Title

COMPANIES ACT,2013

By CA PUNKAJ JAINTOPICS FOR DISCUSSIONSSHARE CAPITAL & DEBENTURESMEETINGS OF BOARD AND ITS POWERSAPPOINTMENT & RENUMERATION OF MANEGERIAL PERSONNELMANAGEMENT & ADMINISTRATIONAPPOINTMENT & QUALIFICATION OF DIRECTORSSHARE CAPITAL & DEBENTURES

TYPES OF SHARE CAPITALTotal Share Capital Includes aggregate of :(a) paid up equity share Capital (b) Convertible preference share Capital4SHARE CAPITALTenure of Redeemable Preference Shares - 20 years [For defined infrastructural projects, tenure can be exceeding 20 years];Requirements of Further Issue of Share Capital applicable to all Cos.;Provision of ESOP at time of issue of further capital subject to approval of shareholders by special resolution;Pricing of preferential issue determined by Registered valuer;

5PROHIBITION OF ISSUE OF SHARES ON DISCOUNT [S.53]

Except as provided in section 54, a company shall not issue shares at a discount.Any share issued by a company at a discounted price shall be void.

Fine-1 lac up to 5 lacOfficer in default Imprisonment of 6 months or fine 1 lac up to 5 LacOr BothPENALTY:ISSUE OF SWEAT EQUITY SHARES [U/S 54]No shares can be issued at discount except sweat equity Shares;Special Resolution in General Meeting required [Validity :- Not more than 12 months ]; Employee & Value Additions defined in Rules;Limit of Sweat Equity :- Not more than 15% of existing paid up equity share capital in yr or shares of the Issue value of Rs. 5 Cr, whichever is higher. [Overall Limit :- 25% of Paid up Equity capital of Co. at any time].

7ISSUE OF BONUS SHARES [ S.63]

A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out ofFree reserves;Securities premium account; orCapital redemption reserve account

No issue of bonus shares shall be made by capitalizing reserves createdby the revaluation of assetsCompany once announced the decision of its Board recommending Bonus Issue, cannot withdraw the sameThe bonus shares shall not be issued in lieu of dividendISSUE OF BONUS SHARES SHALL SUBJECT TO:-No company shall capitalize its profits or reserves for the purpose of issuing fully paid-up bonus unless:-Authorized by its articles;Recommendation of the Board, been authorized in the general meeting of the company;Not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it;Not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus;The partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up.

DEBENTURES [ S. 71]Issue of debentures with an option to convert into shares, either wholly or partly at the time of redemption with approved by a special resolution passed at a general meeting.No issue of debentures carrying any voting rights.Creation of debenture redemption reserve account and the amount shall be only used for the redemption of debentures.No company shall issue a prospectus or make an offer or invitation to the public or to its members exceeding five hundred for the subscription of its debentures. A company shall pay interest and redeem the debentures in accordance with the terms and conditions of their issue.If company fails to redeem the debentures on the date of their maturity or pay interest ,Tribunal may, on the application of the debenture-holders, or debenture trustee order, the company to redeem the debentures along with payment of principal and interest due thereon.

Officer in Default-Imprisonment up to 3 years Officer in Default-Fine Rs. 2 lac -5 lacs PENALTY:MANAGEMENT & ADMINISTRATION

ANNUAL RETURN

As per Rules: Certification by PCS for Listed Company or a company with: Paid up capital Rs.10 Crore or moreAnd Turnover of Rs.50Crore or more Registered office, principal business activitiesSecurities and shareholding patternIndebtednessMembers and debenture holdersPromoters, directors, key managerial personnelMeetings of membersMeeting of board and committeesRemuneration of directors and KMPPenalty or punishment & details of compoundingshares held by or on behalf of the FIIsother matters as may be prescribed.DISCLOSURES IN ANNUAL RETURN SECTION 92 Matters relating to Certification of ComplianceANNUAL RETURN-POINTS TO BE CONSIDEREDEvery company shall prepare its AR in Form MGT.7Annual Return-Listed Company-Paid up of 10 Crore or turnover of 50 Crore To be certified by CS in Form MGT 8An Extract of annual return shall form part of Boards Report Non compliance may lead to penalty of 50K exceeding up to 5 lacs and office in default Imprisonment of Six months or fine of Rs.50K -5 Lacs

RETURN TO BE FILED WITH REGISTRAR IN CASE PROMOTERS STAKE CHANGES [ S.93]

Company/Officer in Default-Fine up to Rs. 10 ,000 Continuing Offence: Rs.1,000 /dayPENALTY:MEETINGS

