Impact of Companies Act on
Private Companies, One Person company &
Corporate Social Responsibility
Ashish Makhija
Advocate
B.Com (Hons.), LLB, LLM (USA), LLM (India), FCA, FCMA
Standing Counsel for the Official Liquidator
Attached to High Court of Delhi
1
Member of:
The Pencil Parable
Pencil Parable
2
In the beginning, the Pencil Maker spoke to
the pencil saying,
"There are five things you need to know
before I send you out into the world. Always
remember them and you will become the
best pencil you can be."
You will be able to
do many great
things, but only
if you allow
yourself to be held
in Someone's
hand.
You will experience a painful
sharpening from time to time, but this
is required if you are to become a
better pencil.
You have the
ability to correct
any mistakes
you might make.
The most
important part
of you will
always be
what's inside.
No matter what the condition, you
must continue to write. You must
always leave a clear, legible mark no
matter how difficult the situation.
The pencil
understood,
promising to
remember, and
went into the
box fully
understanding its
Maker's purpose.
Now replacing the place of the pencil
with you; always remember them and
never forget, and you will become the
best person you can be.
You will be able to
do many great
things, but only if
you allow yourself
to be held in
someone's hand.
And allow other
human beings to
access you for the
many gifts you
possess.
You will experience a painful sharpening
from time to time, by going through
various problems, but you'll need it to
become a stronger person.
You will be able to correct mistakes you
might make or grow through them.
Three:
The most
important part
of you will
always be
what's on the
inside.
On every surface you walk, you must
leave your mark. No matter what the
situation, you must continue to serve
Good in everything.
Everyone is like a pencil...
created by the Maker for a unique and special
purpose.
By understanding and remembering, let us proceed
with our life on this earth having a meaningful purpose
in our heart.
Looking Back
Companies Act 1956
658 Sections (Effectively 881 Sections)
16 Schedules
66 Definitions
34 set of Rules & Regulations
Not yet repealed
155 Sections still in force
17
Looking Forward
Companies Bill 2009
426 Sections
No Schedules
93 Definitions
Phrase ―as may be prescribed‖ appeared ―235 times‖
in the Bill
18
Looking Forward
Companies Act 2013
470 Sections
7 Schedules
95 Definitions
Phrase ―as may be prescribed‖ appears ―346 times‖ in
the Act
46 sections of Part IX A of Companies Act, 1956
relating to Producer Companies will continue to apply
19
Companies Act 2013 - Status
President‘s Assent on 29th August 2013
98 Sections notified on 12th September 2013
Schedule VII & Section 135 notified on 27th February 2014
183 Sections notified on 26th March 2014
In all 282 Sections notified
Till date around 52 Circulars, 19 Notifications and 7 orders have
been issued on Companies Act, 2013
20
Companies (Removal of Difficulties)
Orders
21
Order
No
Date Particulars
1st 20.09.2013 Regarding implementation of Sections 24, 58 and
59
2nd 02.06.2014 Jurisdiction, Powers, authority and functions of
CLB—CLB shall exercise powers under Section 73
3rd 02.06.2014 Untill NCLT is constituted under section 408,
Board of CLB shall have all powers
4th 06.06.2014 Jurisdiction, Powers, authority and functions of
CLB—CLB shall exercise powers under Section 74
5th 09.07.2014 Clarification on Related Party Section 2(76) clause
v- Director is a Director and holds more than 2%
shares in Public Co shall be termed as Related
Party. The Word “or” was replaced by “and”
Companies (Removal of Difficulties)
Orders
22
Order
No
Date Particulars
6th 24.07.2014 Clarification on Related Party Section 2(76)(iv)-
After the word manager the word “or his relative”
is inserted
7th 04.09.2014 In section 143(5) of the Companies Act, 2013
amended. The definition of Government Companies
enhanced by substitution of words.
