Presentation on theme: "Accounts, Audit, Directors & Related Party Transactions"— Presentation transcript:
1 Accounts, Audit, Directors & Related Party Transactions Companies ActAccounts, Audit, Directors & Related Party TransactionsOverview – Comparative AnalysisSpecial Features of New ActNew Concepts / DefinitionsFormation of Companies and MOA / AOAIssue of Shares & SecuritiesImpact on Private Limited CompaniesFor Private Circulation only
6 Overview – Comparative Analysis Arrangement of AnalysisChapterTitleSections of Companies Act, 2013Corresponding Sections of Companies Act, 1956IPreliminary1,21 to 10IIIncorporation of Companies3 to 2211 to 54IIIProspectus and allotment of securities23 to 4255 to 81IVShare Capital and Debentures43 to 7282 to 123VAcceptance of deposits by Companies73 to 7658A to 58BVIRegistration of charges77 to 86124 to 145VIIManagement and administrations88 to 122146 to 197VIIIDeclaration and payment of dividend123 to 127205 to 207IXAccounts of Companies128 to 138209 to 223
7 Overview – Comparative Analysis Arrangement of Analysis (Contd..)ChapterTitleSections of Companies Act, 2013Corresponding Sections of Companies Act, 1956XAudit & Auditors139 to 148224 to 233BXIAppointment and qualification of directors149 to 172252 to 284XIIMeeting of Board and its powers173 to 195285 to 308XIIIAppointment and remuneration of managerial personnel196 to 205309 to 311XIVInspection, inquiry and Investigation206 to 229234 to 251XVCompromise, Arrangements and Amalgamations230 to 240390 to 396AXVIPrevention of oppression and mismanagement241 to 246397 to 409XVIIRegistered Valuers247--
8 Overview – Comparative Analysis Arrangement of Analysis (Contd..)ChapterTitleSections of Companies Act, 2013Corresponding Sections of Companies Act, 1956XVIIIRemoval of names of companies from the Register248 to 252560XIXRevival and rehabilitation of sick companies253 to 269424A to 424LXXWinding up270 to 365425 to 559XXICompanies authorized to register under this Act and Winding up of unregistered companies366 to 378565 to 581 & 582 to 590XXIICompanies incorporated outside India379 to 393591 to 608XXIIIGovernment Companies394 to 395617 to 620XXIVRegistration offices and fees396 to 404609 to 614A
9 Overview – Comparative Analysis Arrangement of Analysis (Contd..)ChapterTitleSections of Companies Act, 2013Corresponding Sections of Companies Act, 1956XXVCompanies incorporated outside India405615XXVINidhis406620AXXVIINCLT and NCLAT407 to 43410FB to 10GFXXVIIISpecial Courts435 to 446XXIXMiscellaneous447 to 470621 to 658
14 New Concepts / Key Definitions Associate Company [Section 2(6)]2(6) defines “Associate company”, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.Explanation.—For the purposes of this clause, “significant influence” means control of at least twenty per cent of total share capital, or of business decisions under an agreement;
15 New Concepts / Key Definitions (Contd.) ‘Book and paper’ and ‘book or paper’ [section 2(12)]‘Book and/or Paper’ include books of account, deeds, vouchers, writings, documents, minutes, registers maintained on paper or electronic form.Books of account [Section 2(130]Books of account includes records maintained in respect of:-(i) all sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place.All sales and purchases of goods and services of the companyThe assets and liabilities of the company; andThe items of cost as may be prescribed under section 148 in the case of a company which belongs to any class of companies specified under that section. (Cost Audit)
16 New Concepts / Key Definitions (Contd.) Chief Executive Officer [Section 2(18)]2(18) “Chief Executive Officer” means an officer of a company, who has been designated as such by it;Chief Financial Officer [Section 2(19)]2(19) “Chief Financial Officer” means a person appointed as the Chief Financial Officer of a company;Control [Section 2(27)]2(27) defines “control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner;
17 New Concepts / Key Definitions (Contd.) Financial Statements [Section 2(40)]defines “financial statement” in relation to a company, includes—(i) a balance sheet as at the end of the financial year;(ii) a profit and loss account, or in the case of a companycarrying on any activity not for profit, an income andexpenditure account for the financial year;(iii) cash flow statement for the financial year;(iv) a statement of changes in equity, if applicable; and(v) any explanatory note annexed to, or forming part of, anydocument referred to in sub-clause (i) to sub-clause (iv):Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement;
18 New Concepts / Key Definitions (Contd.) Financial Year [Section 2(41)]2(41) defines “financial year”, in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up:Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year:Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause;
19 New Concepts / Key Definitions (Contd.) Need to align their Financial Year with the new requirementwithin two years from the commencement of the new law.2. Incorporated on/after 1 January to close books on 31 March in the following year (i.e. more than 12 months period)3. If incorporated before 1 January, then the year-end will be 31 March (period would be less than one year)4. Not clear whether it is a one-time application to the Tribunal
20 New Concepts / Key Definitions (Contd.) Key Management Personnel [Section 2(51)]defines “key managerial personnel”, in relation to a company, means—(i) the Chief Executive Officer or the managing director or the manager;(ii) the company secretary;(iii) the whole-time director;(iv) the Chief Financial Officer; and(v) such other officer as may be prescribed;
21 New Concepts / Key Definitions (Contd.) Net Worth [Section 2(57)]defines “net worth” means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation;
22 New Concepts / Key Definitions (Contd.) Promoter [Section 2(69)“promoter” means a person—(a) who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92; or(b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or(c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act:Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity;
23 New Concepts / Key Definitions (Contd.) Related Party [Section 2(76)] “related party”, with reference to a company, means—(i) a director or his relative;(ii) a key managerial personnel or his relative;(iii) a firm, in which a director, manager or his relative is a partner;(iv) a private company in which a director or manager is a member or director;(v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent of its paid-up share capital;(vi) 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;(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act: (professionals excluded)(viii) any company which is—(A) a holding, subsidiary or an associate company of such company; or(B) a subsidiary of a holding company to which it is also a subsidiary;(ix) such other person as may be prescribed
24 New Concepts / Key Definitions (Contd.) Relative [Section 2(77)]‘‘relative’’, with reference to any person, means any one who is related to another, if—(i) they are members of a Hindu Undivided Family;(ii) they are husband and wife; or(iii) one person is related to the other in such manner as may be prescribed;Under the Rules, a person is related to the other if he or she is related to another in the following manner:Father (including Step-father) ; Mother (including step-mother)Son (including Step-son); Son’s wifeDaughter; Daughter’s husbandBrother (including step-brother)Sister (including step-sister)
25 New Concepts / Key Definitions (Contd.) Small Company [Section 2(85)]‘‘small company’’ means a company, other than a public company,—(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:Provided that nothing in this clause shall apply to—(A) a holding company or a subsidiary company;(B) a company registered under section 8 (Non-Profit Organization); or(C) a company or body corporate governed by any special Act;
26 New Concepts / Key Definitions (Contd.) Subsidiary company [Section 2(87)]“subsidiary company” or “subsidiary”, in relation to any other company (that is to say the holding company), means a company in which the holding company—(i) controls the composition of the Board of Directors; or(ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies:Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.Explanation.—For the purposes of this clause,—(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;(c) the expression “company” includes any body corporate;(d) “layer” in relation to a holding company means its subsidiary or subsidiaries;
27 New Concepts / Key Definitions (Contd.) Sweat Shares [Section 2(88)]“sweat equity shares” means such equity shares as are issued by a company to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called;Turnover [Section 2(91)]“turnover” means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year; (Ind AS 18 – Excludes Taxes)Total Share CapitalTotal Share Capital means the aggregate of the paid-up equity share capital and convertible preference share capital
28 New Concepts / Key Definitions (Contd.) Sick Company [Section 253(1)]“Where on a demand by the secured creditors of a company representing fifty per cent or more of its outstanding amount of debt, the company has failed to pay the debt within a period of thirty days of the service of the notice of demand or to secure or compound it to the reasonable satisfaction of the creditors, any secured creditor may file an application to the Tribunal in the prescribed manner along with the relevant evidence for such default, non-repayment or failure to offer security or compound it, for a determination that the company be declared as a sick company.
