Impact of Companies Act on Private Companies, One Person company & Corporate Social Responsibility

Transcription

1 Impact of Companies Act on Private Companies, One Person company & Corporate Social Responsibility Ashish Makhija Advocate B.Com (Hons.), LLB, LLM (USA), LLM (India), FCA, FCMA Standing Counsel for the Official Liquidator Attached to High Court of Delhi Member of: 1

2 The Pencil Parable Pencil Parable 2

3 In the beginning, the Pencil Maker spoke to the pencil saying, "There are five things you need to know before I send you out into the world. Always remember them and you will become the best pencil you can be."

4 You will be able to do many great things, but only if you allow yourself to be held in Someone's hand.

5 You will experience a painful sharpening from time to time, but this is required if you are to become a better pencil.

6 You have the ability to correct any mistakes you might make.

7 The most important part of you will always be what's inside.

8 No matter what the condition, you must continue to write. You must always leave a clear, legible mark no matter how difficult the situation.

9 The pencil understood, promising to remember, and went into the box fully understanding its Maker's purpose.

10 Now replacing the place of the pencil with you; always remember them and never forget, and you will become the best person you can be.

11 You will be able to do many great things, but only if you allow yourself to be held in someone's hand. And allow other human beings to access you for the many gifts you possess.

12 You will experience a painful sharpening from time to time, by going through various problems, but you'll need it to become a stronger person.

13 Three: You will be able to correct mistakes you might make or grow through them.

14 The most important part of you will always be what's on the inside.

15 On every surface you walk, you must leave your mark. No matter what the situation, you must continue to serve Good in everything.

16 Everyone is like a pencil... created by the Maker for a unique and special purpose. By understanding and remembering, let us proceed with our life on this earth having a meaningful purpose in our heart.

17 Looking Back Companies Act Sections (Effectively 881 Sections) 16 Schedules 66 Definitions 34 set of Rules & Regulations Not yet repealed 155 Sections still in force 17

18 Looking Forward Companies Bill Sections No Schedules 93 Definitions Phrase as may be prescribed appeared 235 times in the Bill 18

19 Looking Forward Companies Act Sections 7 Schedules 95 Definitions Phrase as may be prescribed appears 346 times in the Act 46 sections of Part IX A of Companies Act, 1956 relating to Producer Companies will continue to apply 19

20 Companies Act Status President s Assent on 29th August Sections notified on 12th September 2013 Schedule VII & Section 135 notified on 27 th February Sections notified on 26 th March 2014 In all 282 Sections notified Till date around 52 Circulars, 19 Notifications and 7 orders have been issued on Companies Act,

21 Companies (Removal of Difficulties) Order No Date Particulars Orders 1 st Regarding implementation of Sections 24, 58 and 59 2 nd Jurisdiction, Powers, authority and functions of CLB CLB shall exercise powers under Section 73 3 rd Untill NCLT is constituted under section 408, Board of CLB shall have all powers 4 th Jurisdiction, Powers, authority and functions of CLB CLB shall exercise powers under Section 74 5 th Clarification on Related Party Section 2(76) clause v- Director is a Director and holds more than 2% shares in Public Co shall be termed as Related Party. The Word or was replaced by and 21

22 Companies (Removal of Difficulties) Orders Order No Date Particulars 6 th Clarification on Related Party Section 2(76)(iv)- After the word manager the word or his relative is inserted 7 th In section 143(5) of the Companies Act, 2013 amended. The definition of Government Companies enhanced by substitution of words. 22

23 Major Circulars Circular No Date Particulars 44/ Extension of CLSS-2014 up to 31 st December / Disqualification u/s 164 shall lie for prospective defaults 38/ The Board of a Section 8 Company would decide to refund the deposit made under Section 160 proposing appointment of a Director 34/ CLSS-2014 introduced 32/ Transitional Period for resolutions passed between 1 st September 2014 to 31 st March 2014 Implementation commenced before 1 st April 2014 and available upto 1 year from passing of resolution or 6 months from the Act 23

24 Circular No Date Major Circulars Particulars 30/ Clarifications on Related Party transactions:- a) Related Party shall refer to the parties related only in a specific resolution b) Corporate Restructuring/Amalgamations shall not require approval under Section 188 c) No approval under Section 188 for approvals already taken prior to commencement of Act, however, any subsequent amendment would require approval 27/ Extension of Date for filing of DPT-4 till 31 st August / Applicability of Resident Director--Previous Calendar year shall commence from 1 st April 2014 and will be till 31 st December The Time period of 182 days will be reduced accordingly 24