Major Circulars
23
Circular
No
Date Particulars
44/2014 14.11.2014 Extension of CLSS-2014 up to 31st December 2014
40/2014 15.10.2014 Disqualification u/s 164 shall lie for prospective defaults
38/2014 14.10.2014 The Board of a Section 8 Company would decide to refund
the deposit made under Section 160 proposing
appointment of a Director
34/2014 12.08.2014 CLSS-2014 introduced
32/2014 23.07.2014 Transitional Period for resolutions passed between 1st
September 2014 to 31st March 2014—Implementation
commenced before 1st April 2014 and available upto 1
year from passing of resolution or 6 months from the Act
Major Circulars
24
Circular
No
Date Particulars
30/2014 17.07.2014 Clarifications on Related Party transactions:-
a) Related Party shall refer to the parties related only in
a specific resolution
b) Corporate Restructuring/Amalgamations shall not
require approval under Section 188
c) No approval under Section 188 for approvals already
taken prior to commencement of Act, however, any
subsequent amendment would require approval
27/2014 30.06.2014 Extension of Date for filing of DPT-4 till 31st August 2014
25/2014 26.06.2014 Applicability of Resident Director--Previous Calendar
year shall commence from 1st April 2014 and will be till
31st December 2014. The Time period of 182 days will be
reduced accordingly
Major Circulars
25
Circular
No
Date Particulars
21/2014 18.06.2014 Clarification on CSR
8/2014 04.04.2014 Filing of B/s, Auditors Report, Boards Report as per
Companies Act, 1956
4/2014 25.03.2014 Clarification on Section 180—Resolutions passed u/s
293 prior to 12.09.2013 will be a sufficient compliance till
the period of one year from the date of notification of
Section 180
3/2014 14.02.2014 Clarification on Section 185—To maintain harmony between
Section 185 of CA 2013 & Section 372A(8)(d) of CA 1956 it
was clarified that till Section 186 is notified exemption to
holding company on giving loans/security/guarantee to its
Subsidiary under Section 372A (8)(d) shall be continued.
Understanding Layout
Divided in to 29 chapters
Chapter I – Applicability & Definitions – Section 1& 2
Chapter II – Incorporation, MoA, AoA – Sections 3 to 22
Chapter III – Prospectus – Sections 23 to 42
Chapter IV – Share Capital – Sections 43 to 72
Chapter V – Public Deposits – Sections 73 to 76
Chapter VI – Registration of Charges – Sections 77 to 87
26
Understanding Layout
Chapter VII – Management & Administration – Sections 88 to
122
Chapter VIII – Dividend – Sections 123 to 127
Chapter IX – Accounts – Sections 128 to 138
Chapter X – Audit & Auditors – Sections 139 to 148
Chapters XI, XIII, XIII – Directors, Board & Remuneration –
Sections 149 to 205
Chapter XIV – Inspection, Investigation – Sections 206 to 229
Chapter XV – Mergers – Sections 230 to 240
27
Understanding Layout
Chapter XVI – Oppression and Mismanagement – Sections 241 to 246
Chapter XVII – Registered Valuers – Section 247
Chapter XVIII – Removal of Names of Companies – Sections 248 to 252
Chapter XIX – Revival – Sections 253 to 269
Chapter XX – Winding –up – Sections 270 to 378
Chapter XXI – Companies Authorized to Register Under the Act –
Sections 366 to 374
Chapter XXII – Foreign Companies – Sections 379 to 393
28
Understanding Layout
Chapter XXIII - Government Companies – Sections 394 & 395
Chapter XXIV – Registration Offices & Fees – Sections 396 to
404
Chapter XXV – Companies to furnish Information – Section
405
Chapter XXVI – Nidhis – Section 406
Chapter XXVII – NCLT – Sections 407 to 434
Chapter XXVIII – Special Courts – Sections 435 to 446
Chapter XXIX – Miscellaneous - Sections 447 to 470
29
Understanding Layout
Schedule I – Table A to I
Schedule II – Depreciation
Schedule III – Balance Sheet
Schedule IV – Code for Independent Directors
Schedule V – Managerial Personnel
Schedule VI – Infrastructural Projects
Schedule VII – Activities for CSR Policy
30
Companies (Amendment) Bill,
2014
Omitting requirement for minimum paid up share capital - Government to retain power to specify
Making common seal optional
Prescribing specific punishment for deposits accepted under the new Act This was left out in the Act inadvertently. (To remove an omission)
Prohibiting public inspection of Board resolutions filed in the Registry -
Resolutions
Including provision for writing off past losses/ depreciation before declaring dividend for the year( Was left in Act but included in Rules)
17
19 Matters – To be Passed at Board Meeting only
To make Calls
Buy-back of Shares authorization
Issuing Securities
Borrowings
Investments
Grant of Loans etc
