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Companies Act, 2013 Major Changes, Implications & Way Forward C S K & CO | Company Secretaries
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Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Aug 23, 2014

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Prashant Kumar

 
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Page 1: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Companies Act, 2013

Major Changes, Implications &

Way Forward

C S K & CO | Company Secretaries

Page 2: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

IntroductionThe long - awaited Companies Act, 2013 got its assent in the Lok Sabha on 18th December, 2012 and in the Rajya Sabha on 8th August, 2013. After having obtained the assent of the President of India on 29th August, 2013, it has now become the much awaited Companies Act, 2013 (2013 Act).

The Companies Act, 2013 is divided into 29 Chapters, contains 470 sections and 7 Schedules.

Page 3: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Historical Background• Government constitutes an Expert Committee on

Company Law under the Chairmanship of Dr. J. J. Irani on 2nd December, 2004 to advice on new Companies Bill.

• The Committee submitted its report to the Government on 31st May, 2005.

• Companies Bill, 2008 was introduced on 23rd October, 2008 in the Lok Sabha to replace existing Companies Act, 1956. Companies Bill, 2008 lapsed because of dissolution of the 14th Lok Sabha.

• Ministry of Corporate Affairs introduces the Companies Bill, 2009 in the Lok Sabha on August 3, 2009 and Bill was referred to the Standing Committee on Finance (SCF) of the parliament for examination in September 09, 2009.

Page 4: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Historical Background• Report of the SCF on Companies Bill introduced in

the Lok Sabha on 31st August, 2010.

• In view of the amendments made by the recommendations of SCF and suggestions of Stakeholders the Companies Bill, 2009 was withdrawn by the Central Government.

• A fresh Companies Bill, 2011 was introduced in the Parliament on Wednesday, 14th December, 2011.

• The Companies Bill, 2011 was again referred to the Standing Committee on Finance on 5th January, 2012.

Page 5: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Historical Background• Based on the SCF’s recommendations, the Bill was

amended and introduced as the Companies Bill 2012.• The Lok Sabha on 18th December, 2012 approved the

Companies Bill 2012; but the same could not be placed in that session in the Rajya Sabha.

• The Rajya Sabha passed the bill on 8th August, 2013

and received the assent of the President of India on 29th August, 2013.

• As on date 283 sections and Rules for 19 chapters have been notified and a few circulars have been issued clarifying the applicability of these.

• 187 sections of Companies Act, 2013 is yet to be notified.

Page 6: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Aims & ObjectivesThe objective behind the enactment of Companies Act, 2013 is to provide for lesser Government approvals and enhanced self-regulations coupled with emphasis on corporate democracy.

The Companies Act, 2013 is expected to facilitate business-friendly corporate regulation, improve corporate governance norms, enhance accountability on the part of corporate houses and auditors, enhanced levels of transparency and protect interests of investors, particularly small investors.

Page 7: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Key Highlights

One Person Company (OPC) is a new vehicle for individuals for carrying on business as Corporate entity with limited liability.

The new concept will be beneficial as entrepreneurs will be able to singly set up a corporate entity, restrict the liability of business and reduce compliances. Further, it will now be easier for a foreign companies to set up wholly owned subsidiaries in India [Section 2(62) and Section 3(1) (c)]

Page 8: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Small Company: The Companies Act, 2013 introduces this new concept of a small company, which means a company other than a public company having paid up share capital not exceeding INR 50,00,000 (or such higher amount as may be prescribed which shall not be more than INR 5,00,00,000) or turnover of which as per its last profit and loss account does not exceed INR 2,00,00,000 (or such higher amount as may be prescribed which shall not be more than INR 20,00,00,000).

However, this section of small company will not be applicable to (a) holding or subsidiary company; (b) company registered under Section 8 of 2013 Act (i.e. companies form with the charitable object); or (c) company or a body corporate formed under the special act. [Section 2(85)]

Page 9: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Dormant Company: The Companies Act, 2013 now allows a company to be formed and classified as a dormant company for holding assets or intellectual property subject to the company not having any significant accounting transaction. Further, an inactive company can also make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company. [Section 455].