29 New Concepts / Key Definitions (Contd.) Dormant Company [Section 455]Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company.Inactive Company“inactive company” means a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years;
30 New Concepts / Key Definitions (Contd.) Significant Accounting transaction means any transaction other than:(a) payment of fees by a company to the Registrar;(b) payments made by it to fulfil the requirements of this Act or any other law;(c) allotment of shares to fulfil the requirements of this Act;(d) payments for maintenance of its office and records
31 New Concepts / Key Definitions (Contd.) Types of Companies - Private Company; Public Company & One Person Company (OPC).Private CompanySection 2(68) defines “private company” means a company and which by its articles,—(i) restricts the right to transfer its shares;(ii) limits the number of its members to two hundred:Joint holders treated as oneEmployees/ex-employees who have taken shares while in employment excluded.(iii) prohibits any invitation to the public to subscribe for any securities of the company; andhaving a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed,
32 New Concepts / Key Definitions (Contd.) Public CompanySection 2(71) defines “public company” means a company which—(a) is not a private company;(b) has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed:Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ;One Person Company2(62) defines “One Person Company” means a company which has only one person as a member;
33 New Concepts / Key Definitions (Contd.) Companies with charitable objects [Section 8](1) Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company—(a) has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other useful object;(b) intends to apply its profits, if any, or other income in promoting its objects; and(c) intends to prohibit the payment of any dividend to its members,
34 New Concepts / Key Definitions (Contd.) Expert 1(38): Includes an Engineer, Valuer, a CA, a CS or a Cost Accountant and any other person who has the power or authority to issue a certificate in pursuance of any Law for the time being in forceFraud (Section 447): The term Fraud, first time defined in the Act.Any person who is found to be 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. Where the fraud involves public interest, the term of imprisonment shall not be less than three years
36 Formation of Companies and MOA / AOA Sr. no.ParticularsCompanies Act, 1956Companies Act, 20131Types of CompaniesPrivate CompanyPublic CompanyOne Person Company2Maximum number of members for private companiesA private company can have a maximum of 50 membersA private company can have a maximum of 200 members3Commencement of BusinessProvision is applicable only to Public limited companiesNow applicable to all companies having share capital
37 Formation of Companies and MOA / AOA (Contd..) Sr. no.ParticularsCompanies Act, 1956Companies Act, 20134Registered OfficeCompanies are required to furnish the details of the Registered Office of the company by filing Form 18 at the time of incorporationA Company shall on and from the 15th day of its incorporation to have a registered office capable of receiving & acknowledging communications and notices as may be addressed to it5Object Section of MOAObject clause bifurcated into Main Objects incidental or Ancillary Objects and Other ObjectsMOA to contain the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof.
38 Formation of Companies and MOA / AOA (Contd..) Reservation of Name (Form INC. 1)Applicant to have DINMemorandum of Association –Name ClauseDomicile ClauseObjects ClauseCapital ClauseLiability ClauseSubscription ClauseFormats – Schedule I Tables A - E
39 Formation of Companies and MOA / AOA (Contd..) Content: The 2013 Act specifies the mandatory content for the memorandum of association which is similar to the existing provisions of the 1956 Act and refers inter-alia to the following:Name of the company with last word as limited or private limited as the case may beState in which registered office of the company will be situatedLiability of the members of the company
40 Formation of Companies and MOA / AOA (Contd..) Application for Reservation of Name (Form INC. 1)Undesirable nameName ClauseShould not be identical with or resemble too nearly to the name of an existing companyShould not be such that its use will constitute an offence under any law for the time being in forceIs undesirable in the opinion of the Central GovernmentShould not contain any word or expression whichis likely to give the impression that the company is in any way connected with or having the patronage of the Government or local authority, corporation or body constituted by the Government; ormay be prescribed
41 Formation of Companies and MOA / AOA (Contd..) Where the application for availability of name was made by furnishing wrong or incorrect information:A) where the company is not incorporated : Cancel the reservation of name, and the applicant shall be liable to a penalty upto one lakh rupeesB) where the company is incorporated :Show cause to be issuedDirect the company to change its name within 3 months after passing Ordinary resolutionStrike off the name of the companyMake a petition for winding up of the company
42 Formation of Companies and MOA / AOA (Contd..) Application for change of nameForm No. INC. 24Special Resolution – [File Form no. MGT. 14]Reasons for change of nameRelevant extract of minutes/resolutionsCertificate of Incorporation pursuant to change of name will be issued by ROC in Form No. INC. 25. Change of name effective from the date of issue of such certificate
43 Formation of Companies and MOA / AOA (Contd..) A company shall on or from the fifteenth day of its incorporation and at all times thereafter have a registered office capable of receiving and acknowledging all communications and notices addressed to it. (Form INC. 22)Verification of the registered office:Registered document of title or Notarised copy of lease/rent agreementAuthorisation from the owner/authorised occupantDocument of connection of utility service depicting the name of the owner
44 Formation of Companies and MOA / AOA (Contd..) In case of change of Registered office from one State to another:Special Resolution [File Form no. MGT. 14]Application for approval to Regional Director in Form No. INC. 23Copy of Memorandum and Articles of AssociationCopy of extract of minutesCopy of challan for fees paidLetter of Authority.Advertisement to be published in Form No. INC. 26File Form No. INC. 28 after the order is passed by the Regional Director.
