companies act 2013, new concepts like secretarial audit, auditing standard, secretarial standard, One person company, associate comapny, consolidation of accounts, control, class action suits, dormant company etc

1. Companies Act, 2013
New Concepts

2. New Concepts

3. Some Interesting Facts About New Law
13/9/2013
2 times
the Companies Bill was referred to Standing Committee before being passed by the
Parliament.

4. The Companies Act, 2013
The Companies Act 2013 will replace the Companies Act
1956.
On 30th August 2013, with the assent of the President of India
and MCA notify the sec.1 of the New Act in the Official
Gazette, and the Bill become Companies Act 2013.
On 12th September 2013, notified 98 section to be effective
from the date of notification.

5. NEWLY INTRODUCED CONCEPTS
ONE PERSON COMPANY
SMALL COMPANY
DORMANT COMPANY
ASSOCIATE
RELATED PARTY
REGISTERED VALUER
FINANCIAL YEAR
CORPORATE SOCIAL RESPONSBILITY ( CSR)
CLASS ACTION SUIT
SECRETARIAL AUDIT
NATIONAL FINANCIAL REPORTING AUTHORITY
SECRETARIAL STANDARDS

6. One Person Company 2(62), 3(1)(C)
“Why two when One can run the show”
One person company means owned by one person and
minimum one director .
Such company will be formed as private limited company and
state itself as One person company.
Provision relating to holding of an AGM is not mandatory.
First member shall be director who is individual until the
director duly appointed by the member.

7. One Person Company 2(62), 3(1)(c)
 The Memorandum of such a company should indicate the
name of the person(nominee) who shall, in the event of the
subscriber’s death, disability or otherwise becomes the
member of the company.
An OPC is required to file a copy of financial statement within
180 days from the closure of the financial year.
At least one meeting of the BOD in each half of the calendar
year and gap between two such meeting is not less than 90
days. No quorum requirement, if there is only one director on
the board.
One Person to be natural person, Indian citizen and
resident in India

8. One Person Company Draft Rule 2.1
 One Person to be natural person, Indian citizen and
resident in India
No person is eligible to incorporate more than five OPC
Subscriber to obtain the prior consent of nominee before
mentioning his name in MOA
Where the paid up share capital of One Person Company
exceed Rs. 50 Lakh or its average turnover during the year
exceed Rs. 2 crore , it shall cease to a One Person Company
and it shall within 6 months to covert itself into either a
private company or a public company
Not more than 5 OPC by a person

9. Small Company 2(85)
“small fish should be treated differently”
Means a Private company
Having
Paid-up capital < 50L or such higher amount as may
be prescribed, which shall not be more
than Rs. 5 crore
OR
Turnover < 2 crore or such higher amount as may
be prescribed, which shall not be more
than Rs. 20 Crore
Public company can not be small company

10. Dormant Company 455(1)
“Why do compliance, if no business”
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 such a company
or an inactive company may make an application to the
Registrar in such manner as may be prescribed for obtaining
the status of Dormant company.
Inactive company means: carrying on no business or operation
or no significant accounting transaction during last 2 year or
has not filed financial statement and annual return for two
years;

11. Dormant Company 455(1)
The registrar on consideration of application shall allow the
status and issue a certificate.
Registrar shall maintain a register of Dormant Company in
such form as may be prescribed.
For a company which has not filed financial statements for a
period of two financial years consecutively, the Registrar may
issue a notice to that company and enter the name of the
company in the Dormant companies register.
Dormant company shall maintain minimum director, file such
documents and pay such annual fees as prescribed by government
to maintain the status of dormant

12. Dormant Company Draft Rule 29.5
“Why do compliance, if no business”
• A Company after passing Special Resolution in the general
meeting may make an application to ROC for obtaining the
status of Dormant Company.
• ROC shall allow the status of Dormant Company
• Dormant Company shall have
• 3 Directors – In case of Public Company
• 2 Directors – In case of Private Company
• 1 Director – In case of One Person Company
Dormant Company to file Annual Declaration within 30 days form end
of financial year to ROC

13. Associate 2(6)
(Notified)
“ Nice clarity for sister concern of Group”
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
Control of at least 20% of total share capital; or
Business decisions under an agreement;
Associate company does not include foreign companies

14. Related Party 2(76)
“One Law, one definition”
Director or his relative
KMP or his relative
A Firm, in which director, manager or his relative is partner
A Private Company, in which director, manager is director or
member
A Public Company, in which director or manager is a director
or holds more than 2% of paid-up share capital with relatives.
Any Body Corporate whose BOD, MD or manager is
accustomed to act in accordance with advice, directions or
instructions of a director or manager;

15. Related Party 2(76)
Any Person on whose advice, direction or instructions a
director or manager accustomed to act
Any Company which is holding, subsidiary or an associate or
subsidiary of holding company to which it is also subsidiary
Other Person as may be prescribed;
Foreign company will be called as related party only if its BOD works
as per instruction and advise of director or manager of Indian company

16. Related Party Draft Rule 1.3
related party means:
(1) a director or key managerial personnel of the holding,
subsidiary or associate company of such company or his
relative;
(2) any person appointed in senior management in the
company or its holding, subsidiary or associate company
i.e. personnel of the company or its holding, subsidiary or
associate company who are members of core management
team excluding Board of directors comprising all members
of management one level below the executive directors,
including the functional heads.

