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Companies Act 2013



•

The existing law is over half a century old• New law helps to consolidate and bring related provisions under a

single roof

• Objective is lesser government approvals, enhanced self regulation

and emphasis on corporate democracy

• In line with the changed national and international economic

environment

•

Brings about better transparency and stringent regulations

Why a new Companies Act ?



2009

• Bill withdrawn due to numerous amendments

2011• Introduced Companies Bill 2011 in December 2011

2012• Companies Bill passed by Lok Sabha on 18th December 2012

2013 • Passed by Rajya Sabha on 8th

August 2013

2013• Received assent of Hon‟ble President on 29th August 2013

Background



Structure of the old and new Act

ACT 1956 ACT 2013

13 Parts 29 Chapters

658 Sections 470 Sections

15 Schedules 7 Schedules

• 98 Sections have been notified

• The Draft rules have been placed for comments from investors on

the Ministry of Corporate Affairs website.



• One Person Company (OPC)

• Consolidated financial statements if company has one or more

subsidiaries

• Key Managerial Personnel

• Auditing standards & Secretarial Standards made mandatory

• Participation of directors through video conferencing to count for

quorum

• Definition of a listed company – A company with any of its securities

listed on any recognised stock exchange

• Uniform Financial year – 1st April to 31st March

• Definitions:

• „Small Company‟

•

Widening of definition of „Officer in Default‟ to include KMP

Highlights of Companies Act 2013



Incorporation

• Definition of Private Company

Object clause of Memorandum of Association

• Only single head objects

• No segregation into Main Objects, Ancillary/ Incidental objects &

Other objects

Certificate of Commencement of Business

Compliance consequent to name change

Companies with Charitable Objects



• All charges on the company‟s property, assets or undertaking require

registration• No exemption from registration of pledges.

• Earlier registration was required only for following:

Charges to be registered

• Securing debenture issue • Uncalled share capital

• Immovable property • Book debts

• Movable property not being

pledge

• Floating charge on undertaking

• Calls made but not paid • Ship or share in a ship

• Goodwill, patent, licence under

a patent, trademark or copyright

or licence under a copyright



• 5 years tenure for auditors appointed at AGM

•

Automatic reappointment of existing auditor at AGM where no auditoris appointed/ reappointed

• Annual rotation of audit partner and his team where members so

resolve.

• Listed companies & Prescribed class of companies-

o An individual as auditor- max 1 term of 5 consecutive years

o Audit firm as auditor- max 2 terms of 5 consecutive years

•

Auditor unless otherwise exempted by the company shall attend anygeneral meeting by himself or through his authorised representative.

Auditors



Accounts

ACT 1956 ACT 2013

Consolidation of Accounts not

mandatory

Consolidation of Accounts mandatory

with subsidiaries/ JVs/ associates

Financial Year may end on date

other than 31st March – extension

will be granted by ROC

Financial year can end only on 31st

March – no extension permitted at

present

Financial statements to be signed

by:

• 2 directors + CS

Financial statements can be signed

by:

• Chairperson alone with Board

authorization



Revision of financial statements

Voluntary revision if it appears to director that the financials or Board‟s

report are not in line with the relevant sections of the Act

Requirements

• Should be w.r.t 3 preceding financial years.

• Approval of Tribunal on an application made by company in

prescribed form

• File copy of order of Tribunal with ROC

Tribunal shall give notice or CG and IT authorities, consider their

representations

Shall not be prepared/ filed more than once in a FY

Reasons for revision to be disclosed in Board‟s Report of the year in

which revision is made.



Further Issue though Private Placement

• Can be made to maximum of 50 persons in a financial year excluding

QIB

• Through a Private Placement Offer letter

• Intimate ROC of offer within 30 days of Circulation of Private

placement offer letter

• Allotment must be made within 60 days of receipt of Application

money

• If unable to allot, application money to be returned within 15 days

of completion of 60 days

• If unable to return application money within 15 days, pay the

applicant interest @12%p.a. from expiry of 60th day

• On allotment, file with ROC a return of allotment.



