COMPANIES BILL 2012Presented ByCA PRATIK ARORA All rights reserved AN INSIGHT | 1
PRESENTATION STRUCTURE BACKGROUND ADAPTATION STRUCTURE TIMELINE KEY HIGHLIGHTS NEW / AMENDED TERMS NEW CONCEPTS AUDIT & AUDITORS PENAL PROVISIONS LOANS & INVESTMENTS DIRECTORS & KMP CORPORATE SOCIAL RESPONSIBILITY MERGER & ACQUISITIONS OTHER KEY ISSUES.
BACKGROUNDThe Companies Act 1956 was enacted with the object to consolidate the existingcorporate laws and to provide a new basis for corporate operation in independentIndia.With enactment of this legislation in 1956, the act has since provided the legalframework for corporate entities in India.The need for streamlining this Act was felt from time to time as the corporate sectorgrew in pace with the Indian economy, with as many as 24 amendments taking placesince 1956. Major amendments to the Act were made based on recommendations ofvarious committees.The Companies Bill 2012 is an embodiment of the changes/ revisions required toreflect the new corporate scenario in India.
ADAPTATIONMassive increase in number of Companies from about 30,000 in 1956 to nearly 8lakhs; (How many active and compliant!!!)Modernization & regulatory harmony in the wake of corporate scandals; (SatyamSaga & Sahara OFCD’s issue)The existing Companies Act, 1956 is a voluminous document with 781 sectionscontaining provisions that cover aspects which are essentially procedural in nature.This format has also resulted in the law becoming very rigid since any changerequires an amendment of the law through the parliamentary process.The law has failed to take into account the changes in the national and internationaleconomic scenario speedily.
STRUCTURE Structure of the Companies Bill, 2012 470 CLAUSES 29 CHAPTERS 95 DEFINITIONS 7 SCHEDULES
TIMELINE Companies Bill, 2009 wasCompanies Bill 2008 reintroduced on 3rd Report of the SCF onwas introduced on August 2009 in the Lok Companies Bill, 200923rd October 2008 in was introduced in the Sabha to replace existingthe Lower House to Lok Sabha on 31streplace existing Companies Act 1956Companies Act, (with minor modifications August 20101956 to the Companies Bill 2008) 2008 2009 2010 2011Due to the dissolution of Companies Bill 2011 Bill was referred to thethe 14th Lok Sabha, the introduced in the Lok Standing Committee onCompanies Bill 2008 has Sabha on 14th December Finance of the Parliamentlapsed 2011 (the SCF) for examination and report on 9th September 2009 AN INSIGHT
KEY HIGHLIGHTS• Number of permissible members in a private company has been raised to 200 from 50.• The concept of One Person Company has been introduced.• Provisions relating to further issue of capital to be applicable to all companies.• Shares cannot be issued at a discount except sweat equity shares.• Time gap between 2 buy-backs shall be minimum 1 year.• Any deposit accepted before the commencement of 2012 Act or any interest due thereon to be repaid within 1 year from the commencement of 2012 Act or from the date on which such payments are due, whichever is earlier.• Stringent norms provided for acceptance of fresh deposits including creation of deposit repayment reserve account of 15% of the amount of deposits maturing in the Current Year and the next Financial Year.
KEY HIGHLIGHTS• National Financial Reporting Authority (NFRA) to be constituted by Central Government to provide for matters relating to accounting and auditing policies and standards Consolidation of financial statements made mandatory.• 2% of average net profits of last 3 years to be mandatorily spent on Corporate Social Responsibility for specified class of companies.• Mandatory transfer of profits to reserves for dividend declaration done away with. Companies may voluntarily transfer a portion of its profits to reserves.• Individual auditors are to be compulsorily rotated every 5 years and audit firm every 10 years in listed companies & certain other classes of companies, as may be prescribed.• One of the directors of a company shall be a person who has stayed in India for 182 days or more.
KEY HIGHLIGHTS• Prescribed class of companies to have at least 1 woman director. Existing companies to comply with this requirement within 1 year.• Independent Director (ID) is not liable to retire by rotation.• A Chairperson can be an MD or CEO at the same time, if the Articles of the company permits or if the company does not have multiple businesses or where the company has multiple businesses and has appointed 1 or more CEO for each such business• Provisions for loan to directors applicable to private companies and need to obtain CG approval for such loans removed.• Restriction on multilayer investment subsidiaries.• Rate of interest on loan granted shall not be lower than the prevailing yield of 1 year, 3 year, 5 year or 10 year. Government Security closest to the tenure of the loan.