45 Formation of Companies and MOA / AOA (Contd..) In case of change of Registered office from one State to another (Contd.) :Form No. INC. 22 for giving notice to Registrar of Companies after approval from RD is received.List of debenture-holders, depositors, creditors or lenders and a notice to them seeking objections, if any.Other requirements (Section 12)Paint or affix its name and address outside its registered officeEngrave its name on the company sealPrint name, registered office address, CIN, website address, contact details on all its business letters, billheads, letter papers, notices, and other official publications (Rule 26)
46 Formation of Companies and MOA / AOA (Contd..) Objects clause to stateA) The objects for which the company is incorporatedB) any matter considered necessary in furtherance thereofThe basic purpose in the 1956 Act for such a classification as set out in section 149 of the 1956 Act, is to restrict a company from commencing any business to pursue ‘other objects of the company’ not incidental or ancillary to the main objects except on satisfaction of certain requirements as prescribed in the 1956 Act like passing a special resolution, filing of declaration with the ROC to the effect of resolution.Reservation of name: The 2013 Act incorporates the procedural aspects for applying for the availability of a name for a new company or an existing company in sections 4(4) and 4(5) of Act.
47 Formation of Companies and MOA / AOA (Contd..) Change of objects for which money is raised through prospectus:Send Notice for passing resolution through postal ballot to the members/shareholders. Notice to contain the following particulars: the total money received, utilised for the objects, unutilised money (raised through prospectus), justification, estimated impact on the earnings/cash flow and other relevant information. The place from where a copy of the resolution to be passed can be obtained. The notice should be hosted on the company’s website.Special Resolution [File Form no. MGT. 14]
48 Formation of Companies and MOA / AOA (Contd..) Types of sharesEquity SharesEquity with differential rightsPreference SharesThe number of shares, each subscriber to the MoA agrees to subscribe, which shall not be less than one share, shall be indicated opposite/against his name.
49 Formation of Companies and MOA / AOA (Contd..) Limited by Share CapitalLimited by GuaranteeWith share capitalWithout share capitalRight to participate in the divisible profits to a person other than a member is voidUnlimited Company
50 Formation of Companies and MOA / AOA (Contd..) The MoA and the AoA shall be signed each of the subscribers giving their name, address, description and occupation, before at least one witness who shall sign giving the same details and state that:“I witness to the subscriber(s), who has/have subscribed and signed in my presence (date and place); Further I have verified his/her/their identity details for their identification and satisfied myself of his her/their identification particulars as filled in.”Rules specify in case where:The subscriber is an illiterateThe subscriber is a foreign national residing outside India.
51 Formation of Companies and MOA / AOA (Contd..) Articles of AssociationEntrenchment provisions [Section 5(3)]The articles may contain provisions for entrenchment to the effect that specified provisions of the articles may be altered only if conditions or procedures as that are more restrictive than those applicable in the case of a special resolution, are met or complied with.Formats – Schedule I Tables F - JArticles of associationThe 2013 Act introduces the entrenchment provisions in respect of the articles of association of a company. An entrenchment provision enables a company to follow a more restrictive procedure than passing a special resolution for altering a specific clause of articles of association. A private company can include entrenchment provisions only if agreed by all its members or, in case of a public company, if a special resolution is passed [section 5 of 2013 Act].
52 Formation of Companies and MOA / AOA (Contd..) Certificate of Incorporation (Form INC. 11)Copies of documents in relation to the registration of the company, and filed with the Registrar at that time, should be maintained and preserved till the dissolution of the company.Consequences of formation of the company on the basis of false or incorrect informationCertificate for Commencement of BusinessDeclaration – (FORM INC. 21)Proof of address - verification of address (along with Form INC. 22)Proof of Registered Office – Deed/Agreement/Rent Receipt. Copy of recent (not older than two months) utility bills at the address. NOC to use the office as registered office from the owner.
53 Formation of Companies and MOA / AOA (Contd..) Documents to be submitted for incorporation of a company, (other than OPC and company with licence under Section 8):Application for Incorporation of Company (Form INC. 7)Declaration regarding compliance (Form INC. 8)Affidavit regarding his non-conviction in any offence or guilty of any fraud or misfeasance or for any breach of any duty under the company law during the last five years (Form INC. 9)Form for verification of signature of subscribers (Form INC. 10). NOC in case there is change in promoters.Address for correspondence till the registered office is established.
54 Formation of Companies and MOA / AOA (Contd..) Documents to be submitted for incorporation of a company, (other than OPC and company with licence under Section 8) (Contd.):Memorandum and Articles of AssociationParticulars of subscribers including proof of identity, proof of residence and PAN Card. Proof of nationality in case of foreign nationals.Particulars of first directors including proof of identity, proof of residence and PAN card.Consent and other directorships/interests of the first directorsEntrenched Articles of Association, if any.
55 Formation of Companies and MOA / AOA (Contd..) One Person CompanyDeemed to be a private companyMoA shall indicate the name of the other person (Form INC. 2) to be filed at the time of incorporation, with his prior consent (Form INC. 3), who shall in the event of the subscriber’s death or his incapacity to contract, become the member of the company.Withdrawal of consent by such other person (Form INC. 4) within thirty days of such withdrawalSubscriber may change the name of such other person (Form INC. 4) within thirty days of the intimation to the company.Duty of the subscriber to notify the change in the name of such other person (Form INC. 4).
56 Formation of Companies and MOA / AOA (Contd..) One Person Company (Contd.)Only a natural person who is an Indian citizen and resident in India can incorporate an OPC or be a nominee for the sole member of a OPC.Resident shall mean a person who has stayed in India for > 182 days in the immediately preceding calendar year.One person can form only one OPC.Minors cannot be members or hold shares.