Corporate Social Responsibility (CSR)

• Every company having

o A net worth of Rs. 500 crore or more OR

o A turnover of Rs. 1000 crore or more OR

o A net profit of Rs. 5 crore or more

shall constitute a CSR Committee consisting of 3 or more directors, out of

whom one is independent director.

• shall formulate and recommend CSR Policy which shall indicate the

activities to be undertaken as specified in schedule VII and shall also

recommend the amount of expenditure to be incurred on the CSR activities.

• At least 2 % of the average net profits of the company in the 3 immediately

preceding financial years is spent every year on CSR activities

• Board‟s report disclosures

o Composition of committee

o Reasons for failure to provide or spend such amount



NFRA to be constituted under the Act

The existing National Advisory committee on Accounting and Auditing Standards

(NACAAS) renamed as National Financial Reporting Authority (NFRA)It shall have the same powers vested in a Civil Court while trying a suit.

Purpose:

• Make recommendation to the CG on formulation and laying down of accounting

and auditing policies and standards

• Monitoring and compliance of accounting and auditing standards

• Oversee the quality of service of professionals associated with compliance

Constitution:

• Chairperson – a person having expertise in accounts, auditing, finance or law –

appointed by the CG

• Maximum 15 other members- full time and/ or part time.



Key Highlights

• Minimum no of directors retained

•

Max no of directors increased to 15 (against the earlier 12)

• No of directorships – increased to 20 (earlier 15 public ltd companies)

• Every company to have at least one director who has stayed in India for

at least 182 days in the previous calendar year

• CEO/ CFO defined

• Prescribed class of companies to compulsorily have at least one woman

director

• Independent director defined and specific related provisions laid down

• Prescribed class of companies to compulsorily have CEO/ CFO and CS



Key Managerial Personnel

• Key managerial personnel means:

- CEO/ MD/ Manager

- CS

- WTD

- CFO

- such other person to be prescribed

• Included in the definition for an Officer who is in default

• Related party includes relative of key managerial personnel

• Section 21 interestingly provides that any document/ contract

requiring authentication by Company can be signed by KMP/ person

authorised by the Board



Officer who is in Default

Earlier Now

- MD/ WTD/ Manager/Person in

accordance with whose directions theBoard is accustomed to act

- No provision to impose liability on all

directors

- External parties not counted in the

definition for Officer in Default

- WTD/KMP/ Directors specified by the

Board – in the absence of suchspecification, all Directors

- Where there is no specific

authorisation by the Board all

directors would be held liable. Most

importantly, every director who is

AWARE of such contravention byvirtue of receipt of any proceedingsor PARTICIPATION in suchproceedings without objecting tothe same would be held liable

- Share transfer agents, Registrar to an

Issue and Merchant Bankers to Issueto be held liable in the event of

default in respect of issue or transfer

of shares of a company (shares used

and not securities)



Duties of Director

• For the first time duties of directors have been laid down – includes

independent directors

• Must act in good faith, to exercise duties with care, skill and

judgment and shall act in the best interest of the company,

employees, community and environment. Contravention of this

provision entails fine under the Act.

d d



Insider Trading

• Directors/ KMP shall not enter into insider trading

•

Insider trading defined – act of subscribing, buying, selling, dealing oragreeing to subscribe to the securities of the company by any

