Companies act - 2013 VS 1956

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THE COMPANIES ACT, 2013

Presented by JAYESH ALWANI

New rules of the game

This Presentation is prepared keeping the provisions of the 2013 Act and does not capture provisions of the Rules as the same are in Draft stage and are subject to change once the feedback of the stakeholders is received by MCA and incorporated in the final Rules.

"Prescribed" or "as prescribed" or "as may be prescribed" used in this Presentation means the Rules as may be finalized by the CG.

• SALIENT FEATURES1

• HIGHLIGHTS OF THE COMPANIES ACT, 2013

2

• COMPANIES ACT 1956 VS COMPANIES ACT 2013 3

TODAY’S OVERVIEW

SALIENT FEATURES

COMPANIES ACT 1956 COMPANIES ACT 2013

13 Parts 29 Chapters

658 Sections 470 Sections

15 Schedules 7 Schedules

The entire act has been divided into 29 chapters.

Passed in Lok Sabha on 18th December, 2012 (Bill no. 121 of 2011)

Passed in Rajya Sabha on 8th August, 2013 (Bill no. 121 of 2011)

Received Ascent of President 29th August, 2013

HIGHLIGHTS OF THE COMPANIES ACT, 2013

NEW CHAPTERS INCLUDED IN COMPANIES ACT 2013

Chapter Description Chapter Number

Registered Valuers Chapter 17

Government Companies Chapter 23

Companies to Furnish Information or Statistics

Chapter 25

Nidhis Chapter 26

National Company Law Tribunal & Appellate Tribunal

Chapter 27

Special Courts Chapter 28

CHANGES REGARDING INCORPORATION RELATING MATTERS

Sr no

Particular Provisions under Companies Act 1956

Provisions under Companies Act 2013

1 Types of Companies

Public companyPrivate company

Public companyPrivate companyOne Person company

2 Maximum no of members for private companies

A private company can have maximum of 50 members

A private company can have maximum of 200 members

3 One person company

No provision for OPC New Concept Introduced

4 Commencement of business

Provisions applicable to public limited company only

Now applicable to all companies having share capital

The concept of “One Person Company” has been introduced and the said company will be formed as a private limited company. This will be called as “OPC Limited” [Section 2(62)].

A Company may be an OPC having a sole member.

The memorandum of such OPC is required to indicate the name of the person who shall become member in the event of death or incapacity of the sole member.

OPC is required to specifically mention the word “one person company” below the name wherever it is used.

INCORPORATION OF COMPANIES

Continued….

Continued….

2013 Act provides additional flexibility to OPC. Some of the relaxations provided to OPC are as under:

– Cash flow statement is not required.– Annual Return can be signed by CS or one director if

there is no CS.– Provisions of board meeting, quorum and interested

director shall not apply to OPC.– OPC should have minimum 1 director.– OPC need not hold an AGM.– Financial Statements can be signed by only one

director.

OBJECT CLAUSE OF MOA



Object Clause is bifurcated into –

Main Objects, Incidental or

Ancillary Objects and

Other Objects.

MOA to contain the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof.

FINANCIAL YEAR

Financial Year in relation to any company or body corporate, means the period ending on the 31st day of March every year in order to align with the provisions of the income

tax act. (Section 2(41))

KEY MANAGERIAL PERSON (KMP)Companies Act1956

Companies Act2013

No provisionexcept in AS 18Related PartyDisclosures

Includes:

CEO or MD or Manager; Company Secretary; WTD; CFO; and Such other officer as may be

prescribed

[Section 51]

APPOINTMENT OF WHOLE TIMEKMP

Companies Act, 1956 Companies Act, 2013

Public Company havingpaid-up capital of Rs.5Crore or more to haveWTD or MD And Company Secretary

Every Companybelonging to class orclasses of companies asmay be prescribed shallhave KMPs– MD or CEO or Managerand in absence of a WTD– Company Secretary– Chief Financial Officer

(Sec. 269) (Section 203)

DIVIDEND TRANSFER TO RESERVESCompanies Act 1956 Companies Act 2013

No Dividend can bedeclared more than 10%for any F.Y out of theprofits of the company forthat F.Y, except after thetransfer of profit to thereserves such portion ofprofits of the company forthat F.Y, not exceeding10% of its profits.

