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Companies Act - 2013

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  1. Companies Act - 2013 Accounts, Audit, Directors & Related Party Transactions • Overview – Comparative Analysis • Special Features of New Act • New Concepts / Definitions • Formation of Companies and MOA / AOA • Issue of Shares & Securities • Impact on Private Limited Companies For Private Circulation only

  2. Companies Act - 2013

  3. Overview – Comparative Analysis

  4. Companies Act 2013 • Lok Sabha approved on 18 December, 2012 • Rajya Sabha approved on 8 August, 2013 • The President of India approved on 29 August, 2013 • Rules 340+ released on 31st March, 2014

  5. Overview – Comparative Analysis Companies Act,1956Companies Act, 2013 658 Sections 470 Sections 13 Parts 29 Chapters 15 Schedules 07 Schedules

  6. Overview – Comparative Analysis Arrangement of Analysis

  7. Overview – Comparative Analysis Arrangement of Analysis (Contd..)

  8. Overview – Comparative Analysis Arrangement of Analysis (Contd..)

  9. Overview – Comparative Analysis Arrangement of Analysis (Contd..)

  10. Special Features of New Act

  11. Special Features • Self Regulation • Forced Compliance • Balancing of Private & Public Co(s) • Harmonise with internationally accepted practice • Strict Penal Provisions

  12. Special Features (Contd…) • 33 new definitions inserted • 3 new schedules inserted : • Corporate Social Responsibility (CSR) • Code for independent directors • Infrastructure projects & facilities

  13. New Concepts /Definitions

  14. New Concepts / Key Definitions • Associate Company [Section 2(6)] • 2(6) defines “Associate company”, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company. • Explanation.—For the purposes of this clause, “significant influence” means control of at least twenty per cent of total share capital, or of business decisions under an agreement;

  15. New Concepts / Key Definitions (Contd.) • ‘Book and paper’ and ‘book or paper’ [section 2(12)] • ‘Book and/or Paper’ include books of account, deeds, vouchers, writings, documents, minutes, registers maintained on paper or electronic form. • Books of account [Section 2(130] • Books of account includes records maintained in respect of:- • (i) all sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place. • All sales and purchases of goods and services of the company • The assets and liabilities of the company; and • The items of cost as may be prescribed under section 148 in the case of a company which belongs to any class of companies specified under that section. (Cost Audit)

  16. New Concepts / Key Definitions (Contd.) • Chief Executive Officer [Section 2(18)] • 2(18) “Chief Executive Officer” means an officer of a company, who has beendesignated as such by it; • Chief Financial Officer [Section 2(19)] • 2(19) “Chief Financial Officer” means a person appointed as the Chief Financial Officer of a company; • Control [Section 2(27)] • 2(27) defines “control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner;

  17. New Concepts / Key Definitions (Contd.) • Financial Statements [Section 2(40)] • defines “financial statement” in relation to a company, includes— • (i) a balance sheet as at the end of the financial year; • (ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year; • (iii) cash flow statement for the financial year; • (iv) a statement of changes in equity, if applicable; and • (v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv): • Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement;

  18. New Concepts / Key Definitions (Contd.) • Financial Year [Section 2(41)] • 2(41) defines “financial year”, in relation to any company or body corporate, meansthe period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up: • Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year: • Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause;

  19. New Concepts / Key Definitions (Contd.) Need to align their Financial Year with the new requirement within two years from the commencement of the new law. • 2. Incorporated on/after 1 January to close books on 31 March in the following year (i.e. more than 12 months period) • 3. If incorporated before 1 January, then the year-end will be 31 March (period would be less than one year) 4. Not clear whether it is a one-time application to the Tribunal

  20. New Concepts / Key Definitions (Contd.) • Key Management Personnel [Section 2(51)] • defines “key managerial personnel”, in relation to a company, means— • (i) the Chief Executive Officer or the managing director or the manager; • (ii) the company secretary; • (iii) the whole-time director; • (iv) the Chief Financial Officer; and • (v) such other officer as may be prescribed;

  21. New Concepts / Key Definitions (Contd.) • Net Worth [Section 2(57)] • defines “net worth” means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation;

  22. New Concepts / Key Definitions (Contd.) • Promoter [Section 2(69) • “promoter” means a person— • (a) who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92; or • (b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or • (c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act: • Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity;

  23. New Concepts / Key Definitions (Contd.) • Related Party [Section 2(76)] “related party”, with reference to a company, means— • (i) a director or his relative; • (ii) a key managerial personnel or his relative; • (iii) a firm, in which a director, manager or his relative is a partner; • (iv) a private company in which a director or manager is a member or director; • (v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent of its paid-up share capital; • (vi) 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; • (vii) any person on whose advice, directions or instructions a director or manager is accustomed to act: (professionals excluded) • (viii) any company which is— • (A) a holding, subsidiary or an associate company of such company; or • (B) a subsidiary of a holding company to which it is also a subsidiary; • (ix) such other person as may be prescribed