ANNUAL GENERAL MEETING [S. 96]REPORT ON ANNUAL GENERAL MEETING [S.121]Report in addition to the minutes of the general meeting by Listed Public Company; To be signed and dated by the Chairman of the meeting or in case of his inability to sign, by any two directors of the company, one of whom shall be the Managing director, if there is one and company secretary of the company; the Report shall contain fair and correct summary of the proceedings of the meeting.Non Compliance-Fine-1 Lac to 5 Lac & Officer in Default-Rs.25 K to 1 LacCONTENTS OF THE REPORTDay, date, hour and venue of the annual general meeting; confirmation with respect to appointment of Chairman of the meeting; number of members attending the meeting; confirmation of quorum; confirmation with respect to compliance of the Act and the Rules, secretarial standards made there under with respect to calling, convening and conducting the meeting; business transacted at the meeting and result thereof; particulars with respect to any adjournment, postponement of meeting, change in venue; and any other points relevant for inclusion in the report.

EXTRA ORDINARY GENERAL MEETING [Sec 100]

Every general meeting (i.e. meeting of members of the company) other than annual general meeting or any adjournment thereof, is an extraordinary general meeting. The law also recognizes that occasions may arise where members may need to meet together formally on other occasions, in between AGMs.

ESSENTIALS OF VALID REQUISITIONThe requisition must state the objects of the meetings & be signed by the requisitioning members. The requisition must be deposited at the companys registered office.The Directors should within 21 days, move to call a meeting and the meeting should be actually be held within 45 days from the date of the lodgment of the requisition.The meeting may be called by requesitionist themselves within a period of 3 months from date of Requisition.

Lack of quorum will be a reason for the cancellation EGM called by requesitionistStrength for requisition of MembersCompany without Paid Up capitalCompany with Paid up Capital1/10 th of Voting Power1/10 th of Paid up Capital

STATEMENT TO BE ANNEXED WITH NOTICE SEC 102

Explanatory Statement in case of special business to specifyLiability in case of non-disclosure or insufficient disclosure in Explanatory Statement Nature of interest/ concernRelativesKMPDirector and ManagerOther InterestFinancial InterestNon-disclosure /insufficient disclosurePromoterKMPDirector and ManagerProfitBenefitExplanatory statement to specify shareholding % of Promoters/directors/manager/KMP whose shareholding is not less than 2% of paid up capitalLiable to compensate to Company to the extent of such profit/benefitPENAL PROVISION U/S 102WHO ARE RESPONSIBLE:Promoter, Director, Manager or Key managerial personnel who is in defaultFine up to Rs.50,000Or5 times the amount ofbenefit accruing to the promoter, director, manager or other key managerial personnel or anyof his relatives, WHICHEVER IS MORE.PENALTY:QUORUM FOR MEETING[ S.103] Public Company5 members personally present 15 members personally present30 members personally present 1000 members > 1000 members but 5000 members > 5000 members Private Company2 members personally present VOTING THROUGH ELECTRONIC MEANS [ Sec-108]

Listed company Right to vote at general meetings by electronic means.Company having not less than 1000 shareholders

APPOINTMENT & QUALIFICATION OF DIRECTORS

KEY CHANGES [S.149]

TOPICCompanies Act,2013Companies Act,1956Minimum Number of Directors2 Private Co.3-Public Co.1-One Person Co.2-Private Co.3-Public Co.Maximum Number of Directors15 Directors12 DirectorsIncrease in no. of directors beyond limitSpecial Resolution requiredC.G. Approval requiredResidential statusEvery Co. to have at least 1 director who has stayed in India for a total period of not less than 182 days in previous calendar yearNo such provision

TYPES OF DIRECTORS

NUMBER OF DIRECTORSHIP(S. 165)DISQUALIFICATION OF DIRECTORSDUTIES OF BOARDVACATION OF OFFICE OF DIRECTOR-S. 167REMOVAL OF DIRECTOR-[ S.169]

In Company Having Share Capital:

Member(s) having not less than 1/10th of the total voting power or holding shares the aggregate value of which is not less than Rs. 5 lakhIn any other Company:

Member(s) having not less than 1/10th of the total voting powerIn case of default, company and every director or employee who is responsible for such contravention to be punishable with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5 LacNotice of Removal can be given only by the following:-

INDEPENDENT DIRECTORNEED FOR INDEPENDENT DIRECTORWHEN AN ID IS MUST?Public Companies HAVING:Paid up Share Capital of Rs. 100 Cr or moreOROutstanding Loans; or Borrowings; or Debenture; or Exceeding 200 cr.DepositsEVOLUTION - ID based on:WHO CANNOT BE APPOINTED AS ID?One who together with his/her relatives holds 2 % or more of the total voting powers of the companyPast and current employees Partners of a firm of auditors, Company secretaries, Cost Accountants, Lawyers or consultants That has or had any transaction with the company, its holding, subsidiary or associate company ,if that firm earned 10 per cent or more of its gross turnover in the preceding three financial years from that company.