A company to transfervoluntarily a portion of itsprofits to the reserves asconsider appropriate,before declaration of anydividend. Mandatorytransfer to reserve doneaway.

[section 205A(3)] [Section 123(1)]

REGISTERED VALUERCompanies Act 1956 Companies Act 2013

No provision provided forregistered valuer.

When valuation is required to be made under the Act, in respect of any property, stocks, shares, debentures, securities or goodwill or other assets or net worth of company or its liabilities, such valuation shall be done by a registered valuer.

[Section 247]

The Central Government shall maintain a register of valuers.

CHANGES REGARDING ISSUE OF SHARES CAPITALSr No



1 Issue of Shares at a discount

Section 79 permits issue of shares at discount subject to compliance with conditions.

Shares, other than sweat equity shares, cannot be issued at a discount.

2 Issue of preference shares for more than 20 years

Section 80 prohibits issueof irredeemable preference shares and preference shares Redeemable after 20 years.

Preference shares have to be redeemed within 20 years of issue except for the shares issued for prescribed infrastructure projects, provided a certain percentage of shares are redeemed annually at the option of shareholders

Continued……..

CONTINUED…

SrNo



4 Notice of alteration of share capital

Notice of redemption of preference shares is not required to be filed with ROC.

Company shall file a notice in the prescribed form with the Registrar within a period of thirty days of redemption of redeemable preference shares.

5 Consolidation and division of shares

Company permitted to consolidated or sub divide its shares by passing resolution in general meeting

Consolidation and division which results in changes in the voting percentage of shareholders shall require approval of the Tribunal to be effective.

AUDIT AND AUDITORS

SCOPE OF AUDIT

Scope of auditor enhanced to report on additional matters such as :‒the existence and operating effectiveness of

internal financial controls ‒any qualification, reservation and adverse remark

relating to the maintenance of accounts ‒any fraud by officers or employees on the

Company (immediate reporting to CG): is being or has been committed

Does not provide for audit qualifications to be in thick/bold or italics

AUDITORS Every company is required at its first annual general

meeting (AGM) to appoint an individual or a firm as an auditor. The auditor 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

The appointment of auditor is to be ratified at every AGM.

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.

Transition period of 3 years provided to the companies to comply with the mandatory rotation of auditor requirement.

Continued…

Continued…• Internal audit may be made mandatory for

prescribed companies.

• Auditors are restricted from rendering other services like bookkeeping, accounting etc. directly or indirectly to the company or its holding company or subsidiary company.

• The Act provides for new disqualifications of Auditor .

• Auditors can audit maximum 20 Companies including Private companies .

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 everyAGM

Subsequent to hold office till conclusion of 6th meeting, subject to ratification by members atevery AGM

Appointment of Auditor in listed and specified class of companies

Appointment Maximum period of appointment

Of an individual as anauditor

1 term of 5 consecutive years

Of an audit firm as anauditor

2 terms of 5 consecutive years

Cooling off period of 5 years before next appointment

Every listed company shall form an Audit Committee.

The Audit Committee shall consist of minimum of three directors with independent directors forming majority.

Provided that majority of members including the Chairperson shall be persons with ability to read and understand the financial statements.

Continued…

Summary

Appointment or Reappointment Of Auditor

Individual as an Auditor

More than 5

Consecutive years

Audit Firm

More than 10

Consecutive years

NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA) NFRA to be constituted by CG to provide for

dealing with matters relating to accounting and auditing policies and standards to be followed by companies and their auditors.