director if he/ she has access to non-public sensitive information OR

an act of counseling about procuring or communicating non-public

price-sensitive information to any person

• Price sensitive information – any information which published could

materially affect the price of the securities of the company

• Loose ends – not defining „non-public‟/ „materially affect the price of

the securities‟



MEETINGS

B d M i K Hi hli h



Board Meetings – Key Highlights

• Gap between two BMs to not exceed 120 days

• Board Meetings to have at least seven days‟ notice – shorter notice is

allowed with the presence of at least one independent director. If

held without an independent director, then the transaction is not

approved until ratified by at least one independent director

• BMs are permitted through video conferencing – capable of being

recorded and stored

B d M ti Mi t



Board Meeting Minutes

• In addition to other matters – directors present at the Meeting,

names of dissenting directors to be mentioned

• “All appointments made at Board Meetings” shall be recorded –

unclear

• Secretarial standards with regard to BM – to be followed

AGM d EGM



AGMs and EGMs

• Provisions of earlier Act retained to a large extent (gap between two

AGMs, extension of time for holding AGM, notice of AGM)

• Secretarial Standards for AGM also to be made mandatory

•

Provisions relating to persons who may call for an EGM, persons who

may give consent for shorter notice, ordinary & special businesses

• Notice of AGM to also be given to directors of the company (in

addition to the members and auditors)

AGM N ti



AGM Notice

• Where any business to be transacted affects any other company,

where the extent of shareholding every promoter, director,

manager, KMP is not less than two per cent of the paid up share

capital of that company shall be set out in the explanatory

statement to the notice.

• Quorum – five (public co), 15 (1000-5000), 30 (>5000) personally

present, two (private co)

• Secretarial standards with regard to AGM to be followed

Disclosures in Annual Return Section 92



(i) registered office, principal business activities, particulars of its

holding, subsidiary and associate companies;

(ii) shares, debentures and other securities and shareholding pattern;(iii) indebtedness;

(iv) members and debenture-holders along with changes therein since the

close of the previous financial year;

(v) promoters, directors, key managerial personnel along with changes

therein since the close of the last financial year;(vi) meetings of members or a class thereof, Board and its various

committees along with attendance details;

(vii) remuneration of directors and key managerial personnel;

(viii) penalties imposed on the company, its directors or officers and

details of compounding of offences;

(ix) matters related to certification of compliances, disclosures as may be

prescribed;

(x) details in respect of shares held by foreign institutional investors;

Disclosures in Annual Return – Section 92



No Company shall directly or indirectly advance any loan including book

debt or give guarantee or provide security to its directors or to anyother person in whom the director is interested.

„any other person in whom the Directors is interested‟:

1. any director of the lending Company or its holding co or any partneror relative of any such director

2. any firm in which such director or relative is a partner

3. Any private co of which any such director is a director or member

4. Any body corporate at a GM of which not less than 25% of total

voting power is exercised/controlled by any such director, or by two

or more

5. Any body corporate, the Board, MD or manager, whereof is

accustomed to act in accordance with the directions or instruction

of the Board, or of any director or directors, of the lending

company.

Loan to Directors – Section 185



Exception:

The said section does not apply to:-

a. Loan to MD/WTD

•As a part of contract of services extended to all its employees; or

•Pursuant to scheme approved by members by special resolution

b. A Company which in the ordinary course of its business provides

loans or gives guarantees or securities for the due repayment of

any loan and in respect of such loans an interest is charged at a

rate not less than the bank rate declared by RBI

L & I b C S 186



• List of exemptions taken off (Private Ltd & Subsidiary Companies)

• Scope no longer limited to inter-corporate loans & investments, but expanded

to include loans to persons.

• Rate of interest on loans to be linked to government securities instead of

prevailing bank rate.

• The full particulars of the loan given, investment made or guarantee given or

security provided and the purpose to be disclosed in the financial statement.

Loans & Investments by Company- Sec 186

Investment Limits:Not more than two layers of investment

companies

This shall not affect:

-A company can acquire any other companyincorporated in a country outside India, with

subsidiaries beyond 2 layers as per the laws of

such country.

- A subsidiary company having any investment

subsidiary to meet the requirement under law.

