The Companies Act 2013 Aims at Introducing some Modifying the - - PowerPoint PPT Presentation

Modifying the existing provisions

Introducing some NEW Concepts

The Companies Act 2013

Aims at

Some New Concepts Introduced

Independent Director Treasury Stock Registered Valuer Associate One Person Company Woman Director Corporate Social Responsibility Private Placement

2 1 5 8 3 6 9

Class Action

4

Secretarial Audit

7

Holding Subsidiary Merger

10

Dormant Company

13 11

Rotation

• f Auditors

12

ONE PERSON COMPANY

Formed for lawful purpose by only one person as its member Characterized as a Private Company The Single Member to subscribe to the Memorandum of Association and ensure all compliances A nominee member indicated with his prior consent to act in case of the

• nly member’s incapacity to contract or death

No Compulsion to hold an Annual General Meeting Filing of a copy of Financial Statements mandatory

• Contd. ..

ONE PERSON COMPANY

Required to conduct at least one Board Meeting in each half year with a gap of not less than 90 days between 2 consecutive meetings Non Applicability of the provision of Quorum of a Board Meeting in case of only one director on the Board Business considered transacted if simply recorded in the minutes book, especially where:

• A company is otherwise required to pass an ordinary or a special

resolution at a General Meeting

• The Board of Directors of the One-Person Company has only one

Director

INDEPENDENT DIRECTOR

1/3rd of the Total Directorship

• f a listed Company to be

Independent Number of Independent Directors for other Public Limited Companies to be prescribed byCentral Government A tenure of up to 5 years allowed but reappointment may be considered 3-year gap required for more than 2 terms of Consecutive 5 years, as an Independent Director in the same Company Appointment of Independent Director in General Meeting only All such Directors to meet separately atleast once a year

Liability only in respect of

• mission or commission by the

Company occurred with the knowledge, consent and non- diligence of such Director

INDEPENDENT DIRECTOR

Specified role and duties of Independent Director under the Companies Act No remuneration except for sitting fee, reimbursement of expenses related to meeting and profit related commission

Transitional Phase of 1 year allowed to any company existing at the time

• f enactment of the Act for

compliance with this requirement

Possess other prescribed qualification

INDEPENDENT DIRECTOR

Eligibility to be an Independent Director

Be a Director other than Managing/ Whole Time/ Nominee Director Be a person of integrity & possess relevant expertise & experience Not be a promoter/relative of promoter of the Company, its holding, subsidiary or associate Company Not have a pecuniary relationship with the Company, its holding, subsidiary or associate company and its promoters and directors during 2 immediately preceding financial years

Should not hold together 2% or more voting power in the Company Should not be a Chief Executive of any NPO which receives 25% or more of its receipts from the Company

INDEPENDENT DIRECTOR

Not have any RELATIVES who have had any pecuniary relationship with the Company, it’s holding, subsidiary and associate Companies, their directors or promoters, 2 or more percent of its gross turnover or total income

• Rs. 50 Lakh or a higher amount as may be prescribed

Amounting To:

Himself or the relatives: Should not have been a KMP of the Company, its holding/subsidiary or associate Company in any of the 3 previous financial years Should not have been an employee/ partner/ proprietor of the auditor firm/ legal firm or a consulting firm of the Company

WOMAN DIRECTOR

The Companies Act, 1956 has no specifications or compulsions which specifically calls for appointing female directors. Once the Companies Act 2013 is enacted, the Central Government will prescribe a class of Companies which will have to mandatorily appoint at least 1 Woman Director.

The Companies existing at the time of enactment of the Act will have 1 year to comply with the provisions

CLASS ACTION

Class Action is the right to members, deposit holders or representatives of these persons to file an application before the Tribunal for restraining the Company from some specified acts Eligible member or class of member(s) May file application before the Tribunal seeking some specified

• rders

Management/ Conduct of the Company is prejudicial to interests of the Company or its members/depositors

IF Eligible depositor or class of depositor (s)

CLASS ACTION

ORDERS THAT CAN BE SOUGHT

Declaration of a resolution altering MOA/AOA as void if passed with suppression of material information/ misstatement Restrain the Company from breaching any provision of AOA or MOA Restrain the Company from an act ultra vires to the AOA or MOA Restrain the Company from an act contrary to the provisions of the Companies Act To declare a resolution altering the MOA/AOA as void if the resolution was passed by suppression of material facts Claim any damages/ compensation or demand any other suitable action in cases of wrongful/ fraudulent/ unlawful act by Directors/ Auditors/Experts