Approval of Financial Statements
19 Matters – To be Passed at Board Meeting only
Diversification of Business
Merger, Amalgamation etc
Acquisition or Takeover
Political Contributions
KMP appointment/removal
Taking Note of appointment/removal of one level below KMP
19 Matters – To be Passed at Board Meeting only
Internal/Secretarial Auditors appointment
Taking note of Directors’ Interest
Buy/Sell Investments - ≥ 5% of PUC & Free Reserves
Invite or Accept Deposits
Changing Terms of Deposits
Approval of quarterly, half yearly and annual financial results
Companies (Amendment) Bill,
2014 Rectifying the requirement of transferring equity shares for which
unclaimed/unpaid dividend has been transferred to the IEPF even
though subsequent dividend(s) has been claimed. (Section 124)
Enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Central Government (below the threshold, it will be reported to the Audit Committee). Disclosures for the latter category also to be made in the Board‘s Report. (Demand of auditors)
Exemption u/s 185 (Loans to Directors) provided for loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries. (This was provided under the Rules but being included in the Act as a matter of abundant caution).
18
Section 124
(6) All shares in respect of which unpaid or unclaimed dividend has been
transferred under sub-section (5) shall also be transferred by the company in
the name of Investor Education and Protection Fund along with a statement
containing such details as may be prescribed
Proposed Amendment
(6) All shares in respect of which dividend has not been paid or claimed for
seven consecutive years or more shall be transferred by the company in the
name of Investor Education and Protection Fund along with a statement
containing such details as may be prescribed
―Explanation.—For the removals of doubts it is hereby clarified that in case any
dividend is paid or claimed for any year during the said period of seven
consecutive years, the share shall not be transferred to Investor Education and
Protection Fund.‘‘.
36
Companies (Amendment) Bill,
2014
Empowering Audit Committee to give omnibus approvals for
related party transactions on annual basis. (Align with SEBI policy
and increase ease of doing business)
Replacing ‗special resolution‘ with ‗ordinary resolution‘ for
approval of related party transactions by non-related
shareholders. (Meet problems faced by large stakeholders who
are related parties)
Exempt related party transactions between holding companies
and wholly owned subsidiaries from the requirement of approval
of non-related shareholders. (corporate demand)
19
Companies (Amendment) Bill,
2014
Bail restrictions to apply only for offence relating to fraud u/s
447. (Though earlier provision is mitigated, concession is made to
Law Ministry & ED)
Winding Up cases to be heard by 2 member Bench instead of a 3
member Bench. (Removal of an inadvertent error)
Special Courts to try only offences carrying imprisonment of two
years or more. (To let magistrate try minor violations).
20
Understanding Companies Act
New Concepts
Associate Companies
Significant Influence
Control of 20% of total share capital, or
control of business decisions under an agreement
Understanding Companies Act
New Concepts
Small Companies
Other than Public Company
Paid up capital does not exceed Rs. 50 lakhs, and
Turnover does not exceed Rs. 2 Crores
Does not include -
Holding Company or Subsidiary Company
Section 8 Company
Understanding Companies Act
New Concepts
Companies can obtain dormant status
Inactive Company
Not Carrying any business or not made any significant accounting transaction for last 2 years, or
Not filed B/s or Annual Return for last 2 FYs
Company formed under CA 2013 for a future project or holding an intellectual property and has no significant accounting transaction
Understanding Companies Act
New Concepts
Foreign Company
Company or Body Corporate
Having a place of business in India
By itself, or
Through an Agent, or
Through Electronic Mode
And
conducting any business activity in India in any other manner
Statutory Framework
Section 447 – If found guilty of fraud, shall be
punishable with imprisonment for a term which
shall not be less than six months but which may
extend to ten years and shall also be liable to
fine which shall not be less than the amount
involved in the fraud, but which may extend to
three times the amount involved in the fraud
Provided that where the fraud in question
involves public interest, the term of
imprisonment shall not be less than three years.