  24. New Concepts / Key Definitions (Contd.) • Relative [Section 2(77)] • ‘‘relative’’, with reference to any person, means any one who is related to another, if— • (i) they are members of a Hindu Undivided Family; • (ii) they are husband and wife; or • (iii) one person is related to the other in such manner as may be prescribed; • Under the Rules, a person is related to the other if he or she is related to another in the following manner: • Father (including Step-father) ; Mother (including step-mother) • Son (including Step-son); Son’s wife • Daughter; Daughter’s husband • Brother (including step-brother) • Sister (including step-sister)

  25. New Concepts / Key Definitions (Contd.) • Small Company [Section 2(85)] • ‘‘small company’’ means a company, other than a public company,— • (i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or • (ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees: • Provided that nothing in this clause shall apply to— • (A) a holding company or a subsidiary company; • (B) a company registered under section 8 (Non-Profit Organization); or • (C) a company or body corporate governed by any special Act;

  26. New Concepts / Key Definitions (Contd.) • Subsidiary company [Section 2(87)] • “subsidiary company” or “subsidiary”, in relation to any other company (that is to say the holding company), means a company in which the holding company— • (i) controls the composition of the Board of Directors; or • (ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies: • Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed. • Explanation.—For the purposes of this clause,— • (a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company; • (b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors; • (c) the expression “company” includes any body corporate; • (d) “layer” in relation to a holding company means its subsidiary or subsidiaries;

  27. New Concepts / Key Definitions (Contd.) • Sweat Shares [Section 2(88)] • “sweat equity shares” means such equity shares as are issued by a company to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called; • Turnover [Section 2(91)] • “turnover” means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year; (Ind AS 18 – Excludes Taxes) • Total Share Capital • Total Share Capital means the aggregate of the paid-up equity share capital and convertible preference share capital

  28. New Concepts / Key Definitions (Contd.) • Sick Company [Section 253(1)] • “Where on a demand by the secured creditors of a company representing fifty per cent or more of its outstanding amount of debt, the company has failed to pay the debt within a period of thirty days of the service of the notice of demand or to secure or compound it to the reasonable satisfaction of the creditors, any secured creditor may file an application to the Tribunal in the prescribed manner along with the relevant evidence for such default, non-repayment or failure to offer security or compound it, for a determination that the company be declared as a sick company.

  29. New Concepts / Key Definitions (Contd.) • Dormant Company [Section 455] • Where 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, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company. • Inactive Company • “inactive company” means a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years;

  30. New Concepts / Key Definitions (Contd.) • Significant Accounting transaction means any transaction other than: • (a) payment of fees by a company to the Registrar; • (b) payments made by it to fulfil the requirements of this Act or any other law; • (c) allotment of shares to fulfil the requirements of this Act; • (d) payments for maintenance of its office and records

  31. New Concepts / Key Definitions (Contd.) • Types of Companies - Private Company; Public Company & One Person Company (OPC). • Private Company • Section 2(68) defines “private company” means a company and which by its articles,— • (i) restricts the right to transfer its shares; • (ii) limits the number of its members to two hundred: • Joint holders treated as one • Employees/ex-employees who have taken shares while in employment excluded. • (iii) prohibits any invitation to the public to subscribe for any securities of the company; and • having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed,

  32. New Concepts / Key Definitions (Contd.) • Public Company • Section 2(71) defines “public company” means a company which— • (a) is not a private company; • (b) has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed: • Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ; • One Person Company • 2(62) defines “One Person Company” means a company which has only one person as a member;

  33. New Concepts / Key Definitions (Contd.) • Companies with charitable objects [Section 8] • (1) Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company— • (a) has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any suchotherusefulobject; • (b) intends to apply its profits, if any, or other income in promoting its objects; and • (c) intends to prohibit the payment of any dividend to its members,

  34. New Concepts / Key Definitions (Contd.) • Expert 1(38): Includes an Engineer, Valuer, a CA, a CS or a Cost Accountant and any other person who has the power or authority to issue a certificate in pursuance of any Law for the time being in force • Fraud(Section 447): The term Fraud, first time defined in the Act. • Any person who is found to be 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. Where the fraud involves public interest, the term of imprisonment shall not be less than three years

  35. Formation of Companies AndMOA / AOA

  36. Formation of Companies and MOA / AOA

  37. Formation of Companies and MOA / AOA (Contd..)

  38. Formation of Companies and MOA / AOA (Contd..) • Reservation of Name (Form INC. 1) • Applicant to have DIN • Memorandum of Association – • Name Clause • Domicile Clause • Objects Clause • Capital Clause • Liability Clause • Subscription Clause • Formats – Schedule I Tables A - E

  39. Formation of Companies and MOA / AOA (Contd..) • Content: The 2013 Act specifies the mandatory content for the memorandum of association which is similar to the existing provisions of the 1956 Act and refers inter-alia to the following: • Name of the company with last word as limited or private limited as the case may be • State in which registered office of the company will be situated • Liability of the members of the company