57 Formation of Companies and MOA / AOA (Contd..) One Person Company (Contd.)Restrictions:Cannot be converted into a company with licence u/s 8 of the Act.Cannot carry on non-banking financial investment activity including investment in securities of any body corporate.Cannot voluntarily convert into any kind of company unless:Two years have elapsed since the date of incorporation of the OPC – Form INC. 6)The paid up share capital is increased beyond Rs. 50 lakhs (being the threshold limit of paid up share capital).*The average annual turnover during the immediately preceding three financial years (relevant period) exceeds Rs. 2 crores.** to be mandatorily converted – Rule 6(1). (Form INC. 5)
58 Formation of Companies and MOA / AOA (Contd..) Documents to be submitted for incorporation of an OPC:Application for Incorporation of OPC – Form INC. 2Nominee Consent Form – Form INC. 3Affidavit regarding his non-conviction in any offence or guilty of any fraud or misfeasance or for any breach of any duty under the company law during the last five years (Form INC. 9)Form for verification of signature of subscribers (Form INC. 10).List of all the companies having the same registered office, if any.Particulars of member including proof of identity, proof of residence and PAN Card.Particulars of nominee including proof of identity, proof of residence and PAN Card.Proof of Registered Office – Deed/Agreement/Rent Receipt. Copy of recent (not older than two months) utility bills at the address. NOC to use the office as registered office from the owner.
59 Formation of Companies and MOA / AOA (Contd..) Documents to be submitted for incorporation of a company with licence under Section 8 :To the Regional Director:Reservation of Name (Form INC. 1)Application for licence under Section 8Memorandum and Articles of Association (Form INC. 13)Declaration by a chartered accountant/company secretary/cost accountant, regarding compliance (Form INC. 14)Declaration by the applicant in Form INC, 15[Form No. INC. 26, in case of existing company applying for licence u/s 8(5)]
60 Formation of Companies and MOA / AOA (Contd..) Documents to be submitted for incorporation of a company with licence under Section 8 (Contd.) :To the Regional Director (Contd.):The copies of Balance Sheets, Profit & Loss Account of the immediately preceding two financial years.The statement showing in details of assets and liabilities of the company- as on the date of application or in a such extended period or within thirty days preceding that date,An estimate of future annual income and expenditure for next three yearsCertified copies of resolutions passed in general board meetings relating to registration of the company u/s 8.
61 Formation of Companies and MOA / AOA (Contd..) Documents to be submitted for incorporation of a company with licence under Section 8 (Contd.) :To the Registrar of Companies:Reservation of Name (Form INC. 1)Memorandum and Articles of Association as approved by the Regional Director (Form INC. 13)Copy of licence under Section 8 issued by the Regional Director [Form INC. 16 (new company) or Form INC. 17 (existing company), as the case may be]Declaration regarding compliance (Form INC. 8)Address for correspondence till the registered office is established.
62 Formation of Companies and MOA / AOA (Contd..) Documents to be submitted for incorporation of a company with licence under Section 8 (Contd.) :To the Registrar of Companies (Contd.):Affidavit regarding his non-conviction in any offence or guilty of any fraud or misfeasance or for any breach of any duty under the company law during the last five years (Form INC. 9)Form for verification of signature of subscribers (Form INC. 10). NOC in case there is change in promoters.Particulars of subscribers including proof of identity, proof of residence and PAN Card. Proof of nationality in case of foreign nationals.Particulars of first directors including proof of identity, proof of residence and PAN card.Consent and other directorships/interests of the first directors
63 Formation of Companies and MOA / AOA (Contd..) Certificate for Commencement of BusinessAll companies, whether public or private, can start business operations only after obtaining the Certificate for commencement of BusinessDeclaration prior to the commencement of business/exercising borrowing powers (Form No. INC. 21)Specimen Signatures – (Form No. INC. 10)Certificate of registration from RBI, in case of NBFCs
64 Formation of Companies and MOA / AOA (Contd..) Conversion of Section 8 company into company of any other kindApply for licence under Section 8 to the Regional Director (RD) in Form No. INC 18 along with the following documents:Memorandum & Articles of Association as approved by the RD.Copies of resolutions passed at the Board Meetings relating hereto-above.Notice of the general body meeting and a copy of special resolution passed relating hereto-above.Certificate from CA/CS/CWA in practiceStatement of Assets and Liabilities duly certified by the auditor within 30 days thereof.Audited financial statements and annual returns for immediately preceding two yearsWritten consent/NOC from lenders/creditors, if any.
65 Formation of Companies and MOA / AOA (Contd..) Conversion of Section 8 company into company of any other kind (contd.)NOC from sectoral regulatory authority such as Chief Commissioner of Income Tax, Income Tax Officer, Charity Commissioner, Chief Secretary, State Government having jurisdiction over the company. Proof of notice given to such sectoral authorities to be attached.Details of donation/grants etc. received since incorporation..Declaration that no portion of the income of the company or property had been paid or transferred, directly or indirectly, as dividend or bonus or otherwise to members or any persons claiming through themAdvertisement to be published in two local newspapers and hosted on the company’s website (Form No. INC 19)
66 Formation of Companies and MOA / AOA (Contd..) Conversion of Public into private company or private into public companyFile Special Resolution (Form No. INC. MGT. 14)Application to ROC Form No. INC. 27Certificate of Incorporation pursuant to change of name will be issued by ROC in Form No. INC. 25Notice of Order of any Court or any other competent authorityNotify ROC in Form No. INC. 28.Alteration of Memorandum of AssociationObjects ClauseCapital Clause
68 Issue of Shares & Securities Issue of SecuritiesA) Public Offer – includes initial public offer, further public offer asalso offer of sale of securities by existing shareholder(s) to thepublicB) Private PlacementC) Rights IssueC) Bonus SharesIssue by companies having share capitalPublic companies – any of the modes specified above.Private companies – any of the modes specified above except public offer
69 Issue of Shares & Securities Important Changes regarding Share CapitalSr. no.ParticularsCompanies Act, 1956Companies Act, 20131.Issue of Shares at a discountSection 79 permits issue of shares at discount subject to compliance with conditionsShares, other than sweat equity shares, cannot be issued at a discount2.Issue of preference shares for more than 20 yearsSection 80 prohibits issue of irredeemable preference shares and preference shares Redeemable after 20 yearsPreference shares have to be redeemed within 20 years of issue except for the shares issued for prescribed infrastructure projects provided a certain percentage of shares are redeemed annually at the option of shares holders.