KEY HIGHLIGHTS• Requirement of obtaining CG approval for related party transactions done away with.• Approval of CG required for certain managerial remuneration.• Indian company can be merged with a foreign company.• Fast track merger for small companies and holding-WOS introduced.• Person / group of persons holding 90% or more equity shares by virtue of amalgamation etc. can purchase the remaining equity shares of the company from minority shareholders.• Inability to pay debts will be considered as criteria for determining a sick company .• Provisions of revival and rehabilitation of sick companies to apply to all companies and not only to an "industrial company“
NEW /AMENDED TERMS PROMOTERS RELATED PARTY SMALL COMPANY ONE PERSON COMPANY DORMANT LISTED CONTROL FOREIGN COMPANY COMPANY COMPANYFINANCIAL YEAR ASSOCIATE OFFICER IN SUBSIDIARY COMPANY DEFAULT
NEW CONCEPTSONE PERSON COMPANYUnder the Companies Act, 1956, at least An OPC can be formed by subscribingtwo people are required to form a the name of a person to thecompany. The new concept will provide memorandum and complying with thean opportunity to Indian entrepreneurs to requirements of the Act in respect ofenter the corporate world without even registration. As regards the name of anadding a family member to the venture, OPC, new Bill provides that the wordswhich they, at times, do just for the sake “one person company” shall beof a second name. mentioned in brackets below the name of such a company, wherever its name is printed, affixed or engraved.
NEW CONCEPTSSMALL COMPANYCompany other than a public company, Various relaxation in terms of reportingHaving paid up share capital not requirement, board meeting andexceeding fifty lakh rupees or such procedure for mergers/amalgamationamount, not exceeding rupees five have been introduced.crores, as may be prescribed . Or However, a holding / subsidiary or ahaving turnover not exceeding rupees two section 8 Company( section 25 as percrores or such amount not exceeding Companies Act 1956) cannot be arupees twenty crores, as may be small company.prescribed, as per its last profit and lossaccount .
NEW CONCEPTSDORMANT COMPANYA company formed for a future project or The dormant company shall have ahold an asset or intellectual property and minimum number of directors , fileshas no significant accounting transaction such documents and pay such annualsuch a company or an inactive company fees as may be prescribed to thecan apply to the registrar for the status of registrar to retain its dormant status indormant company. Company other than a the register.public company.The registrar on consideration of the The registrar will strike off the name ofapplication shall allow the status of that company form the register ofdormant company to the applicant and dormant company when it fails toissue such certificate as may be comply with the requirement of thisprescribed to that effect. The registrar section.shall maintain the register of dormantcompany in the form as may beprescribed.
NEW CONCEPTSCOMPLIANCE REQUIREMENTSPARTICULARS ONE PERSON SMALL COMPANY DORMANT COMPANY COMPANYCash flow Not applicable Not applicable Not applicablerequirementAnnual return CS/ Director Not applicable One meeting in each half of the calendar year and gapBoard meetings not less than 90 days 2 membersQuorum Not applicable Not applicable personally present Limited liability Relatively less Can beOthers and flexibility in Compliance and converted to an compliance easy to operate Active Co later
AUDIT & AUDITORS Appointment of Auditor in unlisted companies APPOINTMENT PERIOD OF APPOINTMENT At first AGM to hold office till conclusion of 6th AGM subject to ratification by members at every AGMSubsequent to hold office till conclusion of 6th meeting, subject to ratification by members at everyAGM Appointment of Auditor in listed and specified class of companies APPOINTMENT PERIOD OF APPOINTMENT Individual 1 term of 5 consecutive years. Audit Firm 2 terms of 5 consecutive years Cooling off period of 5 years before next appointment
AUDIT & AUDITORS A limit of 20 audits per partner without any distinction between public and privatecompanies, as against the current ICAI imposed limit of 30 audits. Ratification of appointment of auditors, by the members at every annualgeneral meeting of the company, has been made mandatory Shareholders at liberty to decide by passing resolution that audit partner and theaudit team, be rotated every year Company bound to re-open and recast its financial statements if applicationhaving been made by following and an order has been made by the NCLT or aother Court. Consolidated financial statements of companies are required to also includefinancial statements of associate companies and joint ventures
AUDIT & AUDITORS Class action suits, can be filed against auditors to claim damages or compensation for improper or misleading statement of particulars in the audit report or for fraudulent, unlawful or wrongful actions. Auditor cannot provide following services "directly or indirectly" to the company or its holding company or subsidiary company, namely:— ‒ 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; and ‒ any other kinds of services as may be prescribed. An auditor or audit firm who or which has been performing any non-audit services on or before the commencement of 2012 Act shall comply with the above before the closure of the 1st FY after the date of such commencement.