Loan Limits not requiring Shareholder

Approval:

Not exceeding 60% of paid up

capital + free reserves whichever+ securities premium is

OR MORE

100% of free reserves

+ Securities premium



New Provisions:

Combines sections 297 and 314 –both the sections dealt with 2 differentscenarios

Definition of related party widened

Purview of related party transaction widened – sale, purchase, leasing of

property included

Arms length transaction defined

CG approval replaced with prior approval of shareholders for prescribed class

of companies

Related party contracts to be explained in the Board‟s report along with

justification for the contract

Related Party Transactions- Section 188



No Company shall enter into any contract or arrangement, except with the

consent of the Board, with a related party with respect to:

sale, purchase or supply of any goods or materials;

Selling or otherwise disposing of, or buying, property of any kind;

Leasing of property of any kind;

Availing or rendering of any services;

Appointment of any agent for purchase or sale of goods, materials, services or

property;

Such related party‟s appointment to any office or place of profit in thecompany, its subsidiary company or associate company and

Underwriting the subscription of any securities or derivatives thereof,

Exemption - Transactions in the ordinary course of business except those not

entered into on arm‟s length basis



Related Party means:

•A Director or his relative;

•A Key Managerial Person or his relative;

•A Firm, in which director, manager or his relative is a partner

•A Private Company, in which director, manager is a director or member;

•A Public Company, in which director or manager is a director or holds

along with his relatives more than 2% of paid-up capital;

•Any body corporate whose Board of Directors, Managing Director or

Manager is accustomed to act in accordance with the advice, directions

or instructions of a director or manager;

•Any person on whose advice, directions or instructions a director or

manager is accustomed to act;

•Any company which is a holding, subsidiary or an associate company of

such company or a subsidiary of a holding company to which it is also asubsidiary.



Board Committees-

1. Audit Committee: Section 177

-Applicable in case of Listed Companies and such other class of

Companies as may be prescribed

-Minimum of 3 directors with independent directors forming a majority

-Majority of members including its Chairperson shall be persons with

ability to read and understand the financial statement.

-The Company to establish a vigil mechanism for Directors and

Employees to report genuine concerns.



2. Nomination and Remuneration Committee -Section 178

-Mandatory in the case of listed companies and such other class or

classes of companies as may be prescribed.

-The Committee shall formulate the criteria for determining

qualifications, positive attributes and independence of a director and

recommend to the Board a policy, relating to the remuneration for the

directors, key managerial personnel and other employees

-It shall consist of three or more non-executive director(s) out of

which not less than one half shall be independent directors.



3. Stakeholders Relationship Committee:

Where the combined membership of the shareholders, debenture

holders, deposit holders and any other security holders is more than

one thousand at any time during the financial year, the company shall

constitute a Stakeholders Relationship Committee.

It shall consider and resolve the grievances of security holders of the

company.

**The chairperson of each of the committees or, in his absence, any

other member of the committee authorised by him shall attend the

general meetings of the company.

Winding Up- Section 271



Criteria provided for winding-up ofcompany such as:-

• If the company has, by special

resolution, resolve that the

company be wound up

• If the company is unable to pay

its debt

• If a company does not commence

its business within 1 year from

its incorporation or suspends its

business for a whole year

• If the minimum no. of members

is reduced below 2 in case of

private and 7 in case of public

company.

Certain criteria for winding-up

deleted like minimum number of

members falling below prescribed

limit, non commencement of

business for 1 year etc.

Companies Act, 1956 Companies Act, 2013

Winding Up- Section 271



Additional ground providing for winding-up:-

On an application made by the Registrar or any other person

authorized by CG by notification under this Act, the tribunal is

of the opinion that:

The affairs of the company have been conducted in afraudulent manner or

Company was formed for fraudulent and unlawful purpose or

The persons concerned in the formation or management of

its affairs have been guilty of fraud, misfeasance or

misconduct in connection therewith.

D C S i 455



Dormant Company – Section 455Where 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

may make an application to the registrar for obtaining the status of

Dormant company.