TREASURY STOCK

Till now Cross holdings in case of mergers/ acquisitions among holding/subsidiary or Group Companies are transferred to a trust created for the benefit of the transferee company and are sold later as treasury stock to raise money if required THE COMPANIES BILL NOW ABOLISHES THE CREATION OF TREASURY STOCK

ADVANTAGES:

• Protection to shareholders by

barring creation of freely issuable trust shares

• Low capital base & hence

increased EPS and return on equity

• Transparency in transactions as

further issue only with approval of shareholders DISADVANTAGES:

• Reduced flexibility to the Board in

raising money from the open market

• Restrictive provision as the

practice doesn’t lead to any big misuse

• Tax implications if Company

decides to transfer the holding to another entity

CORPORATE SOCIAL RESPONSIBILITY

EVERY COMPANY Net Worth of

• Rs. 500 Crores
• r more

Turnover of Rs. 1000 Crores or more Net Profit of Rs. 5 Crores or more Shall constitute a Corporate Social Responsibility Committee of the Board consisting of a minimum of 3 directors with at least 1 independent director With

/ /

During any Financial Year

DUTY OF THE CORPORATE SOCIAL RESPONSIBILITY COMMITTEE  Formulate and recommend a CSR Policy to the Board indicating the activities to be undertaken by the Company  Recommend the amount of expenditure to be incurred on CSR related activities  Monitor the Company’s CSR policy from time to time DUTY OF THE BOARD  Disclose the composition of the CSR Committee in its report  Approve the Company’s CSR policy after considering the recommendations of the committee  Disclose the CSR policy in its report and

• n Company Website

 Ensure the implementation of the policy  To spend at least 2% of the Company’s average profit for the last 3 financial years for this purpose  Give preference to spending in local areas where it operates  Specify reasons in report in case of failure

CORPORATE SOCIAL RESPONSIBILITY

PENALTY in case of contravention: The company, every officer of the

Company or the Company Secretary in Practice, who is in default shall be punishable with fine of not less than Rs. 1 lakh, extendable up to Rs. 5 lakh

SECRETARIAL AUDIT

The Secretarial Audit Report

 Shall be given by a Practicing Company Secretary in a prescribed form  Shall be annexed with the Board Report

A Requirement For

Every Listed Company Company belonging to other prescribed class

• Assist and facilitate the Company

Secretary in Practice for auditing the secretarial and related records

• f the Company
• Explain

in the Board report any qualification / observation or other remark made in the secretarial audit report

DUTY OF THE BOARD

REGISTERED VALUER

• Property
• Stock
• Shares
• Debentures
• Securities
• Goodwill
• Net Worth
• Other Assets
• Liabilities

To be valued by A person having prescribed qualifications & experience

& who is

Registered as a VALUER as per the provisions of the Law

A Registered Valuer Will

Make an impartial, true and fair valuation of any asset required to be valued Exercise Due Diligence while performing the functions as a Valuer

REGISTERED VALUER

ROLE OF THE REGISTERED VALUER

Determine price for further issue of shares Value assets in an arrangement calling for restriction on Non Cash transactions involving directors Value shares, property and all assets in a scheme of compromise/ arrangement

1 2 3

Value shares of the Minority Shareholders during their purchase by the Company

4

Determine value of assets as it will be shown in the report of Company Liquidator

5

Declaration of Solvency to be accompanied with a report on the assets prepared by a Registered Valuer

6

A PECUNIARY PENALTY is prescribed for a Valuer who commits default under the concerned section. Imprisonment along with pecuniary penalty is prescribed if it is established that the contravention on part of the Valuer is to defraud the Company or its members

IMPORTANT CHANGE: Earlier the term

‘shares’ was used whereby the mode of raising funds through Private Placement can be shares

• nly.

Now, the term ‘Securities’ has been used thus removing the earlier limitation.

PRIVATE PLACEMENT

“Private placement” means any offer of securities or invitation to subscribe securities to a select group of persons, not being Qualified Institutional Buyers or employees under the ESOP Scheme by a company (other than by way of public offer) through issue of a private placement offer letter

A letter to selected group of persons inviting/ offering them subscription

• f securities

The procedural requirements will be notified separately in the rules but the law will have various stipulations with regards to Private Placement.

