2013 - L IBERALIZATION OF LAW ONE PERSON COMPANY THE COMPANIES A CT - - PowerPoint PPT Presentation

COMPANIES ACT 2013 - LIBERALIZATION

OF LAW

ONE PERSON COMPANY

THE COMPANIES ACT 2013 ALONG WITH INTRODUCTION OF THE NEW PROVISIONS HAVE LIBERALIZED VARIOUS PROVISIONS WHICH WERE PROVIDED UNDER THE COMPANIES ACT 1956. SOME OF SUCH PROVISION ARE DESCRIBED AHEAD

• Contd. ..

ONE PERSON COMPANY

One Person Company

In the Act, a sole person is allowed to form a private company as a member, as against the existing requirement of two members. Many companies in India have two directors/ shareholders, where the other director remains only a dummy one and becomes so only to comply with the law. This is an opportunity for sole proprietorship to get a legal face/identity and a step towards the transformation of the unorganized sector to an organized one.

Impact

REVISION OF FINANCIAL STATEMENTS

AND BOARD REPORT

Revision possible only if the financial statement or the Board Report don’t comply with specified provisions in its respect. Revision may be made in respect of any of the 3 preceding financial years. Prior approval of Tribunal has to be sought. Such a revision can’t be made for more than once in a year. Detailed reasons for such a revision shall be disclosed in Board's report in the relevant financial year in which the revision is being made. It will give an opportunity to the Company to fix its compliance status than pay hefty penalties .

Revision of Financial Statements & Board Report

Impact

NUMBER OF DIRECTORS

A Company can now have a maximum of 15 directors, from the earlier provision of 12. Directors may be increased beyond 15 only by passing a special resolution but no government approval will be required. This will enable companies to enlarge length and breadth of experience and expertise in the Board room. Requirement of obtaining permission from the Central Government for removal of a director has been done away with, thereby reducing procedural hassles and delay.

Impact

Number of Directors

PARTICIPATION

OF DIRECTORS VIDE VIDEO CONFERENCING

The Act allows the participation of a director in the Board meeting through video conferencing or other audio visual mode as may be prescribed which are capable of recording and such participation would be counted for the purpose of quorum also. The central government may however, specify such matters which shall not be dealt with in Board meeting conducted through such means. The same has already been allowed vide General Circular issued by Ministry of Corporate Affairs in this respect. However, some questions regarding the recording of the proceedings etc. remain to be clarified by the Rules under the Act. The introduction of this provision will enable the Directors to participate in a Board meeting from wherever place they are. Specially will benefit Foreign Companies

Participation of Directors Vide Video Conferencing

Impact

CENTRAL GOVERNMENT APPROVAL

As per Act, a company can give loan to Managing or Whole Time Director if such loan is a part of the condition of service extended by the Company to all its employees or pursuant to a scheme approved by members through Special Resolution. No Central Government approval is required.

Central Government’s Approval

Loan To Directors Related Party Transactions

The Act provides that any contract or arrangement with a related party in case of companies having paid-up share capital of not less than such amount or transactions not exceeding such sums, as may be prescribed, may be carried out by approval of the shareholders by way of special resolution. Further, relaxing the provisions, no approval of Central Government is required for entering into any related arty transaction or appointment of any director or any other person to any

• ffice or place of profit in the company or its subsidiary

No approval of Central Government required for appointment of any director or any other person to any Office or Place of profit in the company or its subsidiary. The requirement of taking permission from the Central Government has been dispensed with, thus making the process less time consuming. However, these provisions do not seem to be investor- friendly as very big decisions will be allowed to be taken merely by the passing of a special resolution by the company, which when thought on a practical note, is not such a big task for a company.

Central Government’s Approval

Appointment at Place of Profit

Impact

SMALL COMPANIES MERGER

Separate provisions have been provided for merger or amalgamation between two or more small companies or between a holding company and its wholly

• wned subsidiary company.

Such companies will be given an option either to follow the special provisions

• f the Act which provide for a simpler process for merger by taking approval
• f the Central Government, or rules of normal merger or amalgamation

through the court route. The prescription of a smaller process for merger between small companies will help save time as it may consume lesser time and will be more time effective, if approved by the Central Government in a time bound manner.

Small Companies Merger

Impact

MANAGERIAL REMUNERATION

Managerial Remuneration up to twice the permissible amount may be provided in : New Company for a period of 7 years after incorporation Sick Company for a period of 5 years for which the scheme of revival is being ordered by the Board Such a provision is bound to serve as a propellant for managerial personnel of the companies that are newly incorporated and those that are sick so that these persons can continue working and contribute to the growth of the organization despite its condition.

Managerial Remuneration

Impact

REMOVAL OF NAME OF COMPANY

Procedure for removal of name of company has been made simpler. A company can apply for removal, after extinguishing all its liabilities in the following situations. It has failed to commence its business within 1 year of its incorporation; Where subscribers to Memorandum have neither paid the subscription which they had undertaken to pay within a period of 180 days from the date of incorporation of a company nor made declaration as required for commencement of business within 180 days of incorporation; or Where it is not carrying on any business or operation for a period of 2 immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under the Act.

Removal of Name of Company

Process of winding up under the present Act is a lengthy process but by virtue

• f this section in the Act, the process will be shortened.

Some companies which do not do their filing and conduct no business under the name, still keep the company alive to avoid wasting time in winding up

• proceedings. However, with the simplification in the process, many such

companies will easily take steps to close down the company. Besides this, the introduction of the provision relating to where a company whose subscribers have also not paid the subscription within 180 days of incorporation, is seen as a good move as such companies, as has also been seen in the past, often result in committing defaults or problems at time of winding up.

Removal of Name of Company

Impact

DORMANT COMPANY

An inactive company or a company formed & registered for a future project or to hold an asset or intellectual property and not having any significant accounting transaction, may make an application to the Registrar for obtaining the status of a dormant company. The terms ‘Inactive company’ & ‘Significant Accounting Transaction’ defined have also been defined . Such a company shall have minimum number of directors, file some documents and pay some annual fee to the Registrar to retain its dormant status in the register and may become an active company on an application made in that regard. Registrar will also on its own accord list some companies as dormant if they have failed to file financial statements or annual returns for 2 financial years

• consecutively. This will be done after a notice regarding the same has been sent

to the company.

Dormant Company

For corporates, it will be a simple way out to keep the company in inactive form instead of opting for defunct, under the shelter of dormant status companies confined for limited compliances thereby also saving the undue cost to the Company. Another prospect is that aspiring Companies can regain the active status once they have complied with the necessary documentation and filing. With distinctive criteria for Dormant Companies, it will be easier for regulatory authorities, creditors, investors to identify the companies under the dormant status.

Dormant Company

Impact

MAINTENANCE & INSPECTION

OF DOCUMENTS IN ELECTRONIC FORM

Registers and records may be kept and maintained in electronic format Any document, record, register, minute, etc , that are required to be kept by a company; or allowed to be inspected or copies of which are to be given to any person by a company; the same may be kept or inspected or copies given, as the case may be, electronically in such form and manner as may be prescribed.

Maintenance & Inspection of Documents in E-form

SMALL

SHAREHOLDERS’

DIRECTOR

Only Listed Companies will be required to have one director elected by small shareholders, compared to the earlier requirement of public companies having a paid-up capital of five crore rupees or more or one thousand or more small shareholders, to have a small shareholder director.

Small Shareholders’ Director

THANK YOU