Statutory Framework
Explanation.—For the purposes of this section—
(i)―fraud‖ in relation to affairs of a company or
any body corporate, includes any act, omission,
concealment of any fact or abuse of position
committed by any person or any other person
with the connivance in any manner, with intent
to deceive, to gain undue advantage from, or to
injure the interests of, the company or its
shareholders or its creditors or any other person,
whether or not there is any wrongful gain or
wrongful loss.
Exemptions to Private
Companies
-
Draft Notification for Private
Companies
Draft Notification for Private
Companies S.
No Chapter/ Section number/ Sub-
section(s) in the Companies Act,
2013
Exceptions/ Modifications /Adaptations
1 Chapter IV, section 43 (Kinds of
Share Capital) and section 47
(Voting Rights) [Both whole]
Shall not apply
2 Chapter IV, clause (a) of sub-section
(1) of section 62) and sub-section (2)
of section 62
Rights Issue
Shall apply with the following modification:- Words
‗not being less than fifteen days and not exceeding
thirty days‘ shall be substituted with ‗not being less
than seven days and not exceeding fifteen days‘
3 Chapter IV, clause (b) of sub-section
(1) of section 62
ESOP
Shall apply except that instead of special
resolution, ordinary resolution would be required
Draft Notification for Private
Companies
S.No Chapter/ Section number/ Sub-
section(s) in the Companies Act,
2013
Exceptions/ Modifications /Adaptations
4 Chapter V, sub-section (2) of
section 73
Deposits
Shall not apply to private companies having 50 or
less number of members if they accept monies
from their members not exceeding twenty five per
cent of aggregate of the paid up capital and free
reserves or one hundred per cent of the paid up
capital, whichever is more, and which inform the
details of such monies to the Registrar in the
prescribed manner
5 Chapter VII, sections 101 to 107
and section 109[All whole]
Provisions relating to General
Meeting
Shall apply unless
- otherwise specified in respective sections or
- unless articles of the private company otherwise
provide
6 Chapter X, Clause (g) of sub-
section (3) of section 141
Eligibity of Auditors
Shall not apply in respect of appointment of
auditors by private companies
Draft Notification for Private
Companies
S.No Chapter/ Section number/ Sub-
section(s) in the Companies Act,
2013
Exceptions/ Modifications /Adaptations
7 Chapter XI, section 160( Whole)
Right of persons other than
retiring directors to stand for
directorship
Shall not apply
8 Chapter XI, section 162 [Whole]
Appointment of Directors to be
voted individually
Shall not apply
9 Chapter XII, Section 180
Restriction on Powers of Board
Shall not apply to private companies
having 50 or less number of
members
Draft Notification for Private
Companies S.No Chapter/ Section number/ Sub-
section(s) in the Companies Act, 2013
Exceptions/ Modifications /Adaptations
10 Chapter XII, section 185
Loans to Directors
Shall not apply to Private companies -
(a) which have borrowings from banks or financial
institutions or any bodies corporate not more than twice
of their paid up share capital or Rs. 50 crore, whichever is
lower; and
(b) in whose share capital no other body corporate has
invested any money‖.