Associate Company: The Companies Act, 2013 defines the Associate Company to mean a company which has ‘Significant Influence’ over the other company and which is not a subsidiary company but includes a joint venture company. Further it has been explained that ‘Significant Influence’ shall mean control of at least 20% of total share capital or control of the business decision under an agreement. [Section 2(6)]

Page 10: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Private Limited Company: The Companies Act, 2013 has now increased the total limit of number of members / shareholders in private company from 50 to 200. [Section 2(68)(ii)]

Investments Companies: The Companies Act, 2013 provides that any company (unless otherwise prescribed) shall not make investment through more than two layers of investment companies. However, this section has not been made applicable to a company acquiring any other company incorporated outside India, if such other companies has investment subsidiaries beyond two layers as per the law of such country. This Section may considerably restrict the flexibility of Indian companies in structuring their transactions. [Section 186]

Page 11: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Key Managerial Personal (KMP): According to section 203 of the Companies Act, 2013, Key Managerial Personnel comprises of:

a) Managing Director or Chief Executive Officer or Manager or in their absence, a Whole Time Directorb) Company Secretary, andc) Chief Financial Officer

As per Rule 8 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014, every listed company and every other public company having a paid up share capital of Rs. 10 crores or more shall have whole time Key Managerial Personnel.

Page 12: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Class Action Suits: The Companies Act, 2013 introduces the western concept of class action suits which allows requisite number of members, depositors or any class of them file a suit against the company, its directors, auditors and/or other experts or consultants or advisors, if they believe that affairs of the company are conducted in a manner prejudice to the company or its members or depositors. [Section 245]

Registered Valuer: Valuation in respect of any property, stocks, shares, debentures, securities, goodwill or any other assets or net worth of a company or its liabilities required under any provision of the Act shall be carried out by only a registered valuer. Valuers to be appointed by the Audit Committee or in its absence by the Board.

Page 13: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Corporate Social Responsibility (CSR): 2% ofaverage net profits of last 3 years tobe mandatorily spent on CSR by companies having:

- net worth of Rs. 500 Crores or more; or- turnover of Rs.1,000 Crores or more; or- net profit of Rs. 5 Crores million or more

Consolidated Financial Statement: The Companies Act, 2013 mandates preparation of consolidated financial statements for all companies that have one or more subsidiaries. These would be in addition to the separate financial statements and are required to be prepared in the same form and manner as the separate financial statements. Subsidiary would include associate companies and joint ventures.

Page 14: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Major Changes Affecting Private Companies

SECTION PARTICULARS

REMARKS

2(6) Associate Company

Associate company will be considered as Related Party and will have implications under financial statements and related party contracts.

2(41) Financial Year

Financial Year can only be of April to March. A Company/Body Corporate, which is a holding company or subsidiary incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, may have different financial year subject to the approval of National Company Law Tribunal.

A Transition period of 2 Year has been prescribed for Company existing on the commencement of the Act to align their financial years to April – March.

Page 15: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Major Changes Affecting Private Companies

SECTION PARTICULARS

REMARKS

2(68) Private Company

Number of members has been increased from 50 to 200 and restriction to invite public to subscribe shares or debentures has been extended to include all types of securities.

Earlier Company can only accept deposit from members, therefore restriction as to acceptance of deposit from person other than member, directors and their relatives has been dispensed with.

19 Subsidiary Company not to hold shares in Holding Company

A subsidiary company can’t hold shares in its holding company, either by itself or through its nominees.

A holding company can’t allot or transfer its shares to any of its subsidiary companies.

Page 16: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Major Changes Affecting Private Companies

SECTION PARTICULARS

REMARKS

21 Authentication of Documents, proceedings and contracts

Any document or proceeding requiring authentication by a company or contracts made by or on behalf of a company may be signed by any KMP or an officer of Company, duly authorised by Board.

42 Private Placement

A private company may do private placement through private placement offer letter;

• Number of persons can’t exceed 50 in a financial year;

•Money can be brought only through cheque or demand draft or other banking channels but not by cash

Page 17: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Major Changes Affecting Private Companies

SECTION PARTICULARS

REMARKS

48 Variation of Shareholder’s Right

Rights of a particular class of shares may be varied through special resolution

62 Further issue of Share Capital

A company can increase its subscribed capital through the following:

•rights issue;

•to employees under a scheme of employees’ stock option, subject to special resolution passed by company

•to any other person, if authorised by special resolution, if the price of such shares is determined by the valuation report of a registered valuer

Page 18: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Major Changes Affecting Private Companies

SECTION PARTICULARS

REMARKS

92 Annual Return

Every to prepare Annual Return in prescribed format with more disclosures and such return shall be signed by a Director an the Company Secretary, or where there is no Company Secretary, by a Company Secretary in Practice.

