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Analysis on the Companies Act, 2013

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An easy way to find the new Companies Act, 2013 with its new and important changes.. …

An easy way to find the new Companies Act, 2013 with its new and important changes..
Tried to made it maximum simple to understand..
The new legislation will create new avenues for Business and Professionals relating to this field..especially corporate law experts..

Published in: Business, Economy & Finance

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  • 1. AN ANALYSYS ON THE COMPANIES ACT , 2013
  • 2. Companies Act,2013 • • • • • • Passed by Lok Sabha on 18.12.2012 Passed by Rajya Sabha on 08.08.2013 Assent given by the President on 29.08.2013 Notified in official Gazette on 30.08.2013 Largest legislation in India. Central Government can make Rules through delegated legislation.
  • 3. Structural Comparison Companies Act 1956 Companies Act 2013 13 Parts 29 Chapters 658 Sections 470 Sections 15 Schedules 7 Schedules
  • 4. One Person Company (OPC) • A Private Company subscribed by One Person. • Name shall affix OPC or One Person Company. • The Memorandum of OPC shall indicate the name of the other person as nominee, with his prior written consent. • A Structure providing more flexibility and less Compliance. • May formed for Charitable objects (Sec.8 Co. previously Sec.25 Co.)
  • 5. Private Limited Company “The company is a “Private Company” within the meaning of Section 2(68) of the Companies Act, 2013 with a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed, and which by its articles.(i) restricts the right to transfer its shares: (ii) Except in case of OPC, limits the number if its members to two hundred: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member : Provided further that(A) Persons who are in the employment of the company; and (B) Persons who, having been formerly in the employment of the company were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and (iii) prohibits any invitation to the public to subscribe for any securities of the company”.
  • 6. Associate Company • Associate Company in relation to another Company, means a Company in which that other Company has a significant influence, but which is not a subsidiary Company of the Company having such influence and includes a Joint Venture Company. • “Significant influence” means control of at least twenty per cent of total share capital, or of business decisions under an agreement.
  • 7. Dormant Company • Where a Company is formed and registered under the new law for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a Company or an ‘inactive Commpany’ may now make an application to the RoC for obtaining the status of a “Dormant Company”. • ‘Inactive Company’ is one which has not been carrying on any business or operation, or has not made any significant accounting transaction, or has not filed financial statements and annual returns during for the last two financial years.
  • 8. Corporate Social Responsibility (CSR)  Every company having net worth of Rs.500 crore or more, or turnover of Rs.1000 crore or more or a net profit of Rs.5 crore or more during any financial year is required to constitute a Corporate Social Responsibility Committee.  2% of the average net profits of 3 preceding financial years to be spent towards CSR.  Disclosure of CSR Policy on Company’s website.
  • 9. Rotation of Auditors • Mandatory Rotation of Auditors for Listed and other specified class of Companies. • Individual Auditor to be rotated after a term of 5 consecutive years. • Audit firm to be rotated after two terms of 5 consecutive years. • The Company shall place the matter relating to such appointment for ratification by members at every Annual General Meeting.
  • 10. Secretarial Audit Mandatory Secretarial Audit for specific class of Companies. Secretarial Audit Report (SAR) to be the part of Annual Board’s Report. Disclaimer of every reservation or adverse remarks (SAR) in the Board’s Report. Stringent Penalty in case of default.
  • 11. CEO/MD/Manager Company Secretary KMP Whole-Time Director Chief Financial Officer
  • 12. National Financial Reporting Authority (NFRA) • Previously National Advisory Committee on Accounting Standards (NACAS) • Composition: One Chairperson and members not exceeding 15 to be appointed by CG. • Function: Recommendation to CG on Accounting and Auditing Standards. • Enforcement for the compliances of Accounting and Auditing Standards. • Overseeing the quality compliances of Accounting and Auditing Standards and the quality of services of the professionals associated with. • Special Powers have been vested with NFRA.
  • 13. Changes Regarding MoA  Objects clause in the Memorandum of Association of a company not required to be divided into main, ancillary and other objects.  Only the objects for which the company is incorporated along with matters considered necessary for its furtherance to be mentioned.  The company cannot provide for other object clause.
  • 14. Changes Regarding AoA • Articles of Association of the Company may contain provisions with respect to entrenchment. • Entrenchment provisions provide a more restrictive procedure than passing a special resolution for altering certain provisions in the Articles of Association.