KEY HIGHLIGHTS-I.DCODE OF CONDUCT-SCHEDULE IVBOARD COMMITTEES: COMPOSITION OF IDTYPE OF COMMITTEECOMPOSITIONOTHER REQUIREMENTSAudit Committee [Section 177] 3 Directors Majority Independent Directors Roles stipulated Decisions no longer binding on the Board Whistle-blower policy required, providing direct access to the chairman of the Audit CommitteeNomination & Remuneration Committee [Section 135] 3 Directors Majority Independent DirectorsCSR Committee [Section 178] 3 Directors 1 Independent DirectorStakeholder Relationship Committee [Section 178] Strength and composition determined by the Board Chairman to be non-executivePurpose to solve the grievances of security holdersSAFEGUARD AGAINST THE LIABILITY OF ID [U/s. 149(11)]If the offences committed by Independent Directors with their:43LIABILITY OF IDThe liability arises on account of conduct , act or omission on the part of a person and not merely on account of holding an office or a position in a company. -SMS Pharmaceuticals Ltd, Supreme Court [September 2005]

TERM OF INDEPENDENT DIRECTORSEBI HAS IMPOSED STRINGENT PROVISIONS WITH REGARD TO INDEPENDENT DIRECTOR

INDEPENDENT DIRECTORS - CONTRADICTIONSThe demand for independent directors is set to be large and the supply limitedThe ministry of corporate affairs rules say the individual should possess appropriate skillsDiscontinuance of Practice of appointing friends, relatives,.Listing agreement allows listed companies to allot stock options to independent directors , after obtaining shareholders consent but Companies Act,2013 does not allow allotment of Stock options.

WOMEN DIRECTOR

RATIONALE - WOMEN DIRECTORA signal of better companyGreater effort across the BoardA better mix of Leadership SkillA better reflection of Consumer decision makerAccess to a wider pool of TalentImproved Corporate GovernanceRisk aversion

49POSITION OF WD-TOP TEN COUNTRIES

POSITION OF WOMEN DIRECTOR IN INDIAMEETING OF BOARD & ITS POWERS

BOARD OF DIRECTORS

BOARD MEETINGBOARD COMMITTEES: APPLICABILITYTYPE OF COMPANYAUDIT COMMITTEENOMINATION & REMUNERATION COMMITTEECSR COMMITTEESTAKEHOLDER RELATIONSHIP COMMITTEEPrivate CompanyNot applicableNot applicableIndependent Director required on CSR Committee if:

Net worth INR 500 Crores Turnover INR 1000 Crores Net profit INR 5 croresNot applicablePublic Unlisted CompanyBoth committees required if the company has: Paid-up share capital of INR 100 crores or more; or Aggregate outstanding loans, borrowings, debentures or deposits exceeding INR 200 croresApplies if the company has 1000 or more shareholdersPublic Listed CompanyApplicableApplies if the company has 1000 or more shareholdersPOWERS OF THE BOARDKey Changes [Section 179]Can be exercised only at a meeting of the Board of Directors: Approval of financial statements and Board reports Diversification of business; Approval of amalgamation, merger or reconstruction Approval of takeover of another company or acquisition of a substantial stake in another companyLIABILITY OF DIRECTORS AND OFFICERSLiability of Directors under Section 166 relating to duties of Director - Director shall be liable to a fine of not less than 1 lac & may extend up to 5 LacLiability under Section 172 of the company and any officer in default for any contravention of this chapter ,

Independent and non-executive Directors only face liability for an act or omission where they have knowledge (attributable through the Board process) or if there is consent, connivance or a lack of diligence.

Company/Officer in Default-Fine up to Rs.50,000Extending Up to : Rs. 5 LacsPENALTY:RESTRICTIONS ON THE POWER OF THE BOARD

SITTING FEES-Section 197LOANS & INVESTMENTS

LOANS TO DIRECTORS [U/s 185]Applicability :- Pvt. & Public Companies No Co. shall directly/indirectly make loan [including book debt] or give guarantee/provide security to its Director/other person in whom director is interested* [*Similar to Sec. 297 of the 1956 Act]; Exemptions :- Loan to MD/WTD as part of contract of services extended to all its employees or pursuant to scheme approved by special resolution of members;Co. whose ordinary business to provide loan/guarantee/security with charges of interest not less than RBI rate. Penalty :- Fine Rs. 5 to 25 Lakh for Co./Director along with Imprisonment for defaulting Dir. up to 6 months.