Every Listed Company and other Company having Paid up Share Capital of Rs. 10 Crore or more or Turnover of Rs. 50 Crore or more will obtain a Certificate from a Practicing Company Secretary, stating the fact that Annual Return discloses the facts correctly and adequately and that the Company has complied with all provisions of Act.

101 Notice of Meeting

21 clear days notice has to be given for every general meeting.

Notice of general meeting also has to be sent to every director

Every general meeting can be done with shorter notice with 95% shareholders approval

Page 19: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Major Changes Affecting Private CompaniesSECTIO

NPARTICULARS

REMARKS

102 Statement to be annexed with Notice

Every company is required to give explanatory statement for every special business, whereby interest of director and the manager, key managerial personnel and their relatives has to be given

110 Postal Ballot For private companies having members more than 50, following prescribed matters shall be passed through postal ballot:

Alteration in objects clause of MemorandumAlteration of Articles for conversion of private company into public or vice versaChange in place of registered office outside the local limits of any city, town or villageIssue of shares with differential rightsVariation in the rights attached to any class of securitiesBuyback of sharesAppointment of small shareholder directorSale of the whole or substantially the whole of an undertaking of a company

Page 20: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Major Changes Affecting Private Companies

SECTION

PARTICULARS

REMARKS

117 Resolution and Agreements to be filed.

Certain new board resolutions as follows, will have to be registered by concerned ROC:

• For making calls•Authorizing buyback•Borrowing money•Investing funds of Company•Giving loans, guarantee or security•For approving financials statements and Directors Report.

118 Minutes of Proceedings of Meetings

Secretarial Standard issued by the Institute of Company Secretaries of India in relation to Board and General Meeting should be followed.

128 Books of Accounts

Books of Accounts may be kept in Electronic Forms

Page 21: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Major Changes Affecting Private Companies

SECTION

PARTICULARS

REMARKS

129 Consolidated Financial Statement

A company having subsidiary/ies or associate company, shall prepare a consolidated financial statement, in addition to its financial statements and shall lay the same for approval in AGM.

135 Corporate Social Responsibilities

Prescribed companies have to form CSR Committee and have to undertake activities as per Schedule VII.

139 Appointment of Auditors

Maximum term of office as auditor for an individual is one term of five consecutive years and for an audit firm, is two terms of five consecutive years each.

Cooling off period of 5 years has been specified for both

Member have the option to rotate the audit team and can also appoint multiple auditors

Page 22: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Major Changes Affecting Private Companies

SECTION

PARTICULARS

REMARKS

144 Auditors not to render certain services

An auditor can’t provide the following services to company, its holding or subsidiary company:

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

149(3) Resident Director

Every Company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty – two days in the previous calendar year.

Page 23: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Major Changes Affecting Private Companies

SECTION

PARTICULARS

REMARKS

185 Loan to Directors

No Company shall give any loan, provide any security or guarantee in connection with a loan to a Director or any other person in whom he is interested, except as provided below.

Company can give loan to MD/WTD without approval of shareholders where the loan is given as part of the condition of services extended by the Company to all its employees or where loan is approved by way of passing the special resolution.

No Central Govt. approval is required. Only Special Resolution will be required.

The exemption given to loan granted, guarantee or security provided by any Holding Company to its Subsidiary or the exemptions granted to Private Limited Company has been dispensed with.

Page 24: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Major Changes Affecting Private Companies

SECTION

PARTICULARS

REMARKS

186 Loans and Investment

The Companies Act, 2013 states that companies can make investments only through two layers of investment companies subject to exceptions which includes company incorporated outside India.

Giving any loan or guarantee or providing any security or the acquisition by company exceeds 60% of paid up share capital, free reserves and share premium account or 100% of free reserves and share premium account, whichever is more, requires prior approval of the company by special resolution.

Now, loans and investment by holding company to/in its wholly owned subsidiary is not exempted.

