The Companies Act, 2013 passed by the Parliament has received the assent of the President\u00a0of India on 29th August, 2013. The Act which consolidates and amends the law relating to\u00a0companies has been notified in the Official Gazette on 30th August, 2013. While some of the\u00a0provisions of the Act have been implemented by a notification published on 12th September,\u00a02013, remaining Section including related Rules are being notified\/implemented in phases.\u00a0As on 01.04.2014, 283 sections have been notified which are effective from 1st of April, 2014.\u00a0In this article, an attempt is made to cover the major provisions of the Companies Act, 1956 and the changes brought in under the new Companies Act, 2013 (\u201cAct\u201d) which may have\u00a0significant impact on the Companies.<\/p>\n
The New Companies Act, 2013 has come up with a\u00a0new concept of OPC which means a company which has only one person as a\u00a0Member. However, it can have more than one Director. OPCs are exempted from
\nmany provisions of the Act.<\/li>\n
The Provisions relating to appointment of KMP
\n(includes (i) the Chief Executive Officer or the managing director or the manager; (ii)
\nthe company secretary; (iii) the whole-time director; (iv) the Chief Financial Officer;
\nand (v) such other officer as may be prescribed \u00a0is applicable only for Public
\nLimited Companies having paid up capital more than 10 crores and Private Limited
\nCompanies are exempted from appointment of KMPs.<\/li>\n
The Private Limited Companies are allowed to accept
\ndeposits as per the procedure prescribed under the Act and rules made there under.
\nHowever, borrowings from Directors and Promoters are not considered as Deposits
\nsubject to some conditions.<\/li>\n
Giving loan to Directors or the companies in which there are
\ncommon directors or shareholders is strictly prohibited under Section 185. This
\nprovision is applicable to private limited Companies also.<\/li>\n
Rotation of Statutory Auditor is required after
\ntransition period of 3 years form applicability of Companies Act 2013. Following
\ncompanies are under the obligation to rotate the statutory auditors after 5 years or 10
\nyears:<\/p>\n
i. All unlisted public companies having paid up share capital of rupees ten crore
\nor more;
\nii. all private limited companies having paid up share capital of rupees twenty
\ncrore or more;
\niii. all companies having paid up share capital of below threshold limit
\nmentioned in (i) and (ii) above, but having public borrowings from financial
\ninstitutions, banks or public deposits of rupees fifty crores or more.<\/li>\n<\/ul>\n
<\/p>\n
The Statutory Auditor of the
\nCompany not to give following specialized services directly or indirectly :
\na) accounting and book keeping services;
\nb) internal audit;
\nc) design and implementation of any financial information system;
\nd) actuarial services;
\ne) investment advisory services;
\nf) investment banking services;
\ng) rendering of outsourced financial services;
\nh) Management services; and other services as may be prescribed.<\/li>\n
All companies will have to pass special resolution u\/s. 180 for taking
\napproval from Shareholders for approving limit of total loan exceeding paid up
\ncapital and free reserves. Earlier, this was not applicable to private limited
\ncompanies.<\/li>\n
As per Section 149 of the Act, every company shall have at least
\none director who has stayed in India for a total period of not less than one hundred
\nand eighty-two days in the previous calendar year.<\/li>\n
The following class of companies shall appoint at least one woman
\ndirector-
\n(i) every listed company;
\n(ii) every other public company having paid\u2013up share capital of one hundred
\ncrore rupees or more; or turnover of three hundred crore rupees or more.<\/li>\n
Consolidation of accounts is mandatory in case of
\nsubsidiary or associate companies. Associates companies are those in which a
\ncompany having control of 20% or more in share capital of other company.<\/li>\n
CSR committee of the Board has to be
\nconstituted and 2% of the average net profits of the last three financial years are to be
\nmandatorily spent on CSR activities by an Indian company if any of the following
\ncriteria is met:
\ni. Net worth of Rs.500 crores; or
\nii. Turnover of Rs. 1000 crores or more; or