17. Related Party Draft Rule 1.3
a person shall be deemed to be the relative of
another, if he or she is related to another in the
following manner:
(1) Spouse
(2) Father (including step-father)
(3) Father’s father
(4) Father’s mother
(5) Mother ( including step-mother)
(6) Mother’s mother
(7) Mother’s father

18. Related Party Draft Rule 1.3 (Cont…)
(8) Son ( including step-son)
(9) Son’s wife
(10) Son’s son
(11) Son’s daughter
(12) Daughter (including step-daughter)
(13) Daughter’s husband
(14) Brother ( including step-brother)
(15) Sister (including step-sister)- See more at:

19. Registered Valuer (247)
“There will be long queue before professional institutes for
becoming Registered Valuer”
Valuation in respect of any property, stocks, shares,
debentures, securities or goodwill or other assets or net worth
of company or its liabilities shall be done by a Registered
Valuer.
Qualification & experience as prescribed by way of Rules.
Appointment to be effective by audit committee or Board of
Directors;
Pecuniary penalty & damages is prescribed if valuer commits
default under the section or the rules prescribed;
The practice of taking certificate from any practicing professionals
shall be discontinued.

20. Registered Valuer (Draft Rule 17)
A registered valuer means a person registered as a valuer
under Chapter XVII
The following persons shall be eligible to apply for being
Chartered Accountant, Company Secretary, Cost Accountant
in whole time practice, or a person holding equivalent Indian
or foreign qualification, Merchant banker registered with SEBI
Member of the Institute of Engineers and who is in whole
time practice or person in his employment with qualification
Member of the Institute of Architects and who is in whole
time practice
Above mentioned person shall have not less than five years
continuous experience after acquiring membership of respective
institutions

21. Financial Year 2(41)
“One India One financial year”
Means the period ending on the 31st day of March every year.
If the Company starts after 1st January, then the period
ending 31st March, of the following year.
The National Company Law Tribunal (“NCLT”) shall have the
power to allow a different financial year for companies which
are either holding companies or subsidiaries of a company
incorporated outside India so as to enable consolidation of
accounts of such companies
Transition period of two years given to fix the financial year to 31st
March ending.

22. CSR Provisions (135)
“ Donate or justify”
CSR has been introduced after long debates;
Company having net worth of Rs. 500 crores or more or
turnover of Rs 1000 crores or more or net profit of Rs 5 crores
or more during any financial year shall have to constitute CSR
committee and implement CSR policies.
CSR Committee
Mandatory to constitute CSR Committee of the board
Constitution: At least 3 Directors; One director shall be an
independent director

23. CSR Provisions [Net Worth 2(57)(Notified)]
“ Donate or justify”
Net Worth means
=
Paid up capital all reserves created out of
profit +Securities Premium Account
-
[Accumulated losses deferred expenditures and
miscellaneous expenditures not writ off]
Above figures shall not include reserve created out of revaluation of
assets, write back of depreciation and amalgamation

24. CSR Provisions (135)
Role of CSR Committee:
Formulate and recommend to the board , a CSR Policy
and activities to be undertaken as specified in Schedule
VII
Recommend the expenditure to be incurred on such
activities
Monitor the CSR Policy.
The company spends at least 2% of the average net
profits made by the company in the preceding three
financial years in accordance with the policy;

25. CSR Provisions (135)
Board Role and responsibility:
Disclosure of CSR committee and contents of policy in report
Board to ensure that that the CSR policy is complied; and
In case of failure, Board to give reasons in the board’s report.
The huge buzz is whether there will be tax benefit for such CSR
spending ???

26. CSR Provisions (Draft Rule under
Chapter IX)
 Central Government prescribed Corporate Social
Responsibility Rules, 2013.
 Net Profit mean- Profit before tax ,shall not include
profit arising form branches outside India
2% CSR spending would be computed as 2% of the
average net profits made by the company during
every block of three years.
Tax treatment of CSR spend will be in accordance
with the IT Act as may be notified by CBDT
Reporting will be done on an annual basis commencing from FY
2014-15.

27. Class Action Suits (245)
“ Yeah… this is the power”
Class action suit is right to:
- Members
- or Deposit holders
to file an application before tribunal for restraining the
company from some specified acts, which are conducted or
proposed to be conducted in a manner prejudicial to the
interest of company, members or deposit holders

28. Class Action Suits (245)
Eligibility for filling
In Case of company having share capital:
- At least 100 members or not less than the such percentage of
total number of its members as prescribed ( whichever is less)
or
- Members holding not less than such percentage of issued
share capital of company
In case Company not having Share capital
- Not less than 1/5 of total number of its members.