25 Circular No Date Major Circulars Particulars 21/ Clarification on CSR 8/ Filing of B/s, Auditors Report, Boards Report as per Companies Act, / Clarification on Section 180 Resolutions passed u/s 293 prior to will be a sufficient compliance till the period of one year from the date of notification of Section 180 3/ Clarification on Section 185 To maintain harmony between Section 185 of CA 2013 & Section 372A(8)(d) of CA 1956 it was clarified that till Section 186 is notified exemption to holding company on giving loans/security/guarantee to its Subsidiary under Section 372A (8)(d) shall be continued. 25

26 Understanding Layout Divided in to 29 chapters Chapter I Applicability & Definitions Section 1& 2 Chapter II Incorporation, MoA, AoA Sections 3 to 22 Chapter III Prospectus Sections 23 to 42 Chapter IV Share Capital Sections 43 to 72 Chapter V Public Deposits Sections 73 to 76 Chapter VI Registration of Charges Sections 77 to 87 26

27 Understanding Layout Chapter VII Management & Administration Sections 88 to 122 Chapter VIII Dividend Sections 123 to 127 Chapter IX Accounts Sections 128 to 138 Chapter X Audit & Auditors Sections 139 to 148 Chapters XI, XIII, XIII Directors, Board & Remuneration Sections 149 to 205 Chapter XIV Inspection, Investigation Sections 206 to 229 Chapter XV Mergers Sections 230 to

28 Understanding Layout Chapter XVI Oppression and Mismanagement Sections 241 to 246 Chapter XVII Registered Valuers Section 247 Chapter XVIII Removal of Names of Companies Sections 248 to 252 Chapter XIX Revival Sections 253 to 269 Chapter XX Winding up Sections 270 to 378 Chapter XXI Companies Authorized to Register Under the Act Sections 366 to 374 Chapter XXII Foreign Companies Sections 379 to

29 Understanding Layout Chapter XXIII - Government Companies Sections 394 & 395 Chapter XXIV Registration Offices & Fees Sections 396 to 404 Chapter XXV Companies to furnish Information Section 405 Chapter XXVI Nidhis Section 406 Chapter XXVII NCLT Sections 407 to 434 Chapter XXVIII Special Courts Sections 435 to 446 Chapter XXIX Miscellaneous - Sections 447 to

30 Understanding Layout Schedule I Table A to I Schedule II Depreciation Schedule III Balance Sheet Schedule IV Code for Independent Directors Schedule V Managerial Personnel Schedule VI Infrastructural Projects Schedule VII Activities for CSR Policy 30

31 Companies (Amendment) Bill, 2014 Omitting requirement for minimum paid up share capital - Government to retain power to specify Making common seal optional Prescribing specific punishment for deposits accepted under the new Act This was left out in the Act inadvertently. (To remove an omission) Prohibiting public inspection of Board resolutions filed in the Registry - Resolutions Including provision for writing off past losses/ depreciation before declaring dividend for the year( Was left in Act but included in Rules) 17

32 19 Matters To be Passed at Board Meeting only To make Calls Buy-back of Shares authorization Issuing Securities Borrowings Investments Grant of Loans etc Approval of Financial Statements

33 19 Matters To be Passed at Board Meeting only Diversification of Business Merger, Amalgamation etc Acquisition or Takeover Political Contributions KMP appointment/removal Taking Note of appointment/removal of one level below KMP

34 19 Matters To be Passed at Board Meeting only Internal/Secretarial Auditors appointment Taking note of Directors Interest Buy/Sell Investments - 5% of PUC & Free Reserves Invite or Accept Deposits Changing Terms of Deposits Approval of quarterly, half yearly and annual financial results

35 Companies (Amendment) Bill, 2014 Rectifying the requirement of transferring equity shares for which unclaimed/unpaid dividend has been transferred to the IEPF even though subsequent dividend(s) has been claimed. (Section 124) Enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Central Government (below the threshold, it will be reported to the Audit Committee). Disclosures for the latter category also to be made in the Board s Report. (Demand of auditors) Exemption u/s 185 (Loans to Directors) provided for loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries. (This was provided under the Rules but being included in the Act as a matter of abundant caution). 18

