Impact of Companies Act 2013 on Business


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This presentation assesses the impact of provisions of new companies act. This presentation is a part of website.

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Impact of Companies Act 2013 on Business

  1. 1. 1. Presented by – Pavan Kumar Vijay
  2. 2. 1. Note: This presentation uses the word “prescribed” in many slides. It refers to that part of the law, which will be prescribed later through Rules.
  3. 3. INTRODUCTION The Companies Act 2013 will impact some of below given areas of corporate behaviour & conduct of business:
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  6. 6. RAISING OF MONEY Fund Raising Through Securities Through Deposits Initial/ Follow on Public Offers (IPO/FPO) Private Placement Only prescribed companies with a prescribed credit rating allowed this route Rights/ Bonus Shares The Act seeks to regulate raising of money through all types of securities, and not just shares or debentures The Act also requires all listed companies or companies intending to get listed have to comply with the provisions of The SEBI Act, 1992
  7. 7. RAISING OF MONEY RAISING OF MONEY Changes in provisions regarding fund raising through SECURITIES 6.
  8. 8. RAISING OF MONEY PRIVATE PLACEMENT OFFER CONDITIONS PUBLIC OFFER  To a section of public other than QIBs and Employees under ESOP Comply with provisions of Companies Act, Securities Contract Regulation Act, 1956 and SEBI Act, 1992  To not more than 50 people or such higher number as may be prescribed  Should comply with prescribed terms & conditions  Invitation through private placement offer letter and not prospectus YES NO Conditions fulfilled?
  9. 9. RAISING OF MONEY PROCEDURAL ASPECTS OF PRIVATE PLACEMENT Offer to be made by name and to those whose name is recorded by the company prior to invitation Offer to be made only after allotments under any previous offer have been completed Allotment to be made within 60 days of receipt of funds Funds to be received only through the banking channel, and not as cash
  10. 10. 9. RAISING OF MONEY Significant changes in the provisions of PROSPECTUS VARIATION IN OF PROSPECTUS OR WILL BE : Subject to Special Resolution Require Mandatory Exit Option to dissenting shareholders Face restriction on use of amount raised by it for buying, trading or dealing in equity shares of another company
  11. 11. RAISING OF MONEY ISSUANCE OF  The provision will no more be limited to Public Financial Institutions, Public Sector Banks or Scheduled Banks
  12. 12. RAISING OF MONEY Separate Provisions with respect to offer of Sale by existing shareholders Subject to prescribed conditions, Global Depository Receipts may be issued by passing a Special Resolution under the current scenario Preferential Guideline is to be followed
  13. 13. RAISING OF MONEY A Company may pay commission to any person in connection with subscription of its securities but subject to prescribed conditions
  14. 14. RAISING OF MONEY Changes in provisions regarding fund raising through DEPOSITS
  15. 15. RAISING OF MONEY The provisions relating to acceptance of deposits will not apply to NBFCs. They will be governed by rules issued by the Reserve Bank of India. Only those companies fulfilling the prescribed conditions and carrying a prescribed credit rating are eligible to accept deposits
  16. 16. RAISING OF MONEY- By Deposits Prohibition on accepting deposits from public, except in the prescribed manner Accepting deposits from members subject to approval by shareholders only
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  18. 18. SHARES & SECURITIES Various changes regarding Shares & Securities GENERAL CHANGES Changes regarding VOTING RIGHTS Changes regarding ISSUE OF SHARES
  19. 19. SHARES & SECURITIES C Act seeks to regulate all type of securities as opposed to equity and debentures only, causing an
  20. 20. SHARES & SECURITIES VARIATIONS IN Company can issue shares with to other matters
  21. 21. SHARES & SECURITIES – General Changes OF Public Companies also Recognition and or more persons regarding transfer of securities, enabling SHARES in
  22. 22. SHARES & SECURITIES USE OF that comply with accounting standards prescribed for such companies
  23. 23. SHARES & SECURITIES Various changes regarding Shares & Securities GENERAL CHANGES Changes regarding VOTING RIGHTS Changes regarding ISSUE OF SHARES
  24. 24. SHARES & SECURITIES – Voting Rights Equitable voting rights for equity and preference shareholders with respect to their paid up capital On resolutions affecting rights of both categories Preference shareholders allowed to vote on every resolution placed before shareholders’ meeting If dividend payable to any class of preference shareholders in arrear for more than 2 years No classification between cumulative and non-cumulative preference shares For identification of voting rights
  25. 25. SHARES & SECURITIES Various changes regarding Shares & Securities GENERAL CHANGES Changes regarding VOTING RIGHTS Changes regarding ISSUE OF SHARES
  26. 26. SHARES & SECURITIES Private companies have to comply with provisions for further issue of shares that were applicable to public companies only New provision for allotment of ESOP, rules will be provided soon
  27. 27. SHARES & SECURITIES ISSUE OF Shares cannot be issued at a discount, except as which can be issued at a discount even now
  28. 28. SHARES & SECURITIES OF RIGHTS SHARES Company can dispose off only those shares in a Rights issue that haven’t been subscribed to by shareholders in a manner advantageous to the company
  29. 29. SHARES & SECURITIES PROHIBITION ON A company cannot go for a bonus issue if it has defaulted in payment of:  Interest or principal on fixed deposits or debt securities issued by it  Statutory dues of employees such as contribution to provident fund, gratuity and bonus
  30. 30. SHARES & SECURITIES CALCULATION OF Issue price of shares offered to persons other than existing shareholders and employees under ESOP shall be computed on the basis of Registered Valuer’s report
  31. 31. 31.
