COMPANY

Only ONE PERSON as a member

Can be incorporated only as a PRIVATE COMPANY

One Person Company should be mentioned below the

name of the company wherever the name is affixed, used

or engraved.

Basic

Requirements: Minimum PSC=Rs. 1 Lakh

Restricts transfer of shares

&

Prohibits invitation to

subscribe for the securities

of the Company


OPC COMPULSORY CONVERSION INTO PUBLIC OR

PRIVATE COMPANY

OPC WILL ENJOY SAME PRIVILIGES AND EXEMPTIONS AS AVAILABLE TO

PRIVATE COMPANY . Additional Exemptions shall be Section

96,98,100,101-111 of Companies Act,2013.

The annual return of a One Person Company shall be signed by the

company secretary, or where there is no company secretary, by the

director of the company.

Compulsory Conversion, if

Paid Up Share Capital

exceeds Rs. 50 Lakhs

Annual Turnover > Rs. 3

crore in 3 immediately

preceeding consecutive

years

OR


SMALL COMPANY- SEC-2(85)

Only a private company can be classified as a small company.

Basic requirements

Paid-up share capital

50 lakhs- 5 crore

Turnover

2 crore-20 crore


EXCEPTIONS TO THE ABOVE RULE:

A holding company or a subsidiary company

Company registered under section 8 of CA,2013

Company or body corporate governed by any special Act


PRIVATE COMPANY [SECTION 2(68)]

The 2013 Act introduces a change in the definition for a private

company, inter-alia, the new requirement increases the limit of

the number of members from 50 to 200.

Increase in the Limit of Number of

Members from 50 to 200


DORMANT COMPANY (SECTION 455)

The 2013 Act states that a company can be classified as

dormant when it is formed and registered under this 2013 Act for

a future project or to hold an asset or intellectual

property and has no significant accounting

transaction.

Such a company or an inactive one may apply to the ROC in such manner as may be prescribed for obtaining the status of a

dormant company.


SECTION 8 COMPANIES

New objects like environment protection, education, research,

social welfare etc., have been added to the existing object for

which a charitable company could be incorporated.

REVOCATION OF

LICENSE

Contravenes the

provisions of the

Act

Affairs of the

company are

conducted in a

FRAUDLENT

MANNER

Prejudicial to the

interest of

Public W W W . C S G A U R A V S H A R M A . C O M

OFFICER (SECTION 2(59) )

FINANCIAL YEAR (section 2(41))

Now Includes KMP &

PROMOTERS

Also

Company or body corporate to

adopt uniform financial year of

1st April to 31st March every

year except in certain

exceptional cases


KEY MANAGERIAL PERSONNEL(KMP) (SECTION 2(51) )

CEO* CS WTD

CFO OTHER

OFFICER**


CHANGES IN INCORPORATION- MOA


ARTICLES OF ASSOCIATION (SEC 5)

An entrenchment provision enables a company to follow a more restrictive procedure than passing a special resolution for altering a specific clause of articles of association.

A private company can include entrenchment provisions only if agreed by all its members or, in case of a public company, if a special resolution is passed.

ENTRENCHMENT PROVISIONS

INTRODUCTION OF:


ROC Empowered to strike off name of the

company

Person deliberately furnishing any false/incorrect

information at the time of incorporation shall be

responsible for fraud u/s 447

Winding Up of the Company


Prospectus and

Public Offer


BASIC PROVISIONS


ISSUE OF PROSPECTUS

The 2013 Act states that the report by the auditors on the assets and liabilities of business shall not be earlier than 180 days before the issue of the prospectus [section 26 (1) (b)(iii) of 2013 Act]

Additional

Mandatory

disclosures

introduced:

1. Pending litigation during

the last 5 years immediately

preceding the year of issue of

prospectus against promoter

2. Sources of Promoter

Contribution


Variation in terms

of contract or

objects

Offer of sale of

shares by certain

members of the

company

By Passing

Special

Resolution

EXIT OFFER by Promoters to

Dissenting

Shareholders

Members may

in consultation

of BOD offer

their share

holding to

public


S H E L F

P R O S P E C T U S

SEBI prescribes the

classes of

companies in this

aspect

G L O B A L

D E P O S I T O R Y

R E C E I P T S

Company, may, after

passing a special

resolution in its

general meeting,

issue GDRs subject

to conditions.