AUDIT & AUDITORS APPOINTMENT OF AUDITORS -COMPARISONPARTICULARS UNDER COMPANIES ACT,1956 UNDER COMPANIES BILL Mandatory rotation of No mandatory rotation Individual Auditor afterMandatory rotation term of 5 yrs & Audit Firm after 10 yrs Immediate reporting byWhistleblower No such provision Auditors to Government in case of fraud Prohibition of renderingRestriction on No such provisions classified services byservices Auditors to Co./Holding/Subsidiary Sec 226 prescribes qualificationOther & disqualification criteria Additional disqualificationdisqualification Additional disqualification of of Auditors Auditors
AUDIT & AUDITORSRESIGNATION & REMOVAL OF AUDITORSPARTICULARS UNDER COMPANIES ACT,1956 UNDER COMPANIES BILL Statement indicating the reasons for resignation shallReasons for No such provision be filed within 30 days toresignation company, Registrar & CAG in case of Government companies No special resolution forSpecial resolution Special resolution required removing auditor on expiry ofon removal of for appointment of auditor tenureauditor other than retiring auditor Tribunal can suo-moto or onChange of auditor No such provisions application from Centralby Tribunal government/ any person can direct change of Auditor
PENAL PROVISIONSUNDER COMPANIES ACT 1956 Penalty for non- compliance by auditor with sections 227 and 229. If any auditor s report is made, or any document of the company is signed or authenticated, otherwise than in conformity with the requirements of sections 227 and 229, the auditor concerned, and the person, if any, If default is made by a company in other than the auditor who signs the complying with any of the provisions report or signs or authenticates the contained in sections 225 to 231, the document, shall, if the default is willful, company, and every officer of the be punishable with fine which may company who is in default, shall be extend to one thousand rupees. punishable with fine which may extend to five thousand rupees.
PENAL PROVISIONSCOMPANIES BILL 2012If any of the provisions of sections139 to 146 is contravened, thecompany shall be punishable with finewhich shall not be less than twenty-five thousand rupees but which mayextend to five lakh rupees and everyofficer of the company who is indefault shall be punishable withimprisonment for a term which may If an auditor of a companyextend to one year or with fine which contravenes any of the provisions ofshall not be less than ten thousand section 139,section 143, section 144rupees but which may extend to one or section 145, the auditor shall belakh rupees, or with both punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees.
LOANS & INVESTMENTSPARTICULARS COMPANIES ACT 1956 COMPANIES BILL 2012 Not applicable to PrivateApplicability Applicable to all Companies Company Loan to any person or other Loans given by one company to body corporate another company Guarantee or provide security Guarantees and securities in in connection with a loan to favour of a person who hasCoverage any other body corporate or given any loan to the company person Acquiring by subscription or Acquiring by subscription or otherwise, securities of a otherwise, securities of any company by other company other body corporate. Exemption available for loans,Exemptions investments and guarantees No such exemption given by Holding Co to its WOS The exemption available to Exemption available to infrastructure companies infrastructure companies forExemptions continues for loans, provision loans, provision of security and of security and guarantee but guarantee, investments not for investments
LOANS & INVESTMENTSPARTICULARS COMPANIES ACT 1956 COMPANIES BILL 2012 At a rate not lower than the prevailing yield of the 1, 3, 5Rate of loan At the prevailing bank rate or 10 years G-Sec closest to the tenor of the loan Higher of 60% (Paid-up share Higher of 60%(Paid-up share capital+ free reserves +Upper limit/ capital+ free reserves) or 100% Securities premium) or 100%Capping (free reserves and) (free reserves and securities premium) No change. Prior approval by No change. Prior approval byApproval for Special resolution passed in Special resolution passed inexceeding the limit general meeting general meeting
DIRECTORS & KMPDuties of the directors towards a company prescribed (not prescribed in thecompanies Act 1956.Maximum number of directors can be 15. This number can go up by passing aspecial resolution.In certain prescribed companies at least one woman director should beappointed.Every company to have a resident director , i.e. a director who has stayed inIndia for a minimum 182 days in the previous calendar year.Every company belonging to such class or description of companies as may beprescribed shall have Managing Director (MD) or chief Executive.Every whole time KMP to be appointed by BOD meeting .A whole time KMP not to hold office in more than one company at a time.Any vacancy in the office of any KMP to be filled by the BOD within 6 months.
