New Concepts in Companies Act 2013By Jayanth Viswanathan

15.10.2013(Total Slides 16)

History of Companies ActCompanies Act 1866Companies Act 1882Companies Act 1913Companies Act 1956

COMPANIES ACT 2013

1

When and how did Bill change to Act

December 2004 – J.J. Irani Committee formed to advise on New

Companies Act

Report Submitted on May 2005 and First Companies Bill was placed

before Lok Sabha in 2008 as Companies Bill 2008

Then came Companies Bill 2009, formation of Standing Committee,

Then companies Bill 2010

Then Companies Bill 2011, again Standing Committee

Then Companies Bill 2012 was placed and approved by Lok Sabha

on 18th December 2012 and Rajya Sabha on 08th August 2013

PRESIDENT OF INDIA ON AUGUST 29, 2013 SIGNED THE BILL AND THUS COMPANIES BILL BECOMES

COMPANIES ACT 2013 (18 OF 2013)

2

Why Companies Act 2013?Better Governance

Tighter and wider disclosure normsMore powers in the hands of Shareholders

Roles of Directors definedStringent Audits in place

CSR mandatedSpecial Courts established

Synchronisation with SEBI and other acts

3

FeaturesCOMPANIES ACT 1956 COMPANIES ACT 2013

13 Parts 29 Chapters

658 Sections 470 Sections

15 Schedules 7 Schedules

Some New Concepts in Companies Act 2013

One Person Company Small/Dormant Company

Clause Action Suit Key Managerial Person/Secretarial Audit

Woman/Resident Director Rotation of Auditors/Internal Auditor

Independent Directors NCLT/Special Courts/NFRA

Corporate Social Responsibility4

One person Company (OPC)Section 2(62) read with section 3 (1)(c) of the

Companies Act 2013 provides for One Person Company.

One Single Individual (not artifical) can start a Company.

Shall be registered as Private Limited ending with OPC Pvt. Ltd.

MOA to mention name of the SuccessorAdvantages of OPC

Limited Liability Single Individual

AGM concept not applicable

Exemptions

5

Key Managerial Personnel(KMP)

Sec. 2(52) read with sec. 230 of the CA ’13 deals in KMP

Managing Director or CEO or Manager and in their

absence, a WTD

Company Secretary

Chief Financial OfficerKey provisions relating to KMPShall be appointed by the Board vide Resolution

Is officer in default

Cannot hold office in more than one company (except MD in 2 co.)

Contravening penalty for Co.- Rs. 1 lakh upto Rs. 5 lakhs for KMP Rs. 50,000 and Rs. 1000 everyday

6

Secretarial AuditEvery Listed Company and company belonging

to such other class shall annex with its Board’s report a Secretarial Audit Report given by a Practicing Company Secretary

It is an Independent appraisal of the secretarial practices, system and procedures.

The Directors shall explain in full any qualification in their report.

Contravening penalty for Co/any officer or PCS Rs. 1 lakh may go upto Rs.5 lakhs

7

Small/Dormant Company Small Company Sec. 2(85)

A company other than Public company

Having paid-up capital not more than Rs.50,00,000

Turnover not exceeding Rs. 2,00,00,000

Exception: 1. Holding/Subsidiary companies;2.section 8 co.

• Dormant Company Sec 455.

A company formed and registered for a future project or hold any

assets or IPR without any accounting transaction may apply for

“Inactive Company” status with ROC who will verify the application

and give dormant status certificate

8

AuditorsListed and such other class of companies as may be prescribed –

Rotation of Auditors mandated

Listed company- Individual auditor to retire every five years. Partnership firm every 10 years.

Other company – To be appointed for a period of five years. Appointment for every year to be ratified.

Auditors not to provide services such as book keeping, accounting directly or indirectly to co., its holding and subsidiary too.

Auditing Standards along with Accounting Standards made mandatory

• Internal Auditor: Mandatory for prescribed Companies

• Internal Auditor can be qualified CA, CWA or CS

9

Independent, Resident & Woman Director

Maximum of 15 Directors in the Board

Prescribed class to have 1 woman director

Atleast one director shall be a person who has stayed in India

for a period of not less than 182 days in the previous calendar

year.

•First time Independent Director concept introduced in Companies

Act, although it has been in practice since the year 2000.

•Independent Director’s to follow code as per Schedule IV of

Companies Act 2013.

10

Corporate Social Responsibility

Every Company having Networth of Rs.500 Crores or more (or) Turnover of Rs. 1000 Crores or more (or) Net Profit of Rs. 5 Crores of more

• Shall spend atleast 2% of their avg. Net profit in the past three years for CSR activities

• Activities Listed in Schedule VII of CA 2013.

• Shall mandatorily have a CSR Committee with minimum of three directors all of whom must be Independent.

11

Class Action SuitA provision which enables group of shareholders/depositors

to file a combined case against the company to restrain from a particular act and/or claim damages/compensation for improper conduct, misleading statements and fraudulent or illegal acts by the company or its directors.

• Based on US model. Class Action suit famous in the United States with companies like Enron paying upto $7.2 Billion as compensation some went upto $206 Billion over a period of 25 years.

New concept in India let us we hope that it stands the test of time and gives us a more efficient and transparent company law regime.

12

National Company Law Tribunal/ Special Courts

The Company Law Board is replaced by NCLT.

• All pending cases shall be transferred from CLB to NCLT after it is notified by Central Government

• Cases should be completed by NCLT within 3 months

• SPECIAL COURTS: All such violations of the Companies Act 1956 shall be tried by the Special Courts established for the area in which the registered office of the company is situated

• It may follow Code of Criminal Procedure 1973

Cases under NCLTArbitration & Compromise BIFR cases

Amalgamation & Reconstruction

Winding Up

13

National Financial Reporting Authority

An investigation authority to investigate on its own or by orders of CG

the Company Professionals misconducts conducted by

members/firms registered under ICAI

•Exclusive powers to make recommendations on auditing & accounting policies, monitor and enforce Accounting and Auditing Standards.

•Exclusive authority to investigate into the misconducts and issue penalty not less than Rs. 10lakhs or 10times the fee w.e.h.

14

Quick bites on other provisions33 New definitionsFinancial Year to end only on 31st March

every yearPrivate Limited Company no. of members

increased to 200Associate company, Fraud definedNo more bifurcation of Main object, Ancillary

object, Other object. A Co. cannot give other object clauses.

Maintenance of Accounts in Electronic FormScope of Annual Returns huge. 15

Quick bites on other provisionsNo change in Managerial remuneration limitsNomination and Remuneration committee,

Stake Holder relationship committee mandated

No stock option for Independent DirectorsCourier mode recognisedCross border amalgamation recognisedInsider Trading IntroducedSecretarial Standards mandatedRegistered valuers defined

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Email: jayanthviswanathan@gmail.com