Functions of NFRA shall include : Make recommendations to CG on the formulation of

accounting and auditing policies and standards; Monitor and enforce compliance with accounting and

auditing standards; Oversee the quality of service of the professions and

suggest measures required for improvement in quality of services and such other related matters as may be prescribed

SECRETARIAL STANDARDS

• For the first time, the Secretarial Standards has been introduced and provided statutory recognition.

• Clause 118(10) read as:Every company shall observe Secretarial Standards with General and Board meetings specified by ICSI.

• Clause 205 casts duty on the Company Secretary to ensure that the company complies with applicable Secretarial Standards.

• It is the beginning of a new era where non financial standards have been given importance statutory recognition besides financial standards

APPOINTMENT OF COMPANY SECRETARY

CS being a whole-time KMP is to be appointed by a resolution of the BOD which will also contain the terms and conditions of appointment including the remuneration. The functions of CS shall include – report to BOD about compliance with theprovisions of 2013 Act, the rules made there underand other laws applicable to the company;– ensure compliance with the applicable secretarialstandards as may be approved by CG; and– discharge such other prescribed duties.

In December 2008, the Ministry of Corporate Affairs introduced Voluntary Guidelines on Corporate Governance which inter-alia prescribed Secretarial Audit.

Now, for the first time Secretarial Audit as been included in the Act.

Secretarial audit by CS in practice made compulsory for listed and prescribed class of companies.

Every listed company and prescribed class of companies shall annex with it’s Board Report a Secretarial Audit Report given by a Company Secretary in practice, in such a form as may be prescribed.

SECRETARIAL AUDIT

CHANGES REGARDING DIRECTORS AND THEIR POWERS

In listed and prescribed class or classes of companies, there should be at least 1 woman director.

At least 1 director of a company shall be a person who has stayed in India for 182 days or more in the previous calendar year. Existing companies to comply with this provision within 1 year from the date of commencement of the 2013 Act.

Continued…

Continued…

The maximum limit of directors in the Company has been increased to 15 from the 12. Company can appoint more than 15 directors by passing an special resolution.

A person cannot become directors in more than 20 companies instead of 15 as provided in the Companies Act 1956 and out of this 20, he cannot be director of more than 10 public companies.

Contents of Directors’ Report elaborated. Directors to annually report on the existence and effective operations of systems on compliance with all applicable laws

INDEPENDENT DIRECTOR

Continued…

Listed co. and prescribed class of public co. to have at least 1/3rd of its total number of directors as IDs

CG may prescribe minimum number of IDs in case of any class of public companies.

This requirement is to be complied within 1 year: By existing listed companies from the commencement

of 2013 Act; and By the prescribed class of public companies from the

date Rules are notified.

The company and independent director are required to abide by the provisions specified in Schedule IV.

Continued.. The company and independent director are required to

comply with the provisions specified in Schedule IV.

An independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for reappointment on passing of a special resolution by the company for another 5 year term. Thereafter 3 years gap.

The Section seeks to provide that an independent director shall not be entitled to any remuneration, other than sitting fee, reimbursement of expenses for participation in Board meeting and profit related commission as approved by the members.

A person cannot be a director, including alternate director, in more than 20 companies including not more than 10 public companies.

RESIGNATION OF DIRECTORS

• Resignation of director to take effect from the date on which notice of resignation is received by the company, or the date, if any, specified by director in the notice, whichever is later.

• Resigning director to also file his resignation letter with the ROC within 30 days, in prescribed manner, giving detailed reasons for resignation.

• Where all directors of a company resigns or vacate office, the promoter or in his absence, the CG to appoint the required number of directors till new directors are appointed in a general meeting.

NOMINATION AND REMUNERATION COMMITTEE (NRC)Companies Act, 1956

Companies Act, 2013

No provision Mandatory in case of listed and other prescribed classes of companies

Governed by Section 49of listing agreement

Composition of the committee would include three or more non-executive directors of which at least one-half shall be Independent directors. Shall formulate the criteria for determining Qualifications, positive attributes and independence for a director

Shall recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees (Section 178)

Corporate Social Responsibility (CSR)

CSR…

Every company having Net worth of Rupees 500 Crore or more, or Turnover of Rupees 1,000 Cr or more, or Net profits of Rupees 5 Cr or more during any FY

shall constitute CSR Committee.