PRIVATE PLACEMENT OFFER

CONDITIONS:

Offer to Section of Companies other

than QIBs

Not more than 50 number of people

The allotment with respect to any

earlier offer or

invitation may have

been completed

Money payable through Cheque/DD

but not in cash

Prior names to be recorded by company

before making offer

No advertisement to inform public at large

Conditions fulfilled

YES

NO


Share capital and

debentures


GENERAL CHANGES:

COVERAGE OF

ALL TYPES OF SECURITIES


VARIATION OF SHAREHOLDERS RIGHTS

(SECTION 48(1) )

an additional requirement in respect of those classes of share

holders whose rights are affected pursuant to any variation.

if the variation by one class of shareholders affects the

rights of any other class of shareholders,

Consent of 3/4th of the class of

shareholders shall be obtained

& apply provisions of this section


FURTHER ISSUE OF SHARE CAPITAL (SEC 62)

Rights issue can also be made to the

employees of the company who are under

a scheme of employees stock option,

subject to a special resolution and subject

to conditions as prescribed.

price of such

shares should

be determined

using the

valuation report

of a registered

valuer, which

would be

subject to

conditions as

prescribed


ISSUE OF SHARES AT A DISCOUNT

No shares other than

sweat equity shares

can be issued at

discount

No provision has been made for issue of shares on

discount with the approval of CENTERAL GOVERNMENT


ISSUE OF BONUS SHARES

New provision introduced in the act

PROHIBITIONS

No default in payment of interest or

principle of fixed deposit

No default i.r.o statutory dues of

employees like PF, Gratuity and

Bonus.


OTHER CHANGES


ACCEPTANCE

OF DEPOSITS


NBFCs will be governed by the rules issued

by Reserve Bank of India

Deposits from persons other than members

not allowed

Shareholders Approval Required for

accepting deposits from members

Concept of Small Depositors no more in

existence.

An amount equivalent to 15% of deposits

maturing during the financial year shall be

kept in separate bank account in a

scheduled bank W W W . C S G A U R A V S H A R M A . C O M

MANAGEMENT

AND

ADMINISTRATION


ANNUAL RETURN (SEC 92)

Certification by PCS

Unlisted Co.

PSC

10 Cr or more

Turnover

>=50 Cr.

Listed Co.

Mandatory

Form MGT-8

or

Extract of AR

shall form part

of Board Report

PCS IN DEFAULT- 50K-5L


PENALTY CLAUSE

C O M PA N Y O F F I C E R I N D E F A U L T

FINE

Rs. 50,000-

5,00,000

More

than 6

months

OR


PLACE OF KEEPING REGISTERS AND RETURNS

(SEC-94)

At any place in India, where

More than 1/10th of

the member resides


ANNUAL GENERAL MEETINGS (SEC-96)

First General Meeting

Time Period

for holding

AGM

During

Business

Hours (9.00

A.M. to 6.00

P.M.)

within nine months from the date of closing of

the first financial year of the company


Shorter notice for calling AGM

Possible, with the consent of 95% of the

members

Disclosure of interest of every director,

manager and KMP and their relatives

need to be mentioned in the notice of the

meeting

Threshold

disclosure of

shareholding

Reduced from

20% to 2%


QUORUM IN SHAREHOLDERS MEETING

(SEC-103)

Public Company Private Company

No of members as on

date of meeting

Quorum

1000 5

1000

PROXY (SEC-105)

Number of members which a

proxy can represent:

Number of

Members

number of

shares holding in the aggregate

50 not more than 10

% of the total

share capital of

the company

carrying voting

rights


REPORT ON ANNUAL GENERAL MEETING

(SEC-121)

New

Provision

under

CA,2013

Listed companies will be required to

file with the ROC a report in the

manner prescribed in the rules on

each annual general meeting

including a confirmation that the

meeting was convened, held and

conducted as per the provisions of the

2013 Act and the relevant rules


DIRECTORS


WOMAN DIRECTOR (SECTION 149(1))

Women director

Other public co

PSC

100 Cr or more

T/O

300 cr. Or more

Listed co

Mandatory


NUMBER OF DIRECTORSHIP

A company can have maximum 15 directors instead

of earlier 12 directors

15


INDEPENDENT DIRECTORS (SEC-149)

Paid Up Share

Capital

10crores or

more

Turnover Rs.100 crores

or more

outstanding

loan,

debentures and

deposits

Exceeding Rs.

50 crores

New

Provision

Public Companies Listed Companies

at least one-third

of the total

number of

directors as

independent

directors

Differing compliance requirements with respect to the appointment of

independent directors, remuneration thereto, imposed by multiple

regulators will lead to hardship as well increased cost of compliance for

companies.


OTHER PROVISIONS FOR ID

Tenure of

office of an

independent

director

a maximum of two tenures of five consecutive years, with a

cooling-off period of three years between the two tenures.

Stock

options

an independent director will not be eligible to get stock

options but may get payment of fees

and profit linked commission subject to limits specified or to

be specified in the rules [section 149 (9) of 2013 Act]. This

again, is in contradiction with SEBIs requirements, whereby

for the purpose of granting stock options, the term employee

includes independent directors also.

MCA had released the corporate governance voluntary guidelines in

2009, which permitted 3 tenures (with other conditions) for an ID

while as per the clause 49 of the equity listing agreement, an ID

cannot serve for more than nine consecutive years.