11 Chapter XII, section 188
Related Party Transactions
Shall not apply
12 Chapter XIII, section 196, sub-section (4)
and subsection(5)
Remuneration to Managerial
Personnel
Shall not apply
13 Chapter XIII, sub-section (3), section 203
Appointment of key Managerial
Personnel
Shall not apply
Impact of
Companies Act, 2013
on
Private Companies
Impact on Private Companies
S.N
o
Basis of
Comparison
Companies Act, 1956 Companies Act, 2013
1 Definition No of members restricted to 50 No of members restricted to 200
Prohibited any invitation or
acceptance of deposits from
persons other than its
members, directors or their
relatives
Section 3(1)(iii)
No such prohibition
Section 2(68)
2 Commencement
of Business
No need to seek any such
certificate
Section 149
Even a private company needs to
give a declaration before
commencing its business or
making any borrowings
Section 11
3 Further issue of
shares
Provisions relating to Rights
issue and Preferential
allotment not applicable
Section 81 & 81(1A)
Needs to comply with all
provisions relating to issue of
capital
Section 62
Impact on Private Companies
S.No Basis of
Comparison
Companies Act,
1956
Companies Act, 2013
4 Acceptance of
Deposits
A private Company
can accept
Deposits/ Loans
from Directors,
Relatives of
Directors and
Shareholders
Section 3(1)(iii)
Exemption retained only for Directors
A private company needs to comply
with the provisions of Section 73 read
with Companies (Acceptance of
Deposit) Rules, 2014 if loan/deposit
accepted from Shareholders/Relatives
of Directors
MCA vide circular no 5/2015 clarified
that amounts received by private
companies from their members,
directors or their relatives before 1st
April, 2014 will not be treated as
Deposits, provided details of same is
given in financial statements
Impact on Private Companies
S.No Basis of
Comparison
Companies Act, 1956 Companies Act, 2013
5 Appointment
of Key
Managerial
Personnel
Irrespective of Capital,
Private Companies were
not mandated to
comply with provisions
of remuneration of
WTD/MD/ CS
Appointment of
MD/WTD/Manager was
mandated for
companies with paid up
capital of Rs. 5 Crores
or more
Section 269 and 383A
Need to comply with provisions of
remuneration also (Section 196 and
197)
All public companies having paid-up
capital of Rs. 10 Cores or more are
required to appoint a whole-time KMP
(Section 203 read with Rule 8 of
Companies (Appointment &
Remuneration of Managerial
Personnel) Rules, 2014
All private companies having paid up
capital above Rs.5 Cores or more shall
be mandated to appoint a Whole-Time
Company Secretary (Rule 8A)
Impact on Private Companies
S.No Basis of
Comparison
Companies Act, 1956 Companies Act, 2013
6 Loans to Directors Restrictions relating to
giving of loans,
advances or providing
securities, guarantees
to directors and other
interested entities were
not applicable
Section 295
All companies including private
companies are restricted from
giving loans, advances or
providing securities, guarantees
to directors and other interested
entities.
Section 185
7 Resident Director No such requirement All companies mut have atleast
one director who has stayed in
India for a minimum period of
182 days during the previous
calendar year
Section 149
Impact on Private Companies
S.No Basis of
Comparison
Companies Act, 1956 Companies Act, 2013
8 Consent to act as
Director
Consent to act as
director was not
mandatory to be filed
with ROC
Section 264
Mandated for Private Companies
also
Section 152
9 Appointment of 2 or
more directors by
single resolution
Provisions relating to
appointment of
directors to be voted on
individually were not
applicable
Section 263
At a general meeting, a motion
for the appointment of two or
more persons as directors of the
company by a single resolution
shall not be moved unless a
proposal to move such a motion
has been agreed to at the
meeting without any vote being
caste against it.
Section 149
Impact on Private Companies
S.No Basis of
Comparison
Companies Act, 1956 Companies Act, 2013
10 Limit on Number of
Directorship
Private Co‘s not
counted for limit of 15
companies
Section 275
A person can act director in
maximum 20 companies, out of
which not more than 10
companies should be public
Section 165
11 Corporate Social
Responsibility
No such requirement
Section 263
Private Companies having net
worth of Rs.500Crore or more or
tunover of Rs. 1000 Crore or more
or a net profit of Rs. 5 Crore or
moreneed to spend atleast 2% of
average net profits on CSR
Section 135
Impact on Private Companies
S.No Basis of
Comparison
Companies Act, 1956 Companies Act, 2013
12 Content of Financial
Statements
Balance Sheet
Statement of Profit &
Loss
Cash Flow Statement
applicable to certain
class of companies (AS-
3 applicable on
companies having
turnover excess of 50
Crores or borrowings
excess of Rs.10 Crores)
Balance Sheet
Statement of Profit & Loss
Cash Flow Statement
Statement of Changes in equity
Notes to Accounts
13 Maximum Term of
Auditor
Upto AGM
Section 224
Mandatory rotation of Auditors
after a term of 5 years/ 10 years
Section 139
Impact on Private Companies
S.No Basis of
Comparison
Companies Act, 1956 Companies Act, 2013
14 Provisions relating to
General meetings
Private Companies were
exempt from the
applicability of Section
171 to 186, if
authorised by Articles
No such exemption available.