The Registrar will issue a certificate to that effect.

To retain the status the Company shall have such minimum number

of directors, file such documents and pay such annual fee as may be

prescribed to the Registrar.

On an application it may become an active company.

In case of failure to comply with the requirements, the Registrar

may strike off the name from the register of dormant companies

d f k ff



A company may be struck off by ROC for below reasons:-

• Company has failed to commence its business within 1 year of its

incorporation

• Subscribers to the memorandum have not paid the subscription

money within 180 days from the date of incorporation

• Company is not carrying on any business or operation for a period of

2 immediately preceding financial years and has not made any

application within such period for obtaining the status of a dormant

company.

Grounds of Strike Off – Section 248

N i l C L T ib l 408 & 410



National Company Law Tribunal- 408 & 410

The act proposes to go away with the jurisdiction of the High Court

and Company Law Board and replace the same with a single forum

called the National Company Law Tribunal (NCLT- yet to be set up),appeals from which will lie with the National Company Law Appellate

Tribunal.

Constitution: Bench of Judicial and Technical Members

Special Courts (Section 435 & 436)

•Will be established for the speedy trial of offences.

• All offences under this Act shall be triable by the Special Court

Mediation and Conciliation Panel (Section 442)

A panel of experts for mediation between the parties during the

pendency of any proceedings before the Central Government or the

Tribunal or the Appellate Tribunal under this Act.



Small Company

Small company means a company other than a public company

i. paid-up share capital of which does not exceed Fifty Lakh or such

higher amount as may be prescribed not exceeding Five Crore;

or

i. turnover of which as per its last profit and loss account does not

exceed Two Crore or such higher amount as may be prescribed not

exceeding Twenty Crore.

Exemptions:

• Holding company or subsidiary company

• Company registered under section 8

• Company or body corporate governed under Special Act



Deposits Who can accept?



Deposits – Who can accept?

Only the following companies may invite, accept or renew deposits from the public:

• Banking companies

• NBFCs

• Notified companies

• Public company having prescribed net worth or turnover

A company not covered above may invite, accept or renew deposits from MEMBERS

subject to:

• Passing resolution at general meeting

• Compliance with RBI rules

• Terms of security and repayment of deposit and interest agreed upon between

company and members

Fulfilment of following conditions:

• Circular to members with financial position of company, credit rating obtained,

amount due towards deposits previously accepted, other prescribed matters

• Filing a copy of circular with the statements with Registrar within 30 days before

issue of circular

Commencement of Business



Applicable companies not to commence business until:

• A declaration is filed by a director that every subscriber has paid the

value of shares subscribed by him

• The paid up capital of the private company is not less than Rs.

100,000

• Company has filed a verification of registered office address

Commencement of Business

PARTICULARS ACT 1956 ACT 2013

APPLICABILITY Only to PUBLIC companies To all Companies having

SHARE CAPITAL

Compliances consequent to name change



If the name change happened in the preceding 2 years,

the former name along with the new name must be:

• Painted or affixed outside every office or place of business

• Printed on business letters , bill heads, letter papers, notices and other

official publications.

• Displayed along with telephone numbers, e-mail IDs and website

addresses.

Compliances consequent to name change

Impact

Change of name of IFMR Rural Channels and Services (IRCS) w.e.f.

28.11.2011.

(within the last 2 years)

Companies with Charitable Objects etc



If license is revoked• Company maybe wound up OR

• Amalgamated with another Clause 8 company with similar objects

Impact: Pudhuaaru Kshetriya Gramin Financial Services

Companies with Charitable Objects etc.

PARTICULARS ACT 1956 ACT 2013

O

B

J

E

C

T

S

Can be incorporated for thefollowing objectives:

• Art

• Science

• Religion• Charity

• Any other useful object

Additionally for thefollowing

• Sports

• Education

• Research• Social welfare

• Environment Protection

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