36 Section 124 (6) All shares in respect of which unpaid or unclaimed dividend has been transferred under sub-section (5) shall also be transferred by the company in the name of Investor Education and Protection Fund along with a statement containing such details as may be prescribed Proposed Amendment (6) All shares in respect of which dividend has not been paid or claimed for seven consecutive years or more shall be transferred by the company in the name of Investor Education and Protection Fund along with a statement containing such details as may be prescribed Explanation. For the removals of doubts it is hereby clarified that in case any dividend is paid or claimed for any year during the said period of seven consecutive years, the share shall not be transferred to Investor Education and Protection Fund.. 36

37 Companies (Amendment) Bill, 2014 Empowering Audit Committee to give omnibus approvals for related party transactions on annual basis. (Align with SEBI policy and increase ease of doing business) Replacing special resolution with ordinary resolution for approval of related party transactions by non-related shareholders. (Meet problems faced by large stakeholders who are related parties) Exempt related party transactions between holding companies and wholly owned subsidiaries from the requirement of approval of non-related shareholders. (corporate demand) 19

38 Companies (Amendment) Bill, 2014 Bail restrictions to apply only for offence relating to fraud u/s 447. (Though earlier provision is mitigated, concession is made to Law Ministry & ED) Winding Up cases to be heard by 2 member Bench instead of a 3 member Bench. (Removal of an inadvertent error) Special Courts to try only offences carrying imprisonment of two years or more. (To let magistrate try minor violations). 20

39 Understanding Companies Act New Concepts Associate Companies Significant Influence Control of 20% of total share capital, or control of business decisions under an agreement

40 Understanding Companies Act New Concepts Small Companies Other than Public Company Paid up capital does not exceed Rs. 50 lakhs, and Turnover does not exceed Rs. 2 Crores Does not include - Holding Company or Subsidiary Company Section 8 Company

41 Understanding Companies Act New Concepts Companies can obtain dormant status Inactive Company Not Carrying any business or not made any significant accounting transaction for last 2 years, or Not filed B/s or Annual Return for last 2 FYs Company formed under CA 2013 for a future project or holding an intellectual property and has no significant accounting transaction

42 Understanding Companies Act New Concepts Foreign Company Company or Body Corporate Having a place of business in India By itself, or Through an Agent, or Through Electronic Mode And conducting any business activity in India in any other manner

43 Statutory Framework Section 447 If found guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.

44 Statutory Framework Explanation. For the purposes of this section (i) fraud in relation to affairs of a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss.

45 Exemptions to Private Companies - Draft Notification for Private Companies

46 Draft Notification for Private Companies S. No Chapter/ Section number/ Subsection(s) in the Companies Act, 2013 Exceptions/ Modifications /Adaptations 1 Chapter IV, section 43 (Kinds of Share Capital) and section 47 (Voting Rights) [Both whole] Shall not apply 2 Chapter IV, clause (a) of sub-section (1) of section 62) and sub-section (2) of section 62 Rights Issue Shall apply with the following modification:- Words not being less than fifteen days and not exceeding thirty days shall be substituted with not being less than seven days and not exceeding fifteen days 3 Chapter IV, clause (b) of sub-section (1) of section 62 ESOP Shall apply except that instead of special resolution, ordinary resolution would be required

47 Draft Notification for Private Companies S.No Chapter/ Section number/ Subsection(s) in the Companies Act, 2013 Exceptions/ Modifications /Adaptations 4 Chapter V, sub-section (2) of section 73 Deposits 5 Chapter VII, sections 101 to 107 and section 109[All whole] Provisions relating to General Meeting Shall not apply to private companies having 50 or less number of members if they accept monies from their members not exceeding twenty five per cent of aggregate of the paid up capital and free reserves or one hundred per cent of the paid up capital, whichever is more, and which inform the details of such monies to the Registrar in the prescribed manner Shall apply unless - otherwise specified in respective sections or - unless articles of the private company otherwise provide 6 Chapter X, Clause (g) of subsection (3) of section 141 Shall not apply in respect of appointment of auditors by private companies

48 Draft Notification for Private Companies S.No Chapter/ Section number/ Subsection(s) in the Companies Act, 2013 Exceptions/ Modifications /Adaptations 7 Chapter XI, section 160( Whole) Right of persons other than retiring directors to stand for directorship Shall not apply 8 Chapter XI, section 162 [Whole] Appointment of Directors to be voted individually Shall not apply 9 Chapter XII, Section 180 Restriction on Powers of Board Shall not apply to private companies having 50 or less number of members