  32. 32. 32. RESTRUCTURING & REVIVAL Reduction of Capital Compromise or Arrangement Sick Company Fast Track Merger
  33. 33. RESTRUCTURING & REVIVAL Reduction of Capital accounting treatment proposed by the company for such reduction conforms with the accounting standards if the company is in arrears for payment of deposits
  34. 34. RESTRUCTURING & REVIVAL Compromise or Arrangement M E E T I N G S Notice of any meeting in this matter required by the Tribunal to also be given to the Central Government, Income Tax Authorities, RBI, SEBI and CCI Calling of meeting of members or creditors now mandatory (after consent received by postal ballot) for approval of compromise by persons representing at least 3/4th of the value of members of creditors
  35. 35. 35. RESTRUCTURING & REVIVAL Additional Disclosures in the notice for Compromise/Arrangement Effect on material interests of the directors or the debenture trustees Valuation Report Effect on creditors, KMPs, members, debenture holders
  36. 36. RESTRUCTURING & REVIVAL Compromise or Arrangement Abolition of Treasury Stocks Shares arising out of arrangement or compromise to be cancelled and extinguished and not to be held by the transferee company in its own or a Trust’s name, whether on its behalf or on behalf of a subsidiary or associate company
  37. 37. RESTRUCTURING & REVIVAL Additional information to be included in affidavit for the compromise/arrangement application of company, if any consented by at least 75% secured creditors
  38. 38. RESTRUCTURING & REVIVAL Affidavit for Scheme of Corporate Debt Restructuring (CDR) should include Safeguards for secured/ unsecured Statement if certifying that fund requirements post CDR will confirm to liquidity test for CDR adopted for all assets by a Registered Valuer
  39. 39. RESTRUCTURING & REVIVAL Fast Track Merger for merger between two or more small companies or a holding and its wholly owned subsidiary or some other class of companies to approve & effect the scheme if the Official Liquidator and the Registrar to the scheme have no objections
  40. 40. RESTRUCTURING & REVIVAL Fast Track Merger of certain Companies between Indian companies and foreign companies incorporated in prescribed jurisdictions and the scheme must provide for payment to shareholders of the merging companies in any combination of cash and depository receipts
  41. 41. RESTRUCTURING & REVIVAL Sick Company : Any company, and not just an industrial unit, can be declared as a sick company  Erosion of 50% of net worth no longer a criteria  Inability to repay 50% or more of secured debts within 30 days of being served notice by the creditors. Application to declare a company sick may be moved by:  The company itself, OR  The creditors representing 50% or more of secured debts
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  43. 43. ACCOUNTS & AUDIT Financial Statements and statement of changes in company’s equity now to be parts of Financial Statements i.e. Apr-Mar to be adopted by all the companies. (Relaxation only to foreign companies and subsidiaries of overseas companies subject to Tribunal’s approval) combining associates and joint ventures accounts of subsidiaries,
  44. 44. ACCOUNTS & AUDIT Re-opening/ Revising Books of Accounts Allowed subject to Tribunal/ Court’s directions, which shall also notify Central Government & Income Tax Authorities Can also be done by Tribunal/Court in case of frauds, mismanagement or financial irregularities Revision allowed for up to three preceding financial years but detailed reasons for change to be mentioned in the Board’s report Change allowed to rectify mistakes or on change of accounting policy
  45. 45. ACCOUNTS & AUDIT Auditors To be appointed for a term of 5 years In case of an audit firm, the auditing partner and team to be rotated annually, if the shareholders desire
  46. 46. ACCOUNTS & AUDIT Auditor’s Duty Additional reporting in the Auditor’s report 1 2 3 Qualification/ reservation or remark regarding maintenance of accounts Remarks on adequacy & effectiveness of internal financial controls Addition disclosures requirements for certain companies to be prescribed by the central government Reporting to the central government Any offence/ fraud committed by company’s officers noticed during the course of audit
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  48. 48. MANAGEMENT & MEETING The new law brings about changes to aspects of management of a company and infuses more accountability DIRECTORS & KEY MANAGERIAL PERSONS  Requirement for appointment  Maximum number  Condition for removal  Extended duties SHAREHOLDERS’ MEEETING BOARD MEEETING  Quorum  Notice  Postal Ballot  Participation of Directors  Number & Timing