\niii. Net profit of Rs. 5 crores or more.<\/li>\n
This section corresponds to section 81 of the Companies
\nAct, 1956 which was applicable to only public limited Companies. For any increase of
\nsubscribed share capital, an offer is to be made on pro rata basis to all existing
\nshareholders. Otherwise, the shareholders will have to approve the proposal by a
\nspecial resolution in which case issue price of shares is subject to valuation by a
\nregistered valuer.<\/li>\n
Secretarial Audit from Practicing Company Secretary is
\ncompulsory only for Public Limited companies having Paid Up Capital more than 50
\ncrores or Turnover 250 Crores or more.<\/li>\n
Provisions are applicable, among others, even to every private
\ncompany having-
\n(i) turnover of two hundred crore rupees or more during the preceding financial
\nyear; or
\n(ii) outstanding loans or borrowings from banks or public financial institutions
\nexceeding one hundred crore rupees or more at any point of time during the
\npreceding financial year.<\/li>\n
Financial Statements are now defined under the Act as
\ncomprising of the following. All companies are now mandatorily required to maintain
\nthe following, (except one person Company, small company and dormant company
\nwhich may not include the cash flow statement):
\ni. A balance sheet as at the end of the financial year;
\nii. A profit and loss account \/ an income and expenditure account for the
\nfinancial year, as the case may be;
\niii. Cash flow statement for the financial year;
\niv. A statement of changes in equity, if applicable; and
\nv. Any explanatory note annexed to, or forming part of, any document referred
\nto in sub-clause (i) to sub-clause (iv);<\/li>\n
As per the new Act, Financial Year in relation to any company or
\nbody corporate, means the period ending on the 31st day of March every year, and
\nwhere it has been incorporated on or after the 1st day of January of a year, the period
\nending on the 31st day of March of the following year, in respect whereof financial
\nstatement of the company or body corporate is made up. Accordingly, all the
\nCompanies having different financial year will have to align their financial year in
\nline with the above definition within two years.
\nHowever, on an application made by a company or body corporate, which is a
\nholding company or a subsidiary of a company incorporated outside India and is
\nrequired to follow a different financial year for consolidation of its accounts outside
\nIndia, the Tribunal may, if it is satisfied, allow any period as its financial year,
\nwhether or not that period is a year.<\/li>\n
This is an important provision. If an auditor of a company, in the
\ncourse of the performance of his duties as auditor, has reason to believe that an
\noffence involving fraud is being or has been committed against the company by
\nofficers or employees of the company, he shall immediately report the matter to the
\nCentral Government within such time and in such manner as may be prescribed.<\/li>\n
As per section 167 of the Act, a Director shall vacate his
\noffice if he absents himself from all the meetings of the Board of Directors held during
\na period of twelve months with or without seeking leave of absence of the Board. That
\nmean to say, attending at least one Board Meeting by a director in a year is a must.
\nOtherwise he has to vacate his office.<\/li>\n
If a Company proposes to appoint a managing
\ndirector, whole-time director, it can appoint him for a term not exceeding five years
\nat a time and no re-appointment shall be made earlier than one year before the
\nexpiry of his term.
\nAs can be seen from the above, the new Act dilutes the distinction between the
\nprivate limited Company and public limited\/listed companies as compared to the old
\nAct of 1956. Further, the Act is proposed to be implemented through subordinate
\nregulations called \u2018Rules\u2019 giving flexibility of amendment to suite the requirements of the
\ntime. Also, Fines\/Penalties proposed to be imposed for any contravention of the
\nprovisions of the Act have been increased manifold compared to the old Act expecting
\nstakeholders\/corporates to fall in line with the law in letter and spirit.<\/li>\n<\/ul>\n
**********************<\/p>\n
Written by: Vivek Hegde, B.com, ACS, CWA
\nProprietor<\/p>\n","protected":false},"excerpt":{"rendered":"