60 POSITION AS PER NOTIFIED RULES(1) Loan ,Guarantee, Security by holding company to its wholly owned subsidiary company in respect of any loan made to its wholly owned subsidiary company is exempted from the requirements under this section Loans made under sub-rule (1) and (2) are to be utilized by the subsidiary company for its principle business activities. (2) Guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company is exempted from the requirements under this sectionLOANS & INVESTMENT BY COMPANY [U/s 186]Coverage :- Investment, Loan, Guarantee or Security to Body Corporate or any other person;Rate of interest:- Not Lower than prevailing yield of 1 /3/5/10 yr Govt. security closest to tenure of loan;Restriction on investment in not more than 2 layers of investment companies, [U/s 186(1)];[Exemptions :- Cos incorporated outside India & layers for meeting statutory requirements];

62AMOUNT OF LOAN & INVESTMENT U/s 186(3)No company shall directly or indirectly give loan guarantee or acquire by way of subscription :Exceeding 60% of its paid up capital, free reserves and securities premium accountOr 100% of its free reserves and securities premium account whichever is morePOSITION UNDER NOTIFIED RULESIf loan, guarantee ,security has been provided by a company to its wholly owned subsidiary company or a J/V, or acquisition is made of the securities of its wholly owned subsidiary company, the requirement of sub-section (3) of section 186 shall not applyCompany shall disclose the details of such loans or guarantee or security or acquisition in the financial statement as provided under sub-section (4) of section 186. HOWEVERINSPITE OF EXEMPTION UNDER THE PROVISIO:A director or his relative;A Key Managerial Personnel (KMP) or his relative;A firm in which a director, manager or his relative is a partner;A private company - in which a director or manager is a member or director;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;RELATED PARTY [U/s 2(76)] 65RELATED PARTY [U/s 2(76)] Any person or any Body Corporate whose Board is accustomed to act in accordance with advice of Director or manager.Senior Management Personnel / Members of core Management Team of Holding /subsidiary /Associate Co. one level below Executive Directors and Functional Heads. KMP /Director of Holding /subsidiary /Associate Co.Holding /subsidiary /Associate Co. of the Co. Subsidiary of Holding Co. to Co. is subsidiaryDirector/KMP of the holding company or his relative with reference to a company.

66RELATIVE [U/S 2(77)]BROTHER/ STEP BROTHERTHE PERSON [X]SISTER/ STEP SISTERSPOUSEDAUGHTERS HUSBAND DAUGHTERSONS WIFESON [STEPSON]MOTHER / STEP MOTHERFATHER/ STEP FATHERMEMBERS OF HUF67APPOINTMENT & RENUMERATION OF MENEGERIAL PERSONNEL

ROLES OF DIRECTORMANAGING DIRECTOR Entrusted with substantial powers of managementOccupying position of managing director by whatever name called MANAGER Having Management of whole of affairs of the Company Includes director occupying position of manager by whatever name called DISQUALIFICATIONS FOR APPOINTMENT AS MD/WD/MANAGER [S.196]

Subsection (3) states disqualifications of MD/WD/Manager.A person who is below 21 and above 70 cant be appointed as MD/WD but extension beyond 70 allowed by special resolution.The explanatory statement annexed to the notice for such must state the justification for appointing such person Appointment to be made by Board and approved by members by ordinary resolution without govt. approval if Schedule V complied with.Notices of board and general meeting to disclose details of terms and conditions, remuneration and directors interest. A return to be filed within 60 days of appointment / reappointment. If members disapprove appointment / reappointment,acts by the appointee before the general meeting shall not be deemed to be invalid.REMUNERATION DEFINEDRemuneration means any money or its equivalent given or passed to any person for services rendered by him and includes perquisites as defined under the Incometax Act, 1961. [S. 2(78)]This definition is substantially different from the definition in s. 198 of 1956 Act.While all components of remuneration (other than perquisites) will be taken on actual expenditure basis, perquisites will be taken as per Income Tax Act and Rules.REMUNERATION OF DIRECTORS [S. 197]This section and Schedule V dont apply to private companies. They apply to public companies and subsidiaries of public companies.Private companies (which are not subsidiaries of public companies) are free to remunerate their directors and managing/wholetime directors freely without any limit and any approval of members or govt.Section 196 and Part I of Schedule V applicable to private companies as well.