70 Issue of Shares & Securities (Contd..) Important Changes regarding Share CapitalSr. no.ParticularsCompanies Act, 1956Companies Act, 20133.Issue of shares on private placement, bonus shares and GDRsNo specific provision for issue of shares on private placement, bonus shares and GDRs exist in the present Act.Specific provision introduced for issue of shares on private placement, bonus shares and GDRs in the Act.4.Notice of alteration of share capitalNotice of redemption of preference shares is not required to be filed with ROCCompany shall file a notice in the prescribed form with the Registrar within a period of thirty days of redemption of redeemable preference hares5.Consolidation and division of sharesCompany permitted to consolidated or sub divide its shares by passing resolution in general meetingConsolidation and division which results in changes in the voting percentage of shareholders shall require approval of the Tribunal to be effective
71 Issue of Shares & Securities (Contd..) ProspectusAbridged Prospectus means a memorandum containing such salient features of a prospectus as may be specified by the SEBI by making regulations in this behalfShelf Prospectus means a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectusInformation Memorandum [Form No. PAS-2]Red Herring Prospectus means a prospectus which does not include complete particulars of the quantum or price of the securities included therein.Deemed Prospectus – Where a company allots or agrees to allot any securities of the company with a view to all or any of the securities being offered for sale to the public, any document by which the offer for sale is made shall, for all purposes , be deemed to be a prospectus issued by the company.Advertisement [Form No. PAS-1]
72 Issue of Shares & Securities (Contd..) Contents of ProspectusRefer Section 26 of the ActRefer Rules 3, 4, 5 and 6 of Companies (Prospectus and Allotment) Rules, 2014Offer of Sale by members – Rule 8Variation in terms of contracts or objects for which prospectus was issued – Rule 7Advertisement to be published in Form No. PAS 1.Dematerialisation of securities – Rule 9
73 Issue of Shares & Securities (Contd..) Allotment in case of issue of securities by public offer, shall be made only after the minimum subscription, as specified in the prospectus) is received within thirty days from the date of issue of prospectusReturn of Allotment of Securities [Form No. PAS 3]Shall be within 30 days of the date of allotment
74 Issue of Shares & Securities (Contd..) Private placement means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of private placement letter and which satisfies the conditions contained in Section 42,Private placement offer letter (PPOL) [Form No. PAS. 4]The offer to be made to upto 50 persons, but not exceeding 200 persons in the aggregate in a year, (excluding qualified institutional buyers and employees under ESOPs) only.Such Invitation or offer value shall not be less than Rs. 20,000/-.
75 Issue of Shares & Securities (Contd..) All monies payable towards subscription shall be through cheque/ demand draft or banking channelsApplication money to be kept in a separate bank account and not used till the allotment is made.Allotment [Form No. PAS 3] shall be made within sixty days from the date of receipt of money. 12% p.a. shall be payable in case the application money is not refunded within 60 days or shares not allotted.No fresh offer unless the previous offer is logically concluded.
76 Issue of Shares & Securities (Contd..) Relaxation in Rules for Non-Banking Financial Companies and Housing Finance Companies in case the such offers are regulated by RBIList of persons to whom the offer is made to be maintained [Form No. PAS. 5] and filed with the ROC(or SEBI, where the company is listed), within 30 days of circulation of PPOL.Penalty for non-compliance – Amount involved subject to a maximum of Rupees two Crores.
77 Issue of Shares & Securities (Contd..) Types of securities :-EquityWith voting rightsWith Differential voting rightsPreference SharesShares Certificate – [Form No. SH-1]Renewed/Duplicate Share certificate – Register to be maintained – [Form No. Sh-2]For defaced, mutilated, torn or old , decrepit worn out sharesOn sub-division/consolidationFor lost/destroyed shares – can charge up to Rs. 50 per share certificate + out-of-pocket expenses + procedure.
78 Issue of Shares & Securities (Contd..) Issue of shares at a discountSection 53 prohibits issue of shares at a discount except by way of sweat shares.Sweat Shares [Section 2(88)]Sweat equity shares means such equity shares as are issued by a company to its directors or employees at a discount or for consideration other than cash , for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.
79 Issue of Shares & Securities (Contd..) Issue of sweat shares (unlisted equity shares):Employee means a permanent employee who has worked for at least one year. Employee or Director of subsidiary/Holding company shall also be eligible.Value additions means actual or anticipated economic benefits derived by the company from an expert /professional for providing know how or making available rights in the nature of intellectual property rights for which the consideration is not paid or included in the normal remuneration or monetary consideration under any contract
80 Issue of Shares & Securities (Contd..) Issue of sweat shares:Should be authorised by a special resolution,Resolution to specify, the number of shares, current market price, consideration, if any, class or classes of directors or employees to whom such equity shares are to be issued.Validity of the resolution – 12 monthsJustification and Principal terms and conditions should also be specified in the explanatory statementAt least one year should have elapsed from the date of commencement of businessWhere the equity shares are listed on a recognised stock exchange, the provisions to be complied shall be as per SEBI regulations, or where they are not so listed, as per prescribed RulesShall rank pari passu with other equity shareholders.
81 Issue of Shares & Securities (Contd..) Sweat Shares – Other IssuesValuation by a registered valuerNon-cash transactions – treatment in accordance with the accounting standardsTo be treated as compensation, where there is no acquisition of asset.Disclosure in the Directors’ ReportDiluted EPS pursuant to issue of sweat shares to be disclosedRegister of Sweat Equity Shares Issued [Form No. SH3]
82 Issue of Shares & Securities (Contd..) Securities Premium AccountEquivalent to share capital accountApplication of Securities Premium Account : :To issue of bonus shares*To write off expenses/commission paid or discount allowed on any equity shares*For Buy-back of own shares/securities*To write off preliminary expenses of the companyTo write of f premium payable on redemption of preference shares or debentures of the company*Note : can be applied by such class of companies as may be prescribed and whose financial statements comply with the accounting standards prescribed under Section 133 of the Act
83 Issue of Shares & Securities (Contd..) Issue of Equity shares with differential rightsAuthorised by Articles of AssociationAuthorised by ordinary resolution of the shareholders. In case of listed company, by postal ballot or poll at general body meeting.Cannot exceed 26% of the total post issue paid up equity share capitalTrack record of dividend payment of at least 10% for immediately preceding last three financial years.Filed financial statements and Annual returns for immediately preceding five financial years.The holders shall enjoy all other rights such as issue of bonus shares, rights shares etc.,
84 Issue of Shares & Securities (Contd..) Issue of Equity shares with differential rights (contd.)No subsisting default in regard to payment of dividend, repayment of deposits or interest thereon, repayment of term loan from any financial institution or interest thereon, redemption of preference shares/debenturesThe company has not been penalised by any Court or Tribunal or any regulators during the last three years.Existing equity shares with voting rights cannot be converted into equity shares with differential voting rights.Disclose the fact of the issue in the Board’s Report for the financial year in which such shares were issued.Existing shares to continue till they are converted as per new Act.
85 Issue of Shares & Securities (Contd..) Redemption of preference shares (Section 55)Cannot issue Irredeemable preference sharesMaximum term – 20 years.However higher term may be permitted for infrastructure projects specified in Schedule VI. Redemption at least 10% per year from the twenty first year.RedemptionShare Transfer – Form No. Sh-4Notice in Form No. SH-5 to be given to the transferee in case of transfer of party paid shares.