Page 25: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Major Changes Affecting Private Companies

SECTION

PARTICULARS

REMARKS

138 Internal Audit

The Companies Act, 2013 now moves a step forward and mandates the appointment of an internal auditor who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit.

Every private company having- a)turnover of two hundred crore rupees or more during the preceding financial year; or

a)outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year:  Shall be required to appoint an Internal Audit.

Page 26: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Major Changes Affecting Private Companies

SECTION

PARTICULARS

REMARKS

203 Company Secretary

Company Secretaries are regulated professionals and they render services critical for the companies. A Company needs a Company Secretary to strengthen its governance and compliances.

Every private limited company having paid up share capital of Rs. 50 Million or more shall be mandatory required to have a Whole Time Company Secretary all the time.

204 Secretarial Audit

Secretarial Audit of Private Companies are voluntary. But all companies should voluntary adopt the annual practice of Secretarial Audit due to multiplicity and complexity of laws, Secretarial Audit facilities to ensure compliance and avoid risk associated with non-compliance.

Page 27: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Immediate Action PointsAlteration of Memorandum and Articles of Association

Existing Companies should amend their MOA and AOA to incorporate the provisions of the new Companies Act;

Option to include entrenchment provisions, if any, in the Articles of Association for strict compliance. (An entrenchment clause is a provision which makes further amendments to AOA more difficult. such provision enables a company to follow a more restrictive procedure than passing a special resolution for altering a specific clause of AOA.

Entrenchment clause may prevent unilateral amendments to the AOA which may be a joint venture company.)

Resident Director At least one of the directors who is resident in India shall be appointed on the Board of every company.

Page 28: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Immediate Action PointsPrinting of New Stationery items

Disclosure of the following on the letterhead / bills or other official communications such as name (including previous name for upto 2 years), registered address, Corporate Identity Number(CIN), Telephone No., Fax No., website address email address, if any;(In case the letterheads already printed, please affix a rubber stamp to comply with additional disclosures.)

Disclosure of Interest by Directors

Every director shall disclose his concern or interest in any company or companies or body corporate (including shareholding interest), firms or other association of individuals, by giving a notice in writing in Form MBP 1 and the Board taking note of the same shall be filed in eForm MGT – 14 along with DIR – 8 to the concerned Registrar of Companies.

Page 29: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Immediate Action PointsRelated Party Transactions Companies need to evaluate the related

party transactions and have to take necessary approval prescribed under the Act.

Requirement of obtaining Central Government approval has been withdrawn but more compliances has been introduced in the Act as well through the Rules.

Preparation of Statutory Registers

The Companies has to maintain all the statutory registers as per the new prescribed format under the new Act and Rules.

Obligation to Intimate DIN Every person or Company should mention the DIN in all forms, information or particulars which relates to the director or containing any reference of any director while furnishing the same.

Page 30: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Immediate Action PointsBoard Meeting New act allows participation of Directors in Board Meeting

through video conferencing and through other audio visual means by complying the prescribed procedures;

At-least 7 days notice to be given for Board meeting;

Notice of Board meeting may be given by electronic mode;

Not more than 120 days shall be intervene between 2 consecutive board Meetings;

Participation through video conferencing shall be counted for quorum;

The Rules provided certain matters which cannot be dealt with in a meeting through video conferencing or other audio visual means.

At least one meeting in a period of 12 months has to be physically attended by every director.

Director will Vacate the office if he is absent from all Meetings of the Board during 12 months with or without leave of absence (Attending one BM in a period of 12 months is must).

Page 31: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Penalties for Non – Compliances

Companies Act, 2013 has increased monetary penalties and imprisonment.

The civil and criminal liabilities are not just on directors but includes “Officers in Default”. 

There is heightened corporate governance requirements even for  startups and unlisted companies,  even though there is no public money invested.

Page 32: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Penalties for Non – Compliances

While sections which require monetary penalties can be compounded before the statutory authorities, sections which details imprisonment can not be compounded.

Entrepreneurs should also note that such penalties are not limited by the ‘limited liability’ concept. We urge the entrepreneurs to give importance to corporate governance.

Page 33: Companies Act, 2013 - Major changes, Implications and Actions Points on Private Limited

Question(s) & Suggestion(s)

Thank you

C S K & COCompany Secretaries__________________________

+91-11-45562140 [email protected]