49 Draft Notification for Private Companies S.No Chapter/ Section number/ Subsection(s) in the Companies Act, 2013 Exceptions/ Modifications /Adaptations 10 Chapter XII, section 185 Loans to Directors 11 Chapter XII, section 188 Related Party Transactions 12 Chapter XIII, section 196, sub-section (4) and subsection(5) Remuneration to Managerial Personnel Shall not apply to Private companies - (a) which have borrowings from banks or financial institutions or any bodies corporate not more than twice of their paid up share capital or Rs. 50 crore, whichever is lower; and (b) in whose share capital no other body corporate has invested any money. Shall not apply Shall not apply 13 Chapter XIII, sub-section (3), section 203 Appointment of key Managerial Personnel Shall not apply

50 Impact of Companies Act, 2013 on Private Companies

51 Impact on Private Companies S.N o Basis of Comparison Companies Act, 1956 Companies Act, Definition No of members restricted to 50 No of members restricted to Commencement of Business 3 Further issue of shares Prohibited any invitation or acceptance of deposits from persons other than its members, directors or their relatives Section 3(1)(iii) No need to seek any such certificate Section 149 Provisions relating to Rights issue and Preferential allotment not applicable Section 81 & 81(1A) No such prohibition Section 2(68) Even a private company needs to give a declaration before commencing its business or making any borrowings Section 11 Needs to comply with all provisions relating to issue of capital Section 62

52 Impact on Private Companies S.No Basis of Comparison 4 Acceptance of Deposits Companies Act, 1956 A private Company can accept Deposits/ Loans from Directors, Relatives of Directors and Shareholders Section 3(1)(iii) Companies Act, 2013 Exemption retained only for Directors A private company needs to comply with the provisions of Section 73 read with Companies (Acceptance of Deposit) Rules, 2014 if loan/deposit accepted from Shareholders/Relatives of Directors MCA vide circular no 5/2015 clarified that amounts received by private companies from their members, directors or their relatives before 1 st April, 2014 will not be treated as Deposits, provided details of same is given in financial statements

53 Impact on Private Companies S.No Basis of Comparison 5 Appointment of Key Managerial Personnel Companies Act, 1956 Companies Act, 2013 Irrespective of Capital, Private Companies were not mandated to comply with provisions of remuneration of WTD/MD/ CS Appointment of MD/WTD/Manager was mandated for companies with paid up capital of Rs. 5 Crores or more Section 269 and 383A Need to comply with provisions of remuneration also (Section 196 and 197) All public companies having paid-up capital of Rs. 10 Cores or more are required to appoint a whole-time KMP (Section 203 read with Rule 8 of Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 All private companies having paid up capital above Rs.5 Cores or more shall be mandated to appoint a Whole-Time Company Secretary (Rule 8A)

54 Impact on Private Companies S.No Basis of Comparison Companies Act, 1956 Companies Act, Loans to Directors Restrictions relating to giving of loans, advances or providing securities, guarantees to directors and other interested entities were not applicable Section 295 All companies including private companies are restricted from giving loans, advances or providing securities, guarantees to directors and other interested entities. Section Resident Director No such requirement All companies mut have atleast one director who has stayed in India for a minimum period of 182 days during the previous calendar year Section 149

55 Impact on Private Companies S.No Basis of Comparison Companies Act, 1956 Companies Act, Consent to act as Director 9 Appointment of 2 or more directors by single resolution Consent to act as director was not mandatory to be filed with ROC Section 264 Provisions relating to appointment of directors to be voted on individually were not applicable Section 263 Mandated for Private Companies also Section 152 At a general meeting, a motion for the appointment of two or more persons as directors of the company by a single resolution shall not be moved unless a proposal to move such a motion has been agreed to at the meeting without any vote being caste against it. Section 149

56 Impact on Private Companies S.No Basis of Comparison Companies Act, 1956 Companies Act, Limit on Number of Directorship Private Co s not counted for limit of 15 companies Section 275 A person can act director in maximum 20 companies, out of which not more than 10 companies should be public Section Corporate Social Responsibility No such requirement Section 263 Private Companies having net worth of Rs.500Crore or more or tunover of Rs Crore or more or a net profit of Rs. 5 Crore or moreneed to spend atleast 2% of average net profits on CSR Section 135

