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Companies Act 2013

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Puja Khemka

on 6 December 2013

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Transcript of Companies Act 2013

Accounting
Financial year
National Financial Reporting Authority replaced NACAS
Financial statements
Financial statements authentication & Board’s report
Rights of member to copies of audited Financial statements
Re-opening/revision of accounts
Preparation of consolidated Financial statements
Control vs. subsidiary
Definition of the term associate
Depreciation
Utilization of securities premium
Declaration and payment of dividend
Issue of bonus shares
Registered valuer
Key Accounting Updates
The
Financial year
of a company will be the period
ending on 31 March every year.
Financial statements
include
(i) Balance sheet
(ii) Profit and loss account
iii) Cash Flow statement
(iv) Statement of change in equity
(v) Any explanatory note forming part of the above statements.
Financial Statements shall be
signed
by:
Chairperson if appointed by the Board or by 2 directors out of which one will be MD
CEO, if he is a director
CFO
CS, if appointed
Companies Act 2013
Accounting
Audit& Auditors
Corporate Governance
Related party transactions, loans and investments
Mergers, amalgamation and reconstruction
Board of Directors
Meetings
Annual Return


Board Report
The Companies Act 2013 require the
inclusion
of the following additional information in the Board’s Report:
(a) Extract of the annual return
(b) Statement on independence declaration given by independent directors
(c) NRC
(d) Explanation/remarks on qualification by Auditors
(e)loans, guarantees or investments& particulars of contracts with related parties
(f) Risk Management Policy - Development & Implementation
(g) CSR- Development & Implementation
(h)Formal annual evaluation by the board of its own performance


Financial Year
Financial Statements Authentication
Board’s Report
Non Compliance
If a company contravenes these requirements:
Company will be punishable with fine - which will not be less than INR 50,000 and can extend up to INR 25 lakhs
Every oficer of the company who is in default will be punishable with imprisonment for a term, which may extend to three years or with fine which will not be less than INR 50,000 extendtimg up to INR 5 lakhs, or with both.
History & Background
Salient Features

COMPANIES ACT 1956

COMPANIES BILL 2013

13 Parts

658 Sections

15 Schedules
29 Chapters

470 clauses

7 Schedules
New Provisions Introduced
in Companies Act 2013

One Person Company [Clause 2(62)]
Expert [Clause 2(38)]
Inclusive definition of Financial Statement [Clause 2(40)]
Class Action Suits (Clause 37)
E-governance in all company processes (Clause 120)
Corporate Social Responsibility - 2% of average net profits of the previous three years (Clause 135)
Mandatory Internal Audit for prescribed classes of companies (Clause 138)
Mandatory Rotation of auditors for listed companies and other prescribed classes of companies after 1 terms of 5 consecutive years in case of individual auditor and after 2 terms of 5 consecutive years for audit firm (Clause 139)
5 year tenure for auditor appointed at AGM of company ( (Clause 141)

Auditor not to render certain services (Clause 144)

Independent Directors [Clause 149] 1/3rd of the total number of directors as
independent directors - listed public companies

 Inclusion of at least one woman director on board (Clause 149).

Every company to have at least one director who has stayed in India for a total period of
not less than one hundred and eighty-two days in the previous calendar year.
(Clause149 (3))

 Nomination and Remuneration committee [Clause 178(1)]

 Stakeholders relationship committee [Clause 178(5)]

 Key Managerial Personnel [Clause 2(51) and Clause 203] to include Manager
or Managing Director (MD) or Chief Executive Officer (CEO), Whole Time
Director, Chief Financial Officer (CFO) and Company Secretary (CS)
Insider Trading of Securities Prohibited (Clause 195)
Statutory Status to the Serious Fraud Investigation Office (SFIO) (Clause 211)
Specific framework for Merger and Acquisitions of companies. Single forum for approval of mergers and acquisitions (Clause 233)
Merger or Amalgamation of a Company with Foreign Company (Clause 234)
 Protection to Minority Shareholders, Class Action Suits for Prevention of Oppression and Mismanagement [Clause 245]
 Registered Valuers (Clause 247)
 Interim Administrators or Company Administrators [Clause 259]
 Mediation and Conciliation Panel (Clause 442)
 Punishment for Fraud (Clause 447)
New Provisions Introduced
in Companies Act 2013
New Provisions Introduced
in Companies Act 2013
Key changes
If it appears to director that the Financials or Board’s report are not in line with the relevant sections of the Act, the company can apply to the Tribunal in the prescribed format
If the Tribunal approves, the order can be filed with ROC.
Reasons for such revision shall be disclosed in Board’s Report .