PRIVATE PLACEMENT

Offer to not more than 50 persons Terms & Conditions to be specified by way of rules No fresh offer unless the allotment in respect to previous

• ffer has been completed

Payment not to be made by Cash but by any other means involving Bank Channel Allotment to be completed within 60 days of receipt of fund Funds received to be kept in separate bank account and not be utilized for other purpose

Various Stipulations regarding Private Placement Offer

SMALL COMPANY The new law defines a Small Company as a Company other than a Public Company having:

• Paid up Share Capital not exceeding Rs. 50 Lakh
• Turnover not exceeding Rs. 2 Crore

HOLDING-SUBSIDIARY MERGER

The new law provides for simplified and a fast track procedure for mergers

• f Holding-Subsidiary Companies or Companies where the 3rd party interest

is not involved Applicability of the Fast-track Merger

Amalgamation of Holding Company with a wholly owned Subsidiary Amalgamation of SMALL Companies Amalgamation of other Companies as may be prescribed

HOLDING-SUBSIDIARY MERGER

Transferor & Transferee companies ISSUE NOTICE OF PROPOSED SCHEME inviting objections from Registrar and Official Liquidators where registered

• ffices are situated and also from persons being affected by the scheme

The objections and suggestions to be considered in the respective General

• Meeting. Scheme to be approved by members holding at least 90% of the total

number of shares .Both Companies file a DECLARATION OF SOLVENCY with the concerned Registrar’s Office The Transferee Company FILES COPY OF THE APPROVED SCHEME WITH THE CENTRAL GOVERNMENT, Registrar and the Official Liquidator

The Skeletal Process of the Fast Track Merger

The CENTRAL GOVERNMENT REGISTERS THE SCHEME and issues a confirmation in case the Registrar and the Official Liquidator have no objections

• Contd. ..

IN CASE THE CENTRAL GOVERNMENT DOES NOT SUPPORT THE OBJECTIONS of the Registrar and Official Liquidator, it may go ahead with registering the scheme

HOLDING-SUBSIDIARY MERGER

Copy of the order confirming the scheme IS COMMUNICATED TO REGISTRAR having jurisdiction of the Transferee Company REGISTRAR REGISTERS THE SCHEME and issues a confirmation to the Registrar having jurisdiction over the Transferor

IF THE REGISTRAR OR OFFICIAL LIQUIDATOR HAVE ANY OBJECTIONS, they shall be communicated to the Central government within 30 days.

IF THE CENTRAL GOVERNMENT SECONDS THE OBJECTIONS, it may file an application before the Tribunal within 60 days of the receipt of the scheme which may then give directions as it may deem fit.

ASSOCIATE

An Associate Company in relation to a Company means a Company in which the other Company has a significant influence but which is not a subsidiary of the Company having such influence

Control of at least 20% of the total share capital or of business decisions under an agreement

Significant Influence

Related Party for ascertaining related party transactions Ascertaining independence of Independent Director and Auditor The Concept of associate has been added in various places in the new law

Cancellation of Associate Shareholding during Merger and Amalgamation

Disclosure with its respect in financial statements

ROTATION OF AUDITORS

Listed Companies or Companies belonging to a prescribed class Shall NOT appoint OR re-appoint

INDIVIDUAL AUDITOR: For more than 1 term of 5 consecutive years AUDITOR FIRM: For more than 2 terms of 5 consecutive years

RE-APPOINTMENT: A gap of at least 5 years should elapse after

completion of the aforesaid term before the same auditor (individual/ firm) can be re-appointed

ROTATION OF AUDITORS

A period of 3 years will be given to Companies existing on the enactment of this law to comply with these provisions

TRANSITION PERIOD

• Decision regarding intervals at which the auditing partner and his team be

rotated

SOME FREEDOM GIVEN TO COMPANIES APPOINTING A FIRM

DORMANT COMPANY

An Inactive Company -Defined for the first time O R

A Company which has not carried any business/ operation Has not made any significant accounts transaction Has not filed financial statements or annual returns

O R During last 2 years I II III CASE III (Non Filing of financial statements and Annual Return):

The Registrar may issue a notice and enter the name of such a Company in the Register of Dormant Companies

DORMANT COMPANY

CASE I & II (No business operations or significant accounting transactions):

The Company may make application to the Registrar for obtaining the status of a Dormant Company. The Registrar will consider the application and grant the status of Dormant Company, issuing a certificate to that effect.

• Future Project
• Holding an Asset
• Holding Intellectual Property