Companies Act 2013

The Companies Act

Empowers the Central Government to regulate the formation, financing, functioning and winding up of companies

It empowers the Government to inspect the books of accounts f the company, direct special audits and other investigations into the affairs of the company if they are in any way violating the act

It is administered by the Central Government and the Offices of Registrar of Companies, Official Liquidators, Public Trustee, Company Law Board, Director of Inspection etc.

Incorporation and the administration of running companies is done by the Registrar of Companies

Objectives of The Companies Act, 1956

Management of companies Control over companies Protection of consumer’s interest Enforcement of proper performance of

duties by management Investor’s protection Full disclosure of information

Companies Bill 2012

On 18th December, 2012, Lok Sabha passed this bill

It has 29 chapters, 7 schedules and 470 clauses as against 658 sections, 13 parts and 15 schedules in the existing Companies Act, 1956

The bill received the President’s assent on 29th August, 2013 and now is on its way to becoming an act

New introductions

Concept of One Person Company E- governance in all company processes Insider trading of securities is prohibited Punishment for fraud Nomination and remuneration committee

Independent Directors- one-third of board members

Corporate Social Responsibility- set aside a certain percentage of profits for CSR

Excessive Bureaucracy- Director Identification Number (DIN)

Women Directors- more number of women reaching higher levels of hierarchy

Class Action Suits- a large group of people can bring a claim to court in which a group of defendants are sued

Company Secretary- Elevates their role to management level

New Definitions Introduced

Associate Company- a company has significant influence over another company, controls 20% of share capital of other company or business decisions

Auditing Standard- standards of auditing for companies or class of companies

Global Depository Receipt- an instrument created by foreign depository and authorised by company making an issue of such depository receipt

Employee Stock Option- option given to directors, officers or employees of a company to purchase or subscribe for the shares of the company in the future

Financial year- a period ending on 31st March of every year in which respect financial statements are made

Turnover- aggregate value of realisation of amount made from the sale, supply or distribution of goods by a company in a financial year

One Person Company- a company which has only one person as the member

Key Managerial Personnel- it consists the following

-the chief executive officer or managing director or manager

- Company secretary

- Whole time director

- Chief Financial Officer

Comparison between the Former and New Act

Basis Companies Act, 1956

Companies Act, 2013

Maximum no. of members in private company

50 200

Minimum no. of members

Public- 7

Private- 2

No change but concept of 1 member company introduced

Maximum no. of directors

12 15, more by passing a resolution

Statutory meeting Public company- mandatory to hold after 1 month but before 6 months from date of entitlement of commencement

No provision

Cross boarder mergers No specific provisions Mergers of Indian and foreign companies permitted and rules to be notified by Central Government

Certification of financial statements

By manager or secretary, if any, and by not less than 2 directors, one of whom shall be an MD, if there is one

Chairman alone can sign if so authorised by the Board

Maximum time for holding first Annual General Meeting

18 months from incorporation or 9 months from closure of accounts, whichever is earlier

9 months from closure of accounts

Mode of notice for holding and Annual General Meeting

Written notice mandatory In writing or in electronic form

Object Clause of Memorandum of Association

Consists of main objects, incidental or ancillary objects and other objects

Contains the object for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof

Issue of preference shares for more than 20 years

Prohibited Permitted only for infrastructure projects

Maximum tenure of auditors No specific provisions For listed and other prescribed companies:

- individual auditors to be rotated after 5 years

- Audit firm after every 10 years

Financial Year and Extension Not to exceed 15 months but can be extended to 18 months by ROC, financial year can end on a date other than 31st March

Financial end on 31st March of every year for all companies and no other provisions for extension are given

First Board Meeting No specific provision Within 30 days from date of incorporation

Restrictions on commencement of business

Provisions applicable to only public companies

Applicable to all companies having share capital

Time gap between two board meetings

At least one meeting every quarter

Not more than 120 days of gap between 2 meetings

Quorum of General meeting of private and public companies

Private- 2

Public- 5

Private- 2

Public- 5 if total members is greater than 1000

-15 if total is greater than 1000 but less than 5000

- 30 if total is greater than 5000