Voluntary revision of Financials
Depreciation
Structural changes in depreciation rates.

Audit& Auditors
A. Appointment of Statutory Auditor for a five-year term; every AGM to ratify the appointment
B. Limits the number of companies an auditor can serve to 20 per partner
C. Rotation of Auditors after two consecutive terms of five years each; cooling off period of 5 years
D. Extended reporting responsibilities for auditors
E. Prohibition on rendering specified non-audit services to the company, its holding or subsidiary company

Accounting and book keeping services
Internal audit
Designing and implementation of any financial information system
Acturial services
Investment advisory services
Investment banking services
Rendering of outsourced financial services
Management services
Any other kind of consultancy services

Auditor shall not render the
following services :-

Audit& Auditors
Provisions amended
Services which the Auditor shall not provided
Corporate Governance
Mandatory contribution towards CSR at least 2 % of past 3 years average profits

Requires constitution of a CSR committee with atleast 3 directors (of which one shall be independent)

Disclosure of CSR policy

Applicability
Provisions
Related party
A Director or his relative;
A Key Managerial Person or his relative;
A Firm, in which director, manager or his relative is a partner
A Private Company, in which director, manager is a director or member;
A public Company, in which director or manager is a director or holds along with his relatives more than 2% of paid-up capital;
Any body corporate whose Board of Directors, Managing Director or Manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
Any person on whose advice, directions or instructions a director or manager is accustomed to act;
Any company which is a holding, subsidiary or an associate company of such company or a subsidiary of a holding company
to which it is also a subsidiary.

Related party transactions,
loans and investments
Related Party - Definition
Transactions - Provisions Applicable
Loans & Investments
Related Party Transactions Include sale, purchase, leasing of property
Arms length transaction is defined
CG approval has been replaced with prior approval of shareholders for prescribed class of companies
Related party contracts to be explained in the Board’s report along with justification for the contract

No Company shall
enter into any contract or arrangement, except with the consent of the Board, with a related party with respect to:
sale, purchase or supply of any goods or materials;
Selling or otherwise disposing of, or buying, property of any kind;
Leasing of property of any kind;
Availing or rendering of any services;
Appointment of any agent for purchase or sale of goods, materials, services or property;
Such related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company and
Underwriting the subscription of any securities or derivatives thereof,
Related party
Transactions
List of exemptions taken off (Private Ltd & Subsidiary Companies)

Scope no longer limited to inter-corporate loans & investments, but expanded to include loans to persons.

Rate of interest on loans to be linked to government securities instead of prevailing bank rate.

The full particulars of the loan given, investment made or guarantee given or security provided and the purpose to be disclosed in the financial statement.

Loans and Investments
Compromise, Arrangement, Amalgamation
& Demerger

Allow objections to compromise or arrangement by only Shareholders holding > 10 % stake and creditors having outstanding debt of
> 5 % of total debt

Simplified amalgamations between holding and fully owned subsidiary

Merger of Indian company with a foreign company permitted subject to RBI approval

Board Oversight
Key Highlights
Increase in permitted number of directors to 15 (earlier 12)
No of directorships – increased to 20 (earlier 15)
CSR committee
Role of audit committee enhanced
Minimum no of directors retained
Every company to have at least one director who has stayed in India for at least 182 days in the previous calendar year
CEO/ CFO defined
Prescribed class of companies to compulsorily have at least one woman director, CEO/CFO & CS
Independent director defined and specific related provisions laid down
More clarity on role, independence and liability
Tenure limited to maximum of 2 consecutive terms of 5 years
Stock options prohibited

Board of Directors
Key Highlights
Key Managerial Personnel
Officer In Default
Duties of a Director
Loans to Directors

Key Managerial
Personnel
KMP means:
- CEO/ MD/ Manager
- CS
- WTD
- CFO
- such other person to be prescribed

Included in the definition for an Officer who is in default
Related party includes relative of key managerial personnel
Section 21 interestingly provides that any document/ contract requiring authentication by Company can be signed by KMP/ person authorized by the Board
Annual Return to contain information about KMP and changes if any thereof and their remuneration.
Relatives of KMP to not be appointed as auditors
Register of KMP along with securities held by them in the company to be maintained & particulars of change in KMP to be filed with ROC
Section 194 prohibits forward dealings in securities of companies
Whole-time KMP to be appointed by the Board.