  50. 50. MANAGEMENT & MEETING DIRECTOR’S A prescribed class of companies required to have: Managing Director/ CEO/ Manager Whole Time Director in the absence of MD/CEO/Manager Company Secretary Appointment of such persons to ensure better governance of the company
  51. 51. MANAGEMENT & MEETING DIRECTORS A company can have maximum 15 directors on the board instead of 12 earlier Any increase beyond 15 will require the approval of shareholders by way of Special Resolution No need for the central government’s approval for increase in number of directors
  52. 52. MANAGEMENT & MEETING DUTIES OF A DIRECTOR To act in accordance with the Articles of Association To act in good faith to promote the objects of the company in the best interests of its members, shareholders, employees, community and environment To exercise duties with due and reasonable care, skill and diligence To avoid getting involved in situations in which he may have a direct/ indirect interest that conflicts or may conflict with the interest of the company To not achieve or attempt to achieve any undue gain or advantage to himself or his relatives/ partners or associates To not assign his office (any such assignment will be void)
  53. 53. MANAGEMENT & MEETING EXPRESS DUTIES OF DIRECTORS Bring accountability in the functioning of director Ease of finding the case of negligence by directors
  54. 54. MANAGEMENT & MEETING Shareholders Meeting
  55. 55. MANAGEMENT & MEETING QUORUM shall now be considered as: QUORUM (No. of Members personally Present) NUMBER OF MEMBERS AS ON THE DATE OF MEETING 5 ≤ 1000 15 1000 < number ≤ 5000 30 ≥ 5000 A higher quorum, as compared to the earlier requirement, will ensure greater participation by shareholders
  56. 56. MANAGEMENT & MEETING POSTAL BALLOT Provision now applicable to all companies whether listed or not Apart from the prescribed resolutions, any other resolution can be passed by postal ballot except that of ordinary business or that where a director /auditor has right to be heard
  57. 57. MANAGEMENT & MEETING Board Meeting
  58. 58. 59. MANAGEMENT & MEETING BOARD MEETING- SOME NEW PROVISIONS 1 2 Notice of the Meeting Participation of Directors  In person, or  Minimum 7 days notice  To be given to all directors, whether in India or not  Can be sent through any means: hand delivery, post or electronically  By video conferencing, or  Any other audiovisual means capable of recording, recognizing and storing the participation of director with date & time 3 Number & Timing of Meetings  At least 4 meetings in a year  Not necessary to be held in every quarter  Time gap of not more than 120 days between two meetings Meeting at shorter notice allowed, subject to attendance by at least one independent director or subsequent ratification of decision by all directors
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  60. 60. COMPLIANCE & DISCLOSURES Enactment of the Companies Act 2013 will bring: Increased compliances and disclosures Stringent penalties for contravention of law
  61. 61. COMPLIANCE & DISCLOSURES Enhanced disclosures have been mandated in: Annual Return Director’s Report 62.
  62. 62. COMPLIANCE & DISCLOSURES Additional disclosures required in the Annual Return of a company Details regarding: PRINCIPAL BUSINESS ACTIVITIES of the company, its subsidiary, holding and associates PROMOTERS and KMPs of the company & changes regarding them since closure of last financial year
  63. 63. COMPLIANCE & DISCLOSURES PENALTIES imposed on the company, directors & officers and the compounding of offences FIIs’ shareholding, their names, addresses & other details
  64. 64. COMPLIANCE & DISCLOSURES Additional Disclosures in the Director’s Report of the Company Company’s policy and selection criteria for appointment of directors Details of Loans, Guarantees and Investments u/s 186
  65. 65. COMPLIANCE & DISCLOSURES Contracts & arrangements with related parties & justification CSR policy and reason failure to spend 2% on CSR, if applicable Remuneration policy for Directors and KMPs and ratio of each director’s remuneration to employees’ median remuneration
  66. 66. COMPLIANCE & DISCLOSURES Other Compliances  A Return on change in shareholding of promoters and top ten shareholders to be filed with Registrar within 15 days of such change  A Report on every Annual General Meeting and inclusion of confirmation that meeting was convened, held and conducted as per the Act and Rules there under.