  • 15. Independent Directors  Every Listed Public Company to have at least one-third of the total number of Directors as Independent Directors  Drastic increase in the eligibility criteria, where the relationship, not only with the company but also with its holding, subsidiary and associate Companies has to be checked.  Not entitled for any stock option.  Independent Director only alternate for an Independent Director.  Specific Meeting of Independent Directors.  Proviso for limiting the liability of Independent Director.
  • 16. Holding-Subsidiary Merger  Fast Track procedure for Merger & Amalgamation of Holding & Wholly owned Subsidiaries.  Fast Track procedure for Merger & Amalgamation of Small Companies with the approval of super majority (90% approval of each class of share holders and creditors+Declaration of Solvency to RoC).  “Small Company” is a Company other than a Public Company having paid-up share capital not exceeding Rs.50 lakhs or Turnover not exceeding Rs.2 crore or such higher sums as may be prescribed by the Central Government.  No application to be filed with NCLT/High Court under fast track procedure.
  • 17. Registered Valuer • Appointed by the audit committee or in its absence by the Board of Directors of that Company. • Functions: Valuation of Shares, net worth, assets, liabilities, goodwill etc. required under law. • Person should be the one who got registered as Valuer under the provisions of the law. • Valuer on committing default shall be liable to refund the remuneration received by him to the Company and pay for damages caused by such Company or person due to the misleading statements in his report.
  • 18. Class Action Suits  Endeavor to protect the rights of deposit holders and members.  Only Specific number or % of members/depositors can file class action suit.  Right of Claiming damages or compensation by members in case of wrongful conduct of Company, directors, auditors, experts and advisors.  Banking Companies are out of the preview of class action suit.
  • 19. Registered Office o From the 15th day of incorporation o Furnish verification with RoC within 30 days of incorporation o Change in Reg.office should intimate with in 15 days o Change from one state to other, new Certificate of Incorporation
  • 20. Commencement of Business • Private companies also follow commencement procedure. • No certificate for commencement of business. • Docs filed with RoC with in 180 days of incorporation:  a declaration by the Directors  a confirmation regarding the filing of verification of Reg. office with RoC • If not filed declaration within 180 days and RoC have sufficient reason to believe that it is not carrying any business, will take action to remove the name from its register.
  • 21. Share Capital and Debentures  A Company can not issue shares at a discount except in the case of Sweat Equity shares.  A Company limited by shares cannot issue any preference shares which are irredeemable. If authorized by its articles then can issue within a period not exceeding 20 years.  Company may issue preference shares for a period exceeding 20 years for infrastructural projects.  Every company shall deliver debenture certificate within 6 months of allotment.
  • 22. Serious Fraud Investigation Office (SFIO)  CG shall constitute SFIO  Headed by director and will consist experts from various fields.  For the investigation of frauds related to the Companies.  no other investigation agency or Central or State Government proceed with investigation if it is assigned to SFIO.  submit the investigation report to the CG
  • 23. National Company Law Tribunal (NCLT)  CG shall by notification constitute NCLT  Consists of president and such number of Judicial and Technical members  President shall be the judge of the High Court for at least 5 years.  CA,CMA,CS in practice for at least 15 years are eligible to appoint as technical member of NCLT.  All cases pending on CLB will be transferred to NCLT after its constitution.
  • 24. Board Meeting • Not less than 7 days prior notice for board meeting. • 4 board meetings to be held every year (Small, Dormant and OPC may comply this provision by having 1 meeting in each half of calendar year with a gap not less than 90 days) • Not more than 120 days to elapse between two consecutive meeting. • A director can participate in a board meeting through video conferencing or other audio visual mode as may be prescribed. • Minutes should made in accordance with Secretarial Standard issued by ICSI. • Adj.meeting shall not conduct in a national holiday, then next succeeding day
  • 25. General Meeting            OPC is not required to hold AGM May conduct on Sunday….(except national holiday) First AGM with in 9 months of the closure of first accounts Subsequent AGMs, with in 6 months from the date of closing of financial year 15 months shall not elapse between two subsequent Annual General Meetings During business hours (9 a.m-6 p.m) Lack of quorum with in half an hour will be a reason for adjournment and members present on adjourned meeting will be quorum. Lack of quorum will be a reason for the cancellation EGM called by requesitionist. Postal ballot for unlisted Companies. Members may exercise their vote at meetings by electronic means Report after AGM should filed within 30 days by all listed Companies.