Vacancy to be filled within six months of such vacancy


Officer In Default
WTD/KMP/ Directors specified by the Board

Where there is no specific authorization by the Board, all directors shall 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 liable

Share 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)

Duties of a Director
For the first time duties of directors have been laid down – includes independent directors

Must act in good faith

Exercise duties with care, skill and judgment

Act in the best interest of the company, employees, community and environment.

Contravention of this provision entails fine under the Act.

Loans to Directors
No Company shall directly or indirectly advance any loan including book debt or give
guarantee or provide security to its directors or to any other person in whom the director is interested.

The phrase - ‘any other person in whom the Directors is interested’ includes:
Any director of the lending Company or its holding co or any partner or relative of any such director
Any firm in which such director or relative is a partner
Any private co of which any such director is a director or member
Any body corporate at a GM of which not less than 25% of total voting power is exercised/controlled by any such director, or by two or more
Any body corporate, the Board, MD or manager, whereof is accustomed to act in accordance with the directions or instruction of the Board, or of any director or directors, of the lending company.
Exception:

D
oes not apply to:-
a. Loan to MD/WTD
As a part of contract of services extended to all its employees; or
Pursuant to scheme approved by members by special resolution
b. A Company which in the ordinary course of its business provides loans or
gives guarantees or securities for the due repayment of any loan and in
respect of such loans an interest is charged at a rate not less than
the bank rate declared by RBI

Board Meetings
Interval
Time interval shall not exceed 120 days.
Notice
At least seven days’ notice
( shorter notice is allowed with the presence of at least one independent director. If held without an independent director, then the transaction is not approved until ratified by at least one independent director)
Video conferencing
Now permitted – should be recorded and stored
Secretarial standards
Mandatory followed (for AGMs & EGMs also)


Secretarial Standards for AGM also to be made mandatory
Provisions relating to persons who may call for an EGM, persons who may give consent for shorter notice, ordinary & special businesses
Notice of AGM to also be given to directors of the company (in addition to the members and auditors)


AGM Notice
Where any business to be transacted affects any other company, where the extent of shareholding every promoter, director, manager, KMP is not less than two per cent of the paid up share capital of that company shall be set out in the explanatory statement to the notice.
Quorum – five (public co), 15 (1000-5000), 30 (>5000) personally present, two (private co)
Secretarial standards with regard to AGM to be followed

Disclosures in
Annual Return
Section 92

(i) registered office, principal business activities, particulars of its holding,
subsidiary and associate companies;
(ii) shares, debentures and other securities and shareholding pattern;
(iii) indebtedness;
(iv) members and debenture-holders along with changes therein since the close of the previous financial year;
(v) promoters, directors, key managerial personnel along with changes therein since the close of the last financial year;
(vi) meetings of members or a class thereof, Board and its various committees along with attendance details;
(vii) remuneration of directors and key managerial personnel;
(viii) penalties imposed on the company, its directors or officers and details of compounding of offences;
(ix) matters related to certification of compliances, disclosures as may be prescribed;
(x) details in respect of shares held by foreign institutional investors;


AGMs and EGMs
To be signed by:
A director and the Company Secretary, or
where there is no Company Secretary,
by a Company Secretary in whole-time practice.
Published in the Gazette of India on 30 August 2013
Existing law was half a century old!!!
Consolidating related provisions
Lesser government approvals & interference
Enhanced self regulation
Emphasis on corporate democracy
National and international economic environment
Better transparency
Stringent regulations
Why a new Companies Act ?
History/ Background
Salient Features
New Provisions Introduced
Key Provisions

Financial Year &
Financial Statements
Exemption
Transactions in the ordinary course of business except those not entered into on arm’s length basis
Loan Limits not requiring Shareholder Approval
Loan amount not exceeding the higher of two:
Not exceeding 60% of paid up capital + free reserves + securities premium
OR
100% of free reserves + Securities premium
Full transcript