REMUNERATION OF MD / WD / MANAGER

Overall ceiling on remuneration of all directors: 11% of Net Profit (NP). In excess of 11% can be paid with the approval of shareholders and CG.NP to be calculated as per s. 198 (s. 349 of the 1956 Act)Fees for attending board meetings over and above 11%.

Renumuneration payable to directors who are neither MDs nor WDs shall not exceed, ,(A) 1% of the net profits of the company, if there is a MD or WD or Manager;(B) 3% of the net profits in any other case.Thus, members approval is not required to pay remuneration up to 1% or 3%REMUNERATION TO NON EXECUTIVE DIRECTORS

SCHEDULE-VPart I of Sch. V contains conditions to be complied with at the time of appointment / reappointment of any managerial person [MD/WD/Mgr].No approval of the CG necessary if conditions in Part I are complied with.EFFECTIVE CAPITALAggregate of the paid-up share capital (excluding share application money or advances against shares)Amount, if any, for the time being standing to the credit of share premium account; reserves and surplus (excluding revaluation reserve);long-term loans and deposits repayable after one year (excluding working capital loans, over draftsInterest due on loans unless funded, bank guarantee,Other short-term arrangements) as reduced by the aggregate of any investments (except in case of investment by an investment companywhose principal business is acquisition of shares, stock, debentures or other securities),Accumulated losses and preliminary expenses not written off.SCHEDULE V: PART II

Part II of Sch. V contains conditions to be complied with in respect of remuneration.Section I of Part II provides: a company having profits in a financial year may pay remuneration to a managerial person(s) within the limits specified in s. 197, i.e. 5% or 10% of NP.Section II of Part II contains provisions applicable in a financial year when a company has no profit or inadequate profit.In such a case, remuneration can be paid to managerial person(s) without govt. approval but within the limit under Para (A) or (B) as applicable.The applicable limit can be doubled if remuneration is approved by special resolution.Section III of Part II contains provisions applicable to remuneration payable by companies having no profit or inadequate profit without govt. approval in certain special circumstances if the remuneration is in excess of the limit specified in Section II of Part II.

REMUNERATION FOR PROFESSIONAL SERVICES

As a rule, remuneration payable to NEDs in any other capacity must be included in the 11% and 1% or 3% limits.But remuneration for professional services is excluded, if(a) the services rendered are of a professional nature; and(b) in the opinion of the Nomination and RemunerationCommittee [if the company requires this committee under s. 178], or the Board in other cases, the director possesses the requisite qualification for the practice of the profession. [S. 197(4), Proviso]KEY MANEGERIAL PERSONNEL

KEY MANAGERIAL PERSONNELCEOM DORCompany Secretary CFOWhole Time DirectorORSuch Officer as may be prescribedDefinition in Section 2 (51) of the ActSection 203 (1) of the Act AS 18 - Related Party TransactionsKey managerial personnel, in relation to a company, means:thechief executive officeror the managing directoror the manager;the company secretary;the whole-time director;the chief financial officer; andsuch other officer as may be prescribedEvery company having paid up capital of Rs.10 Crore or more shall have the following whole-time key managerial personnel:(i)managing director, orchief executive officeror manager and in their absence, a whole-time director;(ii) company secretary; and(iii) chief financial officer :

.Key management personnel- those persons who have the authority and responsibility for planning, directing and controlling the activities of the reporting enterprise.KEY HIGHLIGHTSOFFICER IN DEFAULT-Section 2(6)KMP&Whole Time DirectorIf no KMPsDirectors appointed as ODORAll directors if no one is appointed Any person authorized by Board or KMPsAny person who advices, directs or instruct s BoDEvery Director who is aware of contraventionFor issue or transfer of shares:Share Transfer AgentRegistrar to issueMerchant BankerOFFICER WHO IS IN DEFAULTCompanies Act 1956Companies Act 2013MD/ WTD/ Manager/Person in accordance with whose directions the Board is accustomed to act No provision to impose liability on all directorsExternal parties not counted in the definition for Officer in Default

WTD/KMP/ Directors specified by the Board in the absence of such specification, all DirectorsWhere there is no specific authorization by the Board all directors would be held liable. Most importantly, every director who is AWARE of such contravention by virtue of receipt of any proceedings or PARTICIPATION in such proceedings without objecting to the same would be held liableShare transfer agents, Registrar to an Issue and Merchant Bankers to Issue to be held liable in the event of default in respect of issue or transfer of shares of a company (shares used and not securities)FINAL IMPACT ON CORPORATES

CA Punkaj Jain7A LGF,NRI Complex, Mandakini, Greater Kailash -IVPh:- 9810286606Email Id :- oswalpunkaj@gmail.comUrl: www.capoc.in

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