86 Issue of Shares & Securities (Contd..) Employees Stock OptionAuthorised by a special resolutionMinimum one year gap between the grant of option and vesting of optionLock-in period – discretionaryOption – not transferable; cannot be pledged or hypothecated or mortgaged or otherwise encumbered or alienated.On resignation/termination of employments, all options not vested shall expire.Register of Employee Stock Options to be maintained in Form No. SH. 6
87 Issue of Shares & Securities (Contd..) Issue of shares on preferential basisAuthorised by Articles of AssociationAuthorised by a special resolution. Notice to contain prescribed details/disclosures.Process completed within 12 months of passing the special resolutionPrice to be determined by the registered valuerWhere the issue is made for a non-cash transaction, compliance with accounting standardsProvision of money by company to purchase its own shares by employees/trustees for the benefit of employees
88 Issue of Shares & Securities (Contd..) Issue of Bonus Shares (Section 63)Authorised by AOARecommendation of Board and Approval of general bodyCannot issue in case of default – deposits/employee statutory duesCannot issue in lieu of dividendAlteration of Share CapitalReturn to be filed in Form No. SH.7Reduction of Capital (Section 66)Subject to confirmation of TribunalNo reduction permitted in case of default – deposits
89 Issue of Shares & Securities (Contd..) Further issue of Capital (Section 62)To existing members/shareholdersTo employees under ESOP, subject to special resolutionTo others, subject to special resolution and the price of the share is determined by the Registered ValuerUnlimited CompaniesTo provide for reserve share capital
90 Issue of Shares & Securities (Contd..) Buy Back of shares (Section 68)Restrictions: No public company can directly or indirectly give any financial assistance to purchase or subscribe shares of the company subject to exceptions specified in the section.Authorised by AoA and also by Special Resolution at general body.Buy-back out of free reserves, securities premium account or new issue of other securities.Buy-back is of < 25% of the paid-up capital and free reservesDebt Equity ratio (post – buy back) = 2 : 1Offer letter to be filed with Registrar of Companies in Form No. SH.8
91 Issue of Shares & Securities (Contd..) Buy Back of shares (Section 68) (Contd.)No new offer of buy-back within one year of the closure of preceding buy-backEither by purchase from existing shareholders or by purchase from the open market or purchase of ESOP/sweat sharesDeclaration of Solvency in Form No. SH.9. Not applicable for listed securities.No fresh issue of the same kind of securityRegister of securities bought back – [Form No. SH.10]Return to be filed on completion of buy back – [Form No. SH.11] along with declaration in Form No. Sh.15 that all the provisions relating to buy-back have been complied.
92 Issue of Shares & Securities (Contd..) Issue of Debentures (section 71)Debenture Trust Deed – [Form No. SH.12]Appointment of Debenture TrusteesRegister of Debenture holders or other securities [Form No. MGT-2]Registration of Chargein case of delay beyond 300 daysCharge on all properties, whether movable or immovable, tangible or intangible to be registered.Charge to be filed within 30 daysApproval of TribunalNomination – [Form No. SH.13]Cancellation or Variation of Nomination [Form No. SH.14]
94 Impact on Private Limited Companies A quick review of the Companies Act 2013 shows that many exemptions given to Private limited companies under Companies Act are withdrawn.The following provisions are applicable to Private limited companies under the new Companies Act 2013. Maximum Number of membersThere is no change in the minimum number of member which is 2. The maximum number the members in a private limited company are increased from 50 members to 200 members. (Section 2 sub section (68)).Financial Year for the Balance SheetFinancial year of the balance sheet will be 31st march for all the companies.For any relaxation approval from NCLT is required. (Section 2 sub section (41)).
95 Impact on Private Limited Companies (Contd..) Further Issue of SharesThe exemption given to private limited companies regarding further issue of shares is withdrawn. Further issue of shares under section 81 applicable to both private and public limited companies. Valuation of shares shall be done based on the certificate issued by registered valuer subject to such conditions as may be prescribed. (Section 62)Certification for Annual ReturnAnnual Return must be certified by a Practicing company secretary and requirement of compliance certificate by practicing company secretary is dispensed with. The annual return should contain particulars like: (a) The extract of the annual return as provided under sub-section (3) of sec 92. (b) Number of meetings of the Board. (c) Directors’ Responsibility Statement; (d) A statement on declaration given by independent directors under sub-section.And also PCS to certify that all the provisions of the Companies Act has been complied with (Section 92)
96 Impact on Private Limited Companies (Contd..) Number of days of Notice of General Meetings.For private limited company as per the existing Companies Act is even seven days notice is sufficient. This exemption is withdrawn. As per the New Provisions 21 clear days notice has to be given to the shareholders and the notice can be given by electronic mode also. However the general meeting may be convened by giving shorter notice if consent is given in writing or electronic mode by not less than ninety nine per cent of the members entitled to vote at such meeting. (Section 101).Postal ballot for passing the ResolutionsTill now postal ballot is applicable only for listed companies. Postal ballot is applicable to private limited companies also for certain transactions after the amendment prescribed by the central government by notification. (Section 110).
97 Impact on Private Limited Companies (Contd..) Board Report to give more details The Board report shall contain the following information (Section 134(3)) —The extract of the annual return(b) Number of meetings of the Board;(c) Directors’ Responsibility Statement;(d) a statement on declaration given by independent directorsCompany’s policy on directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters if required by Section 178 provided under sub-section (3) of section 178;
98 Impact on Private Limited Companies (Contd..) Board Report to give more details (contd…)Explanations or comments by the Board on every qualification, reservationor adverse remark or disclaimer made— (i) by the auditor in his report; and (ii) by the company secretary in practice in his secretarial audit report;Particulars of loans, guarantee s or investmentsParticulars of contracts or arrangements with related parties referred to insub-section (1) of section 188 in the prescribed form;(i) The state of the company’s affairs;(j) The amounts, if any, which it proposes to carry to any reserves;The amount, if any, which it recommends should be paid by way of dividend;
99 Impact on Private Limited Companies (Contd..) Board Report to give more details (contd…)(l) Material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company to which the financial statements relate and the date of the report;(m) The conservation of energy, technology absorption, foreign Exchange earnings and outgo, in such manner as may be prescribed;(n) a statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company;(o) The details about the policy developed and implemented by the Company on corporate social responsibility initiatives taken during the year;
100 Impact on Private Limited Companies (Contd..) Board Report to give more details (contd…)(p) In case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors;(q) Such other matters as may be prescribed.