15 Inter Corporate
Investments/
Loans/Guarantee
Provisions of Section
372A were not
applicable
Except sub-section (1) of Section
186, other provisions on Inter
Corporate
Investments/loans/Guarantees are
applicable.
Section 186
Filing of MGT-14 Excluded
Notification GSR. 206E dated 18th March, 2015
Following item numbers and the entries relating thereto shall be omitted :
(3) to take note of appointment(s) of removal(s) of one level below the key managerial personnel;
(5) to take note of the disclosure of director‘s interest and shareholding;
(6) to buy, sell investments held by the company (other than trade investments), constituting five percent or more of the paid up share capital and free reserves of the investee company;
(7) to invite or accept or renew public deposits and related matters;
(8) to review or change the terms and conditions of public deposit;
(9) to approve quarterly, half yearly and annual financial statements or financial results as the case may be.
One Person Companies
Section 2(62)
OPC
One Person Company [Section 2(62)]
Only one person as member, will be a private company
MOA of company shall indicate the name of a person who
in the event of the death of subscriber shall become the
member
Only a natural person is eligible to form OPC or be a
nominee
No person shall be eligible to incorporate or become
nominee for, more than single OPC
61
Types of OPC
a company limited by shares; or
a company limited by guarantee; or
an unlimited company.
Appointment of Director in
OPC
Articles of a company may provide for the appointment of the first directors
If articles are silent then the subscriber to the memorandum who is an individual shall be deemed to be the first director of the company
May have a single director
Maximum-15 directors more than 15 after passing Special Resolution
Director must have stayed in India for a total period of not less than 182 days in the previous calendar year
Meeting of Board
At least one meeting of the Board of Directors to conducted in each half of a calendar year
Gap between the two meetings should not be less than ninety days
Exemption – if company has only one director.
Contract by OPC
One Person Company limited by shares or by guarantee enters into a contract with the sole member of the company who is also the director of the company, the terms of contract or offer are in writing or contained in a memorandum or recorded in the minutes of the Board meeting held next after entering into the contact.
Inform the Registrar about every contract entered into by the company within a period of fifteen days of the date of approval by the Board of Directors.
Contracts in ordinary course of business not required to comply with the above.
Financial Statement
The financial statement, signed by one director, for submission to the auditor for his report thereon.
Board of Directors Report means a report containing explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.
Filed with ROC within 180 days from the closure of the financial year
Financial statement, may not include the cash flow statement
Exemptions
Section 96. Option to dispense with the requirement of holding an AGM
Section 98. Power of Tribunal to call meetings of members
Section 100. Calling of extraordinary general meeting.
Section 101. Notice of meeting.
Section 102. Statement to be annexed to notice.
Section 103. Quorum for meetings.
Section 104. Chairman of meetings
Section 105.Proxies
Section 106. Restriction on voting rights
Exemptions
Section 107. Voting by show of hands
Section 108. Voting through electronic means
Section 109. Demand for poll
Section 110.Postal ballot
Section 111. Circulation of members‘ resolution
OPC- Miscellaneous provisions
OPC cannot be converted into Section 8 Co., carry NBFC activities
No minor shall become member or nominee of the One Person
Company or hold share with beneficial interest.
No OPC can voluntarily convert into any kind of company unless two
years is expired from the date of incorporation of OPC, except its
turnover/ capital increases from threshold limits
Mandatory conversion to Private Co/ Public Co. with requisite number of
directors & shareholders if threshold limit crosses:
Paid up Capital: Rs. 50 Lacs
Average Annual Turnover: Rs. 2 Crores
69