  • 26. Quorum of GM • Quorum for general meeting in case of Public Company: • 5 members personally present where total members upto 1000, • 15, where members 1000-5000 and, • 30, where members are more than 5000.
  • 27. Annual Return  The Annual Return shall carry information upto the date of closure of financial year (Concept of AGM to AGM basis AR preparation dispensed).  Certification of Annual Return by Practicing Company Secretary mandatory in case of companies with prescribed paid up capital and turnover.  Signed by a director and the Company Secretary or where there is no CS by a PCS (except for OPC and Small Companies)
  • 28. Boards Report            Extract of Annual Return Company’s policy on directors appointment and remuneration. declaration by independent directors Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor and by the company secretary in practice in his secretarial audit. Particulars of loans, guarantees or investments. Particulars of contracts or arrangements entered into. Conservation of energy, technology absorption, foreign exchange earnings and outgo Statement indicating development and implementation of a risk management policy for the company Details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year. Directors’ Responsibility Statement Signed by the chairperson authorized by the Board, if no authorization is given, then at least 2 directors , one of whom shall be MD
  • 29. Preference Shares • If the dividend arrear for more than 2 years they can vote on all resolutions. • Preference shares should be redeemed with in 20 years. • Exception is made to infrastructure projects.
  • 30. Number of Directorships • Not more than 20 Companies • Max. no. of Public Companies in which a person can be appointed as a Director shall not exceed 10
  • 31. Service of Documents • Service of documents to the members by:  registered post speed post or courier service or Leave at registered office electronic mode.
  • 32. Re-opening/re-casting of accounts  Mandatorily by authorities OR Voluntarily by Board.  The Act provides for provisions relating to re-opening or re-casting of the books of accounts of a Company  In case an application made by Central Government, IT authorities, SEBI or other statutory authorities and an order of Court or Tribunal in this regard.  Voluntarily by the Board if thinks that Statements or Boards Report not Comply with Sec.129 or Sec.134 Voluntary re casting made after obtaining order from NCLT and filing the same with RoC.
  • 33. Deposits o Company may accept deposits from its members subject to passing of a general resolution. o A public company having a prescribed net worth or turnover may accept deposits from persons other than its members subject to compliance of rules as may be prescribed by the CG in consultation with RBI. o Stringent punishment for failure to distribute interest within 30 days.
  • 34. Special rights of auditors Auditors during the course of performance of its duties, are required to immediately report to the Central Government, any offence involving fraud that is being or has been committed against the company by its officers or employees.
  • 35. Resident director • At least 1 director on the board to be a person who has stayed in India for not less than 182 days in the previous calendar year
  • 36. Dividend • Payable on cash, cheque or warrant or in any electronic mode to the shareholder. • Company can use only its Free Reserves for paying Dividend. • Amount transferred to unpaid dividend account can be claimed by the person from the company • Within 90 days of such transfer, it require to prepare a statement and show it on the website of the Company. • All shares in respect of which unpaid or unclaimed dividend has been transferred to IEPF, shall be transferred by the Co. in the name of IEPF along with a statement containing details of them. • Claimant of shares can claim it from IEPF by following certain procedure and submitting certain docs.
  • 37. Charge registration • The additional period for registration of charge has been increased to 300 days from the existing provision of 30 days . • Ie; 30+270 in effect
  • 38. Illegal association • The maximum number of persons who can carry on businesses for profitable purposes through an association or partnership will be prescribed by rules, but the number will not exceed 100.
  • 39. Types of resolution • Simple majority • Special resolution • Resolution required a super majority (90%) (only required for Holding – Subsidiary merger without the approval of court.)
  • 40. Application of e-Mode  Recognition of keeping Books of accounts in electronic form.  Sending of AGM or BM notices through electronic form (e-mails).  Participation of directors in BM through electronic mode.  Electronic mode of voting for certain CG specified companies.
  • 41. One women director • Inclusion of One Women Director in the Board for certain Companies
  • 42. Number of members  Minimum number of members for private company is 2  Minimum number of members for public company is 7  maximum number of members for private company is increased to 200 from 50
  • 43. Financial year Uniform financial year for all Companies, i.e. April to March [Companies formed on or after 1st Jan. of a year, the period ending on 31st day of March of the following year.]
  • 44. Capital reduction • Reduction of Share Capital subject to Confirmation by Tribunal.
  • 45. GDR  Issue of GDR simplified, only after passing a special resolution and subject to such conditions as may be prescribed.