Contradict

ory

Provision


APPOINTMENT OF AN ADDITIONAL DIRECTOR

Sec 161 of CA,2013

any person who fails to get elected as a

director in the general meeting can no

longer be appointed as an additional

director by the board of directors


ADDITIONAL COMPLIANCE REQUIREMENTS FOR

PRIVATE COMPANIES

Appointment of director to be voted

individually

Option to adopt principle of proportional

representation for appointment of directors

Ineligibility on account of non-compliance with

section 274(1)) (g) now extended for

appointment or reappointment as a director in

a private limited company also.

Provisions mandated

only for public

companies and private

companies which are

subsidiaries of public

companies.


CHANGES - MANAGEMENT & MEETINGS

Board Meeting


Notice of the Meeting

Participation

of Directors

Number & Timing of

Meetings

Minimum 7 days Notice

In person, or

At least 4 meetings in

a year

To be given to all

directors whether or not

in India

By video conferencing, or

Not necessary to be

held in every quarter

Can be sent through

any means; hand

delivery, post or e-form

Any other audio-visual

means capable of

recording, recognizing

and storing the

participation of director

with date & time

Time gap of not more

than 120 days

between 2 meetings

Meeting at shorter notice allowed subject to attendance by at least 1

Independent director or subsequent ratification of decision by all

directors.


BOARD COMMITTEES

Every Listed Company All public companies Audit committee

Every Listed Company All public companies

Nomination and remuneration

committee

more than one thousand shareholders, debenture-holders, at any time during a financial year

stakeholders relationship committee


AUDIT COMMITTEE (SEC 177)

Listed

Companies

Public Companies

All

Companies

Paid Up Capital Rs.10 Crores or more

Turnover Rs.100 Crores or more

Outstanding Loans Or

Borrowings Or

Debentures Or Deposits

exceeding Rs.50 Crores

or more.


AUDIT COMMITTEE(CONT)

Companies which accept deposits from the public

Companies which have borrowed money from Banks

and PFI in excess of Rs.50 crores

Disclosed by the company in the website, if any,

and in the Boards Report

Establishment of Vigil

Mechanism


NOMINATION AND REMUNERATION COMMITTEE

AND STAKEHOLDERS RELATIONSHIP

COMMITTEE (SEC 178)

Stakeholders

Relationship

Committee

Nomination And Remuneration Committee

The Board of Directors

of a company which

consists of more than

one thousand

shareholders,

debenture-holders,

deposit-holders and any

other security holders

at any time during a

financial year -

Listed

Companies

Other Public Companies

All

Paid up capital Rs.100 crores

or more;

Aggregate of

outstanding loans

or borrowings or

debentures or

deposits

exceeding

Rs.50 crores.

New

Provision

OR


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


Auditor shall not provide the following services whether

directly/ indirectly to Company and its Holding & subsidiary

Companies:

Design & Implementation of

Financial Information system

Internal Audit

Investment Banking &

Advisory

Accounting & book

Keeping Services

Actuarial Services

Management Services


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

Transfer of shares to the investor education and protection fund

(IEPF)

Along with the unclaimed dividend, the shares on which dividend is

unclaimed, also to be transferred to the IEPF.

Such a transfer is not mandatory now


CORPORATE SOCIAL RESPONSIBILITY (Section 135 )


companies would spend at least 2% of the average net-profits

of the immediately preceding three years on CSR activities

net worth

turnover

net profit

500 crore INR, or more

5 crore INR or more

1000 crore INR or more

New

Provision

If not spent, explanation for the reasons thereof to be given in the

directors report

OR


Revival and rehabilitation of sick companies

and Compromises, arrangements

and amalgamations


SICK COMPANY

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

Criteria of 50% Net Worth erosion dispensed with

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

To speed up the revival and rehabilitation process, the

2013 Act provides a one year time period for the

finalisation of the rehabilitation plan.


STREAMLINING REQUIREMENTS

Section extends to the reduction of share capital, buy-back,

takeovers and corporate debt restructuring as well

objection to any compromise or arrangement can

now be made only

by persons holding not less than 10% of share

holding

having an outstanding debt amounting to not

less than 5% of the total outstanding debt as

per the latest audited financial statements

OR

Act merely requires filing of the order with the ROC


CROSS-BORDER 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


SQUEEZE OUT PROVISIONS (SEC 236 )

The 2013 Act has introduced new provisions for enabling

the acquirer of a company (holding 90% or more shares)

by way of amalgamation, share exchange, etc. to acquire

shares from the minority holders subject to compliance

with certain conditions.

This has also introduced the requirement for registered valuers, since the price to be offered by majority

shareholder needs to be determined on the basis of

valuation by a registered valuer.


REGULATORS:

National Company Law Tribunal (Tribunal or

NCLT):

National Financial Reporting Authority

(NFRA)

Serious Fraud Investigation Office (SFIO):


THANKS

www.csguaravsharma.com

9990694230

[email protected]


companies act 2013 updates and way forward

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