Committee to consist of at least three directors out of which at least one should be independent director.

CSR Committee shall formulate and recommend policy to Board, which shall indicate activities to be undertaken by the company.

Continued...

Continued…

Board to ensure that at least 2% of the average net profits of last 3 years is spent by the company on CSR activities (Specified in schedule VII) every financial year.

If company fails to spend such amount, reasons for not spending to be specified in the Board's report signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice.

RESTRICTION ON FURTHER BUYBACK OF SHARES

Whether Authorised by Board or Shareholders , No further offer for

buy-back shall be made within a period of One year from the date

of preceding buy-back.

MERGERS & ACQUISITIONS

• Merger of Indian company with a foreign company allowed.

• Fast track merger for small companies and between holding company and its wholly owned subsidiary introduced

• Any valuation of shares / assets etc. required under 2013 Act to be performed by a Registered Valuer.

NATIONAL COMPANY LAW TRIBUNAL (NCLT)

2013 Act replaces the High Court with a Tribunal to be known as NCLT, which will consists of Judicial and Technical members, as Central Government may deem necessary, to exercise and discharge the powers and functions conferred including approval of merger, corporate reorganization, capital reduction, extension of financial year etc.

RELATED PARTY TRANSACTIONS

Requirement of obtaining Central Government approval for related party transactions not required

Approval of related party transactions by Board of Directors at Board meeting made mandatory

Related party transactions to also require prior shareholder’s approval by special resolution for companies having prescribed paid up capital or transactions exceeding prescribed amounts.

Related party transactions to be disclosed in the Director’s Report along with justification thereof.

COMMITTEES OF THE BOARD

Following committees of the Board made mandatory for listed and prescribed classes of companies:– Audit committee– Stakeholder relationship committee– Nomination and Remuneration committee– Corporate Social Responsibility

committee

LOAN TO DIRECTORS

No company shall directly or indirectly advance any loan (including loan represented by a book debt) or give guarantee or provide security in connection with such loan to any director / related persons. - An exception to the above rule is made for MD or a

whole time director (WTD) if such loan is in accordance with the terms of services extended to all employees or is approved by shareholders by special resolution

Provisions for loan to directors are also applicable to private companies

WINDING UP OF A COMPANY Certain criteria for winding-up by NCLT deleted like

minimum number of members falling below prescribed limit, non-commencement of business for 1 year etc.

Additional grounds provided for winding-up. Winding up can be ordered if NCLT is of the opinionthat:

– affairs of the company have been conducted in afraudulent manner;– company was formed for fraudulent and unlawfulpurpose;– the persons concerned in the formation ormanagement of its affairs have been guilty offraud, misfeasance or misconduct in connectiontherewith.

MISCELLANEOUS

Inability to pay debts will be considered as criteria for determining a sick company

Central Government to establish Serious fraud investigation office for investigation of frauds relating to a company

Credit rating made mandatory for acceptance of public deposits

Time gap between 2 buy-backs shall be minimum 1 year.

Now all types of charge would be required to be registered,.

PROVISIONS CITED IN COMPANIES ACT-2013 FOR BETTER GOVERNANCE

New Provisions for Better Governance:

Requirement to constitute Remuneration and Nomination Committee and Stakeholders.

Grievances Committee.

Granting of More powers to Audit Committee.

Specific Section pertaining to duties of directors.

Mode of appointment of Independent Directors and their tenure.

Code of Conduct for Independent Directors.

Rotation of Auditors and restriction on Auditor's for providing non-audit services.

Enhancement of liability of Auditors.

Why worry and have wrinkles When you can smile and have Dimples……….

Thank

You..