DIRECTORS KMP’S & GOVERNANCEINDEPENDENT DIRECTORConcept of independent directors has been introduced for the first time inCompany Law.All listed companies shall have at least one-third of the Board as independentdirectors.Such other class or classes of public companies as may be prescribed by theCentral Government shall also be required to appoint independent directors.The independent director has been clearly defined in the Bill.Nominee director nominated by any financial institution, or in pursuance of anyagreement, or appointed by any government to represent its shareholding shallnot be deemed to be an independent director.
DIRECTORS KMP’S & GOVERNANCEINDEPENDENT DIRECTORAn independent director shall not be entitled to any remuneration other thansitting fee, reimbursement of expenses for participation in the Board and othermeetings and profit related commission as may be approved by the members. An Independent director shall not be entitled to any stock option. Only an independent director can be appointed as alternate director to anindependent director.
CORPORATE SOCIAL RESPONSIBILITYPARTICULARS COMPANIES BILL 2012 Companies that have a turnover of Rs 1,000 crore, orWho is covered Have a net worth of Rs 500 crore, or That have recorded a net profit of Rs 5 crore These companies are expected to spend 2 per cent of theirProvisions profit in preceding three financial years towards CSR The bill says they are “expected” to …meaning it is not compulsory to spend money . But , the same bill also provides that -Board of director will be responsible for seeing thatPunishment company spends money for CSR. -It is compulsory to send report on the CSR spending to the corporate affairs minister. - If company is not spending, it has to give reasons for it.
MERGER & ACQUISITIONSMerger of Indian companies with companies incorporated in foreign jurisdictions(as may be notified separately by central government) is permitted.Only the persons holding 10 per cent or above of relevant shareholding orhaving outstanding debt of 5% or above in the company are now entitled tooppose a scheme of arrangement.Bill requires a company to file certificate from its auditors with the tribunal to theeffect that accounting treatment in the scheme is in accordance with prescribedaccounting standards.The Bill also has provisions stating that in case of merger of a listed companyinto an unlisted company , the transferee company shall remain unlisted until itbecomes listed company.Bill Proposes that where a transferor company is dissolved pursuant to anarrangement , the fees paid by transferor company on its authorized sharecapital shall be set-off against fees paid by transferee company.
MERGER & ACQUISITIONSPARTICULARS COMPANIES ACT 1956 COMPANIES BILL 2012 Permitted Prior approval of the RBIMerger of Indian Co Not permitted required before any foreigninto Foreign Co company merges with an Indian company or vice versa Proposed new process ofMerger or mergeramalgamation amalgamation of smallbetween small companies orcompanies or No such provision group companies involves thebetween holding approval of shareholderscompanies and a holding at least 90% of theWOS or prescribed shares of the companycompanies
MERGER & ACQUISITIONSPARTICULARS COMPANIES ACT 1956 COMPANIES BILL 2012 Auditor to certify accounting treatment in the scheme is in No such provision forAuditors certificate conformity with the AS Private Cos prescribed under Clause 133 of the Bill Possible to seek approval Creditor or class of creditors,Dispensation of the of dispensation based having at least 90% valuemeeting of creditors upon consent letters agree and confirm, by way of received an affidavit to the scheme
OTHER KEY ISSUESRecognition of Electronic form of Books Of accounts.Provision of reopening /recasting of books of accountsProvision of revision of financial statementAuthority to prescribe Accounting Standards now vested with central government.Appointment of registered valuer made mandatoryAppointment of registered valuer to be effective by audit committee or Board ofDirectors.Exit opportunity to the dissenting shareholders of transferor company/listedcompany being merged with an unlisted company.Submission of valuation report by liquidator in the event where tribunal has madea winding up orderAcquisition of minority shareholding by holders of at least 90% of issued equityshare capital of a company
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