29. Class Action Suits (Draft Rule 16. 1)
FOR MEMBERS----------------->No. of Members to file Class
Action Suit
[Company Having Share Capital]
or
If frivolous application filed, then cost up to Rs. 100000 can also be imposed
by tribunal on applicant.

30. Class Action Suits Section 245
Following are grounds for Class action suit:
(a) to restrain the company from committing an act which is ultra
vires the articles or memorandum of the company;
(b) to restrain the company from committing breach of any provision
of the company’s memorandum or articles;
(c) to declare a resolution altering the memorandum or articles of the
company as void if the resolution was passed by suppression of
material facts or obtained by mis-statement to the members or
depositors;
(d) to restrain the company and its directors from acting on such
resolution;

31. Class Action Suits Section 245
(e) to restrain the company from doing an act which is
contrary to the provisions of this Act or any other law for
the time being in force;
(f) to restrain the company from taking action contrary to
any resolution passed by the members;
(g) to claim damages or compensation or demand any
other suitable action from or against—
(i) the company or its directors for any fraudulent,
unlawful or wrongful act or omission or conduct or any
likely act or omission or conduct on its or their part;

32. Class Action Suits Section 245
(ii) the auditor including audit firm of the company for
any improper or misleading statement of particulars made
in his audit report or for any fraudulent, unlawful or
wrongful act or conduct; or
(iii) any expert or advisor or consultant or any other
person for any incorrect or misleading statement made to
the company or for any fraudulent, unlawful or wrongful
act or conduct or any likely act or conduct on his part;
(h) to seek any other remedy as the Tribunal may deem
fit.

33. Class Action Suits (245)
Claim for damages be also filed by such members against
company, directors, auditor, expert, advisor, consultants for
unlawful or fraudulent acts.
An order passed by the tribunal shall binding on the Company,
and all its members, depositors and Auditors
Penalty imposed if company fail to comply order of tribunal
not less than five lakh rupees but which may extend to
twenty-five lakh rupees.
Any order passed by Tribunal shall be binding on the Company and all
members, depositors and auditors including audit firm or Expert or
consultant or any other person associated with company

34. Class Action Suits (Draft Rule 16. 1)

35. Class Action Suit
[D raft Rule 16.1 ]
Notice to be given to the Central Government by Tribunal & Tribunal shall take into
consideration any representation made by the CG

36. Secretarial Audit
“ To ensure compliance of New law”
Every listed Company and Companies belonging to such class
of Companies as prescribed will have to mandatorily get the
secretarial audit done.
By a Practicing Company Secretary;
In a prescribed form;
Annex the same with Director’s Report;
Qualifications, if any to be specifically explained in Director’s
Report by board;

37. Secretarial Audit( Draft Rule 13.7)
“ To ensure compliance of New law”
Other class of companies means:
Every public company having paid up share capital of
Rs. 100 Crore or more
 It Rule 13.8 prescribe the duties of Company
Secretary.
Company Secretary shall assist and advise the Board in ensuring good
corporate governance.

38. National Financial Reporting Authority(132)
“ A Powerful Authority”
Central Govt. may by notification, constitute a National
Financial Reporting Authority to provide for matters relating
to Accounting and Auditing Standards.
Make recommendation to CG on formulation and laying down
of accounting policies;
 Enforcement for the compliance of accounting and auditing
standards;
Special Power have been vested with NFRA.
Power to investigate persons or body corporate for professional or other
misconduct by any member of ICAI

39. National Financial Reporting Authority(132)
“ A Powerful Authority”
Central Govt. may by notification, constitute a National
Financial Reporting Authority to provide for matters relating
to Accounting and Auditing Standards.
Make recommendation to CG on formulation and laying down
of accounting policies;
 Enforcement for the compliance of accounting and auditing
standards;
Special Power have been vested with NFRA.
Power to investigate persons or body corporate for professional or other
misconduct by any member of ICAI

40. Secretarial Standards 118(10)
“ Uniform way to maintain proceedings”
For the First time, Secretarial Standards has been introduced
and provided statutory recognition in the law.
“Every company shall observe Secretarial Standards with
respect General and Board Meetings specified by the Institute
of Company Secretaries of India constituted under section 3 of
the Company Secretaries Act, 1980 and approved by the
Central Government”.
Secretarial Standard-1 (SS-1) and Secretarial Standard-2 (SS-2) are
prescribed Secretarial Standards for Board Meeting and General Meeting
respectively.

41. Secretarial Standards (Draft Rule 7.26)“
Uniform way to maintain proceedings”
Annual Repot shall contain a confirmation that the
secretarial standards with respect to general meetings
have been observed.
Report on Annual General Meeting is to be submitted by all listed
companies within 30 days of AGM

42. LET’S GEAR UP FOR CHANGE…..
Thanks
Arun Gupta
managing counsel
factum legal , advocates & solicitors
Tel : (O) 011-41066313 (M) 9810275571
www.factumlegal.com;arun@factumlegal.com