  • 46. Discount on issue • Share issue on discount discontinued. • Shares, other than sweat equity, cannot be issued at discount.
  • 47. Restructuring and Rehabilitation  The entire rehabilitation and liquidation process has been made time bound.  Winding up is to be resorted to only when revival is not feasible.  Tribunal may appoint an interim or company administrator from the panel of CSs,CAs,CMAs, etc. maintained by the Central Government.  Company Administrator shall prepare a scheme of revival and rehabilitation.  If revival scheme is not approved by the creditors, the tribunal shall order for winding up of the company.  No civil court shall have jurisdiction in respect of any matter on which Tribunal or Appellate Tribunal is empowered.
  • 48. Committees of Directors • Audit Committee • Nomination and Remuneration Committee • Stakeholder’s Relationship Committee • CSR Committee
  • 49. New provisions regarding Auditors Every Company shall at its first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its 6th AGM and thereafter till the conclusion of every 6th meeting. Company resolve that the auditing partner and his team in the audit firm shall be rotated at such intervals as may be resolved by members, or the audit shall be conducted by more than one Auditor.
  • 50.  Gvt. Companies, the First Auditor shall be appointed by the C&AG within 60 days from incorporation and  on failure to do so, the board within next 30 days and  on failure to do by the board, the members will appoint the auditor within 60 days.  For existing Companies C&AG shall appoint auditor within the period of 180 days from the commencement of the financial year.  In case the Company has audit committee, then all appointment of Auditors including filling of casual vacancy, shall be made after taking into account the recommendations of the committee.
  • 51.  All the AGMs shall now be mandatorily attended by the auditor or through his representative who shall also be qualified to be the Auditor unless otherwise exempted by the Company.  Unqualified Auditor’s Report need not to be read out in the AGM.  Along with the approval of CG, the permission of the shareholders by way of Special Resolution is also required for the removal of an auditor.  It has been clarified that in case of a firm, the liability shall be of the firm and that of every partner or partners who acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to the Company or its directors or officers.
  • 52.  No special notice required for removing an Auditor, where the retiring Auditor has completed a consecutive tenure of 5 (individual) years or 10 (audit firm) years as the case may be.  Limit in respect of max. number of companies in which a person may be appointed as auditor is 20 companies.  The remuneration of the Auditor of a Company shall now fixed in its general meeting or in such manner as may be determined therein. The Board may fix remuneration of the first auditor appointed by it.
  • 53.  Specific penalty has been prescribed for contravention of provisions related to appt. of auditors. ie; on default Company shall be punishable with fine which shall not be less than twenty five thousand rupees but which may extend to five lakh rupees and any officer who is in default shall be punishable with imprisonment for a term which may extend to one year.
  • 54. Provisions Modified  First Auditor of the Co. other than a Govt.Co. shall be appointed by the board within 30 days of its incorporation and failure to do so, the members shall appoint the same within 90 days from incorporation.  Appointment of Auditor other than the retiring auditor or expressly stating that auditor shall not be re-appointed, a special resolution will be required.  In case of appointment of auditor, the company has to intimate both, the Auditor and the Registrar within 15 days of the appointment…as against the provisions of Co.Act,1956 wherein the onus of intimation of appointment was upon the auditor.
  • 55. Auditor Cannot render following services • Accounting and book-keeping services • Internal audit • Design and implementation of any financial information system • Actuarial services • Investment advisory services • Investment banking services • Rendering outsourced financial services • Management services • Other prescribed services
  • 56. Provisions regarding Company Secretaries (CS)  Recognized as KMP  Adoption of Secretarial Standards (SS-1 & SS-2) of ICSI.  Introduction of Secretarial Audit.  Functions of CS defined.  Annual Returns certification by a PCS.  Appearance before NCLT/NCLAT.  Assistance in Liquidation.
  • 57. Provisions regarding Cost and Management Accountants (CMAs) • A Cost Accountant in Practice can incorporate a Company. • Can act as Internal Auditor. • The CG can direct particulars relating to utilization of material or labour or such other item of cost to be included in books of accounts. • The Cost Audit shall be conducted in accordance with the cost accounting standards, which are issued by the Institute of Cost Accountants of India. • Cost Accountant shall submit the copy of his audit to the Board of Directors and who shall forward the same to CG. • Eligibility to be appointed as administrator of a Company by the tribunal.
  • 58. Thank you all…

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