  40. Formation of Companies and MOA / AOA (Contd..) • Application for Reservation of Name (Form INC. 1) • Undesirable name • Name Clause • Should not be identical with or resemble too nearly to the name of an existing company • Should not be such that its use will constitute an offence under any law for the time being in force • Is undesirable in the opinion of the Central Government • Should not contain any word or expression which • is likely to give the impression that the company is in any way connected with or having the patronage of the Government or local authority, corporation or body constituted by the Government; or • may be prescribed

  41. Formation of Companies and MOA / AOA (Contd..) • Where the application for availability of name was made by furnishing wrong or incorrect information: • A) where the company is not incorporated : Cancel the reservation of name, and the applicant shall be liable to a penalty upto one lakh rupees • B) where the company is incorporated : • Show cause to be issued • Direct the company to change its name within 3 months after passing Ordinary resolution • Strike off the name of the company • Make a petition for winding up of the company

  42. Formation of Companies and MOA / AOA (Contd..) • Application for change of name • Form No. INC. 24 • Special Resolution – [File Form no. MGT. 14] • Reasons for change of name • Relevant extract of minutes/resolutions • Certificate of Incorporation pursuant to change of name will be issued by ROC in Form No. INC. 25. Change of name effective from the date of issue of such certificate

  43. Formation of Companies and MOA / AOA (Contd..) • A company shall on or from the fifteenth day of its incorporation and at all times thereafter have a registered office capable of receiving and acknowledging all communications and notices addressed to it. (Form INC. 22) • Verification of the registered office: • Registered document of title or Notarised copy of lease/rent agreement • Authorisation from the owner/authorised occupant • Document of connection of utility service depicting the name of the owner

  44. Formation of Companies and MOA / AOA (Contd..) • In case of change of Registered office from one State to another: • Special Resolution [File Form no. MGT. 14] • Application for approval to Regional Director in Form No. INC. 23 • Copy of Memorandum and Articles of Association • Copy of extract of minutes • Copy of challan for fees paid • Letter of Authority. • Advertisement to be published in Form No. INC. 26 • File Form No. INC. 28 after the order is passed by the Regional Director.

  45. Formation of Companies and MOA / AOA (Contd..) • In case of change of Registered office from one State to another (Contd.) : • Form No. INC. 22 for giving notice to Registrar of Companies after approval from RD is received. • List of debenture-holders, depositors, creditors or lenders and a notice to them seeking objections, if any. • Other requirements (Section 12) • Paint or affix its name and address outside its registered office • Engrave its name on the company seal • Print name, registered office address, CIN, website address, contact details on all its business letters, billheads, letter papers, notices, and other official publications (Rule 26)

  46. Formation of Companies and MOA / AOA (Contd..) • Objects clause to state • A) The objects for which the company is incorporated • B) any matter considered necessary in furtherance thereof • The basic purpose in the 1956 Act for such a classification as set out in section 149 of the 1956 Act, is to restrict a company from commencing any business to pursue ‘other objects of the company’ not incidental or ancillary to the main objects except on satisfaction of certain requirements as prescribed in the 1956 Act like passing a special resolution, filing of declaration with the ROC to the effect of resolution. • Reservation of name: The 2013 Act incorporates the procedural aspects for applying for the availability of a name for a new company or an existing company in sections 4(4) and 4(5) of 2013 Act.

  47. Formation of Companies and MOA / AOA (Contd..) • Change of objects for which money is raised through prospectus: • Send Notice for passing resolution through postal ballot to the members/shareholders. Notice to contain the following particulars: the total money received, utilised for the objects, unutilised money (raised through prospectus), justification, estimated impact on the earnings/cash flow and other relevant information. The place from where a copy of the resolution to be passed can be obtained. The notice should be hosted on the company’s website. • Special Resolution [File Form no. MGT. 14]

  48. Formation of Companies and MOA / AOA (Contd..) • Types of shares • Equity Shares • Equity with differential rights • Preference Shares • The number of shares, each subscriber to the MoA agrees to subscribe, which shall not be less than one share, shall be indicated opposite/against his name.

  49. Formation of Companies and MOA / AOA (Contd..) • Limited by Share Capital • Limited by Guarantee • With share capital • Without share capital • Right to participate in the divisible profits to a person other than a member is void • Unlimited Company

  50. Formation of Companies and MOA / AOA (Contd..) • The MoA and the AoA shall be signed each of the subscribers giving their name, address, description and occupation, before at least one witness who shall sign giving the same details and state that: • “I witness to the subscriber(s), who has/have subscribed and signed in my presence (date and place); Further I have verified his/her/their identity details for their identification and satisfied myself of his her/their identification particulars as filled in.” • Rules specify in case where: • The subscriber is an illiterate • The subscriber is a foreign national residing outside India.