101 Impact on Private Limited Companies (Contd..) Corporate Social Responsibility.Every company having net worth of rupees five hundred crore or more, turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility (CSR) Committee of Board consisting of three or more directors, out of which at least one director shall be an independent director and 2 per cent of the average net profits of the immediately preceding three financial years should be spent for CSR (Section 135). Schedule VII prescribes the activities to be included under Corporate Social Responsibility which is given below:SCHEDULE VIIActivities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:—(i) Eradicating extreme hunger and poverty;(ii) Promotion of education;
102 Impact on Private Limited Companies (Contd..) SCHEDULE VII (Contd..)(iii) Promoting gender equality and empowering women;(iv) Reducing child morality and improving maternal health;(v) Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases;(vi) Ensuring environmental sustainability;(vii) Employment enhancing vocational skills;(viii) Social business projects; (ix) Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and (x) such other matters as may be prescribed.
103 Impact on Private Limited Companies (Contd..) Appointment of Auditors A. An auditor will be appointed in the first annual general meeting for a five-year term. Thereafter, the auditor will be changed as per the members’ decisions.B. Secondly, an audit firm cannot be re-appointed for more than two five-year terms. (i.e. 10 years) For re-appointment purposes for the individual auditor or audit firm, there has to be a gap of five years. Moreover, for appointment or re-appointment purposes, there should be no common partners between the new firm and old audit firm. Another interesting clause is that members can resolve to ask the audit firm to rotate the audit partner and team every year.The company shall inform the auditor concerned of his or its appointment, and also file a notice of such appointment with the Register within fifteen days of the meeting in which the auditor is appointed. Every company shall comply with the requirements of this sub-section within three years from the date of commencement of this Act. (Section 139)
104 Impact on Private Limited Companies (Contd..) Appointment of Internal AuditorSuch class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a Chartered Accountant or a Cost Accountant or such other professionals as may be decided by the Board conduct internal audit of the functions and activities of the company. (Section 138). Duties of DirectorsA director of a company shall act in good faith in order to promote the object of the company. A director of a company shall exercise his duties with due care, skill and diligence. A Director of a company shall not assign his office and any assignments so made shall be void. If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than Rs.1, 00,000/- but which may extend to Rs.5, 00,000/- (Section 166).
105 Impact on Private Limited Companies (Contd..) Borrowing PowersThe exemption given to private limited company for borrowings under section.293 is withdrawn. Borrowing powers now require approval by shareholders and applicable to both private and public limited companies. (Section 180). Loan and InvestmentThe exemption given to private limited company under Section 372A regarding loan and investment is withdrawn. Existing limit of 60% Paid up capital and free reserves or 100% of free reserves applicable to both private limited and public limited companies.(Exemption to private limited Company for loan and investment under section372A is removed now) (Section 186). Related party TransactionsOnly with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as may be prescribed no company shall enter into any contract or arrangement with a related party with respect to—(a) Sale, purchase or supply of any goods or materials;(b) Selling or otherwise disposing of, or buying, property of any kind;
106 Impact on Private Limited Companies (Contd..) Related party Transactions (contd..)c) Leasing of property of any kind;(d) Availing or rendering of any services;(e) Appointment of any agent for purchase or sale of goods, materials, services or product.(f) Such related party’s appointment to any office or place of profit in the company, or its subsidiary company or associate company.No contract or arrangement, in the case of a company having a paid-up share capital of not less than such amount, or transactions not exceeding such sums, as may be prescribed, shall not be entered into except with the prior approval of the company by a special resolution. Further that no member of the company shall not vote on such special resolution to approve any contract or arrangement which may be entered into by the company, if such member is a related party. (Section 188).Loan to Directors The exemption given to the Private Limited Company under section 295 regarding loan given to director of a private limited of company is withdrawn. Loan should not be given to directors of any company including private limited company or to any private company in which a director is a director or member (Section 185).
107 Impact on Private Limited Companies (Contd..) Appointment of Key Managerial PersonnelAppointment of Key Managerial Personnel – Every company belonging to such class or description of companies as may be prescribed shall have the following whole time Key Managerial Personnel (Section 203).Managing Director or Chief Executive Officer or Manager and in their absence a Whole Time Director.Company Secretary and; 3. Chief Financial Officer.Secretarial Audit ReportEvery listed company and company belonging to other class of companies as may be prescribed shall annex with its Board’s report a secretarial audit report given by Practicing Company Secretary in such form as may be prescribed. (Section 204). ’
108 Impact on Private Limited Companies (Contd..) Director to stay in India for 182 daysEvery company shall 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. Every company existing on or before the date of commencement of this Act shall, within one year from such commencement or from the date of notification of the rules in this regard as may be applicable, comply with the requirements of this provision (Section 149(3)). Board and Annual General Meeting minutes Hereafter the companies shall follow the Secretarial Standards while making the minutes of Board and General Meeting. (Section 118 (10)) Books of AccountsThe Books of Accounts may be kept in electronic form also. (Section 128)
109 Impact on Private Limited Companies (Contd..) Managing DirectorThe exemption given to private limited company under section 269 for appointment of Managing Director is withdrawn. Provision relating to the appointment of Managing Director is also applicable to the private limited companies (Section 196).Need for Amendment of Articles of Association of private limited company:Sec 171 to 186 sections which are not applicable to Private Limited companies is now deleted in the Companies Act. Hence, after Companies Act, 2013, comes into effect, it may require to amend the article of association of Private Limited by substituting the new set of article of association so that it will not contain any contrary provision of the Companies Act, 2013.
110 Impact on Private Limited Companies (Contd..) A comparison is made with respect to exemptions given in the Companies Act, 1956 and new Companies Act The following are the exemptions available to Private Limited Companies in Companies Act 1956 and its status in New Companies Act 2013.Sr.NoExisting Section in Companies Act, 1956.Nature of exemptions in the Companies Act, 1956.Status in Companies Act 20131.Section 77(2)Financial assistance can be given for purchase of or subscribing for its own shares in its holding company, Whereas not applicable to Public companySection 67 – Restrictions on purchase by Company or giving of loans by it for purchase of its shares. Private limited company not specifically mentioned in the clause. Hence exemption is available.
111 Impact on Private Limited Companies (Contd..) Sr.NoExisting Section in Companies Act, 1956.Nature of exemptions in the Companies Act, 1956.Status in Companies Act 20132.Section 81(3)Further shares can be issued without passing special resolution or obtaining central government’s approval and without offering the same necessarily to existing shareholdersSection 62 – Further issue of shares now applicable to Private limited Company also. Exemption is withdrawn.3.Section 149(7)Exemption from Certificate of Commencement of businessSection 11 – Commencement of business declaration has to be filed by Private Limited Company. Exemption is withdrawn.4.Section 198(1)No restriction on the payment of Managerial Remuneration on net profitsSection 197 – Overall maximum managerial remuneration applicable to Public Company. For Private Limited Company this section is not applicable. Exemption is withdrawn.