  67. 67. COMPLIANCE & DISCLOSURES The increased disclosures will improve the manner in which annual general meetings are held and lead to more transparency
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  69. 69. GOVERNANCE Considering the fact that Corporate Governance forms the main thrust of the Companies Act, various provisions have been modified or added relating to: Unpaid Dividend Internal Audit Restrictions on Board Forward Dealing Loan & Investment Related Party Transaction
  70. 70. GOVERNANCE Unpaid Dividend Every company to list names of shareholders, their addresses and dividend unpaid to them on the company’s website within 30 days of transferring funds to unpaid dividend account Shares on which unpaid dividend or other amount have been transferred to IPEF, are to be transferred in the name of IPEF
  71. 71. GOVERNANCE Forward Dealings Forward dealings in securities of the company by key managerial personnel now prohibited as listed companies already governed by insider trading laws
  72. 72. GOVERNANCE Internal Audit Prescribed companies to appoint internal auditor being a chartered accountant or a cost accountant or any other prescribed professional Such professional to carry out internal audit functions and ensure establishment of internal financial control system
  73. 73. GOVERNANCE Loan and Investment by any Company Loans & advances to any company or person allowed only if there is a specific purpose for the use of such loans/advances Company in default of repayment of deposits or interest thereon not allowed to give loans/deposits Capital market intermediaries not allowed to accept inter-corporate loans or deposits above a prescribed limit
  74. 74. 75. GOVERNANCE NBFCs in the business of acquiring shares & securities exempt from these provisions in respect of such acquisition Companies restricted from making investment through more than 2 layers of investment companies. The provision will not effect: Indian company acquiring an overseas company that has more than two layers of investment subsidiaries A subsidiary company with investment subsidiary for the purpose of compliance to a law in force
  75. 75. GOVERNANCE Restrictions on the Board Private companies will now also be required to take permission of shareholders through special resolution for following matters: Borrow money in excess of paid capital and capital reserves Remit or give time for a payment due from director Sell/lease or dispose whole or substantially whole of the undertaking
  76. 76. 77. GOVERNANCE Restrictions on the Board An undertaking has now been defined under the law. An undertaking under the Act means an undertaking: That generates at least 20% of the company’s income In which the company’s investment exceed 20% of its networth as per the last audited Balance Sheet
  77. 77. 78.
  78. 78. NEW CONCEPTS Constitution of CSR Committee by a company having any of the following: NET WORTH of Rs 500 crore or more TURNOVER of Rs 1,000 crore or more NET PROFIT of Rs 5 crore or more
  79. 79. NEW CONCEPTS Companies to spend on CSR activities at least 2% of the average net profit of the preceding 3 financial years. Reasons in case of failure to be disclosed in the Board report
  80. 80. NEW CONCEPTS 1. Who can seek registration as a Dormant Company:  A future project  Holding an asset  Holding Intellectual Property 2.  Not been carrying out any business or operation  Not made any significant accounting transaction during last 2 financial years  Not filed financial statements and annual returns during last 2 financial years
  81. 81. NEW CONCEPTS Dormant Company, which otherwise has very few compliance requirements, can become an active company by applying to the Registrar of Companies
  82. 82. NEW CONCEPTS Who can file a class action? Any class of members or depositors When can it be filed? If they believe that the conduct of the company’s affairs by its management: Is prejudicial to the interests of : The company Any class of members Any class of depositors
  83. 83. NEW CONCEPTS ORDERS THAT CAN BE SOUGHT Declaration of a resolution altering MOA/AOA as void if passed with suppression of material information/ misstatement Restrain the company from an act contrary to the provisions of the Companies Act Restrain the company from any action contrary to the resolution passed by members Restrain the company from an act ultra vires the AOA or MOA Restrain the company from breaching any provision of AOA or MOA Claim any damages/ compensation or demand any other suitable action in cases of wrongful/ fraudulent/ unlawful act by directors/ auditors/experts
  84. 84. NEW CONCEPTS SFIO: To operate as MCA’s premier agency for investigating frauds related to companies To consist of experts from specified fields and other officers as prescribed
  85. 85. NEW CONCEPTS The central government may also refer cases where investigation into affairs of a company is needed to the SFIO In such a case, no other investigating agency of the state or central government will proceed with the concerned investigation
  86. 86. 33. Pavan Kumar Vijay