57 Impact on Private Companies S.No Basis of Comparison Companies Act, 1956 Companies Act, Content of Financial Statements Balance Sheet Statement of Profit & Loss Cash Flow Statement applicable to certain class of companies (AS- 3 applicable on companies having turnover excess of 50 Crores or borrowings excess of Rs.10 Crores) Balance Sheet Statement of Profit & Loss Cash Flow Statement Statement of Changes in equity Notes to Accounts 13 Maximum Term of Auditor Upto AGM Section 224 Mandatory rotation of Auditors after a term of 5 years/ 10 years Section 139

58 Impact on Private Companies S.No Basis of Comparison Companies Act, 1956 Companies Act, Provisions relating to General meetings Private Companies were exempt from the applicability of Section 171 to 186, if authorised by Articles No such exemption available. 15 Inter Corporate Investments/ Loans/Guarantee Provisions of Section 372A were not applicable Except sub-section (1) of Section 186, other provisions on Inter Corporate Investments/loans/Guarantees applicable. Section 186 are

59 Filing of MGT-14 Excluded Notification GSR. 206E dated 18 th March, 2015 Following item numbers and the entries relating thereto shall be omitted : (3) to take note of appointment(s) of removal(s) of one level below the key managerial personnel; (5) to take note of the disclosure of director s interest and shareholding; (6) to buy, sell investments held by the company (other than trade investments), constituting five percent or more of the paid up share capital and free reserves of the investee company; (7) to invite or accept or renew public deposits and related matters; (8) to review or change the terms and conditions of public deposit; (9) to approve quarterly, half yearly and annual financial statements or financial results as the case may be.

60 One Person Companies Section 2(62)

61 OPC One Person Company [Section 2(62)] Only one person as member, will be a private company MOA of company shall indicate the name of a person who in the event of the death of subscriber shall become the member Only a natural person is eligible to form OPC or be a nominee No person shall be eligible to incorporate or become nominee for, more than single OPC 61

62 Types of OPC a company limited by shares; or a company limited by guarantee; or an unlimited company.

63 Appointment of Director in OPC Articles of a company may provide for the appointment of the first directors If articles are silent then the subscriber to the memorandum who is an individual shall be deemed to be the first director of the company May have a single director Maximum-15 directors more than 15 after passing Special Resolution Director must have stayed in India for a total period of not less than 182 days in the previous calendar year

64 Meeting of Board At least one meeting of the Board of Directors to conducted in each half of a calendar year Gap between the two meetings should not be less than ninety days Exemption if company has only one director.

65 Contract by OPC One Person Company limited by shares or by guarantee enters into a contract with the sole member of the company who is also the director of the company, the terms of contract or offer are in writing or contained in a memorandum or recorded in the minutes of the Board meeting held next after entering into the contact. Inform the Registrar about every contract entered into by the company within a period of fifteen days of the date of approval by the Board of Directors. Contracts in ordinary course of business not required to comply with the above.

66 Financial Statement The financial statement, signed by one director, for submission to the auditor for his report thereon. Board of Directors Report means a report containing explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report. Filed with ROC within 180 days from the closure of the financial year Financial statement, may not include the cash flow statement

67 Exemptions Section 96. Option to dispense with the requirement of holding an AGM Section 98. Power of Tribunal to call meetings of members Section 100. Calling of extraordinary general meeting. Section 101. Notice of meeting. Section 102. Statement to be annexed to notice. Section 103. Quorum for meetings. Section 104. Chairman of meetings Section 105.Proxies Section 106. Restriction on voting rights

68 Exemptions Section 107. Voting by show of hands Section 108. Voting through electronic means Section 109. Demand for poll Section 110.Postal ballot Section 111. Circulation of members resolution

69 OPC- Miscellaneous provisions OPC cannot be converted into Section 8 Co., carry NBFC activities No minor shall become member or nominee of the One Person Company or hold share with beneficial interest. No OPC can voluntarily convert into any kind of company unless two years is expired from the date of incorporation of OPC, except its turnover/ capital increases from threshold limits Mandatory conversion to Private Co/ Public Co. with requisite number of directors & shareholders if threshold limit crosses: Paid up Capital: Rs. 50 Lacs Average Annual Turnover: Rs. 2 Crores 69

70 Thank you for your patience! Ashish Makhija #