112 Impact on Private Limited Companies (Contd..) Sr.NoExisting Section in Companies Act,Nature of exemptions in the Companies Act, 1956.Status in Companies Act 20135.Section 252(2)Need not have more than two directorsSection 149 – Minimum two directors. There is no change in the existing provisions. Exemption continues.6.Section 255(1)A proportion of directors need not retire every yearSection 152 – The exemption continues but as per the AOA of the Company.7.Section 257(2)Statutory notice, etc., is not required for a person to stand for election as a directorSection 160 – Exemption is withdrawn. 8.Section 259Central Government’s sanction is not required to affect increase in the number of directors beyond 12 or the number fixed by articles of associationSection 149 – The Company to have Board of Directors. Exemption given now to maximum of 15 Directors.
113 Impact on Private Limited Companies (Contd..) Sr.NoExisting Section in Companies Act,Nature of exemptions in the Companies Act, 1956.Status in Companies Act 20139.Section 263(1)In passing resolution for election of directors, all directors can be appointed by a single resolution.Section 162 – Appointment of directors to be voted individually. Exemption is withdrawn. Single resolution for the appointment of directors can be passed both by private and public company provided, a proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it.10.Section 264(3)Consent to act as director need not be filled with registrarSection 152 – Appointment of directors. Exemption removed. Private Limited Companies also to file consent. Exemption is withdrawn.
114 Impact on Private Limited Companies (Contd..) Sr.NoExisting Section in Companies Act, 1956.Nature of exemptions in the Companies Act, 1956.Status in Companies Act 201311.Section 269(2)Central Government’s approval is not required for appointment of managing or whole-time director or managerSection 196 – Exemption is withdrawn. Applicable to Private Limited Companies12.Section 275 to 279Restrictive provisions regarding total number of directorships which any person may hold do not include directorships held in private companies which are not subsidiary of public companySection 165 – The maximum number of companies in which a director can hold office is 20 companies. Out of this he can hold only up to 10 public companies. There is no restriction for private limited companies. One can become director in 20 private limited companies. Exemption is withdrawn.
115 Impact on Private Limited Companies (Contd..) Sr.NoExisting Section in Companies Act, 1956.Nature of exemptions in the Companies Act, 1956.Status in Companies Act 201313.Section 293(1)Certain restrictions on powers of board of directors do not applySection 180 – Exemption is withdrawn.14.Section 295(2)Prohibition against loans to directors does not applySection 185 – Exemption is withdrawn. Loan to directors applicable to private limited company15.Section 300(2)Prohibition against participation in board meetings by interested director does not applySection 184 – Exemption is withdrawn. Disclosure of directors interested applicable to private limited company.
116 Impact on Private Limited Companies (Contd..) Sr.NoExisting Section in Companies Act, 1956.Nature of exemptions in the Companies Act, 1956.Status in Companies Act 201316.Section 303(1)Date of birth of director need not be entered in the register of directorsSection 170 – Register of directors and key managerial personnel and their shareholding. Exemption is withdrawn. Anybody can view the particulars of the directors through their DIN numbers.17.Section 309(9)There is no restriction on remuneration payable to directorsSection 197 – Overall maximum managerial remuneration applicable to Public Company. For Private Limited Company this section is not applicable. Exemption continues.
117 Impact on Private Limited Companies (Contd..) Sr.NoExisting Section in Companies Act, 1956.Nature of exemptions in the Companies Act, 1956.Status in Companies Act 201318.Section 316(1)No restriction on appointment of managing directorSection 203 – Appointment of Key Managerial Personnel. Exemption is withdrawn.19.Section 349Provisions relating to method of determination of net profits and ascertainment of depreciation do not applySection 198 – Calculation of Profits. Exemption is withdrawn.20.Section 372(A)No prohibition against purchase of shares, etc., in other companiesSection 186 – Exemption is withdrawn. Applicable to Private Limited Companies
118 Impact on Private Limited Companies (Contd..) The following provisions which exempted private limited companies have been deleted in the Companies Act, 2013.S.NoExisting Section in Companies Act, 1956.ParticularsStatus in Companies Act 20131.Section 70(3)Statement in lieu of prospectus need not be delivered to the registrar before allotting sharesNo provisions exist2.Section 90(2)Provisions as to kinds of share capital (sec.85), further issue of share of capital(sec.86), voting rights(sec 87), issue of shares with disproportionate rights (sec 88) and termination of disproportionate excessive rights (sec 89)No provision exist3.Section 165(10)Exemption from Statutory Meeting and Statutory Report
119 Impact on Private Limited Companies (Contd..) S.NoExisting Section in Companies Act, 1956.ParticularsStatus in Companies Act 20134.Section 170(1)Articles of private company having provisions relating to general meetings without being subject to the provisions of sections 171 to 186No provision exist5.Section 204(6)Can appoint a firm or body corporate to an office or place of profit under the company6.Section 266(5)Restriction on appointment or advertisement of directors as regards consent and qualification of shares does not apply.7.Section 268No Central Government approval to modify any provision relating to appointment of managing, whole-time or non-rotational directors
120 Impact on Private Limited Companies (Contd..) S.NoExisting Section in Companies Act, 1956.ParticularsStatus in Companies Act 20138.Section 273No share qualification u/s 270 for Directors of a private company.No provision exist9.Section 310No Government approval for change in restriction on remuneration to directors10.Section 311No central government approval for increase in the remuneration beyond specified limit of directors on an appointment or reappointment11.Section 317(4)No restriction on appointment of managing director12.Section 350 & 355Provisions relating to method of determination of net profits and ascertainment of depreciation do not applyNo provision exist.
121 Impact on Private Limited Companies (Contd..) S.NoExisting Section in Companies Act, 1956.ParticularsStatus in Companies Act 201313.Section 370(2)No restriction on making loans to other companiesNo provision exist14.Section 388AProvisions of sections 386 and 387, which restrict the number of companies of which a person can be appointed as manger, remuneration of the manager, etc., and also provisions of sections 269, 310,311,312 and 317, do not apply15.Section 409(3)Central Government cannot exercise its power to prevent change in board of directors which is likely to affect the company prejudicially16.Section 416(1)Person can enter into contract on behalf of company as undisclosed principle and need not give intimation to the other directorsE
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