1. COMPANIES ACT 2013: BEGINNING OF A NEW ERA
RAJA DEY
Faculty Member
Department of Commerce
Maheshtala College 1
Companies Act, 2013

2. Agenda for Today’s presentation
Introduction and Structure
Impact of New Act
Related Party Transactions 1
Companies Act, 2013

3. Journey of Companies Act , 2013
Bill passed by Lok Sabha
Sec 135 (CSR) notified Feb27,2014 w.e.f April 1, 2014
Co.’s Bill, 2008 introduced
SCF report submitted to Lok Sabha
SCF report submitted to Lok Sabha in August
Oct 2008
Aug 2010
Aug 2012
Dec 2012
2014
Oct 2012
2013
Aug 2009
Dec
2011
2015
Co.’s Bill, 2009 reintroduced
Revised Bill introduced in Lok Sabha- Bill referred back to SCF
Cabinet approves amendments to the Bill
Bill passed by Rajya Sabha, Presidential assent on August 29, 2013 & 98 Sections Notified w.e.f September 12, 2013
26th March, 2014 ,183 Sec. notified w.e.f
1.4.14, & Co.’s
Amendment
Act came on 2015
Companies Act, 2013

4. Structure The Companies Act, 1956 The Companies Act, 2013 18 Chapters
658 Sections
15 Schedules
67 Definitions
29 Chapters
470 Sections
7 Schedules
95 Definitions
In approx. 75% of the Sections the words “to be specified” or “as may be prescribed” has been used – depicting extensive “delegated legislation”. The rules have been made available for public debate
Companies Act, 2013

5. Notification and Circulars issued
GC No.16/2013 dt
Corresponding 98 sections of the Act 1956 will cease
GC No. 18/2013 dt
Section 186(3) – ICD as per 372A of the Act 1956
GC No. 19/2013 dt
Section 182(3) – Electoral trust
GC No.20/2013 dt
Section 2(87) – holding shares or exercising powers in fiduciary capacity will not be considered for deciding holding subsidiary relationship No. 3/2014 dt
GC No. 3/2014 dt
Section Guarantee given or security provided by holding company to its wholly owned subsidiary company
Companies Act, 2013

6. Rules Notified under The Act
Chapter No.
Citation
Chapter I
The Companies (Specification of definitions details) Rules, 2014.
Chapter II
The Companies (Incorporation) Rules, 2014.
Chapter III
The Companies (Prospectus and Allotment of Securities) Rules, 2014.
Chapter IV
The Companies (Share Capital and Debentures) Rules, 2014.
Chapter V
The Companies (Acceptance of Deposits) Rules, 2014.
Chapter VI
The Companies (Registration of Charges) Rules, 2014.
Chapter VII
The Companies (Management and Administration) Rules, 2014.
Chapter VIII
The Companies (Declaration and Payment of Dividend) Rules, 2014.
Chapter IX
The Companies (Accounts) Rules, 2014.
Chapter X
The Companies (Audit and Auditors) Rules, 2014.
Chapter XI
The Companies (Appointment and Qualification of Directors) Rules, 2014.
Companies Act, 2013

7. Rules Notified under The Act
Chapter No.
Citation
Chapter XII
The Companies (Meetings of Board and its Powers) Rules, 2014.
Chapter XIII
The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
Chapter XIV
The Companies (Inspection, Investigation and Inquiry) Rules, 2014.
Chapter XXI
The Companies (Authorised to Registered) Rules, 2014.
Chapter XXII
The Companies (Registration of Foreign Companies) Rules, 2014.
Chapter XXIV
The Companies (Registration Offices and Fees) Rules, 2014.
Chapter XXVI
Nidhi Rules, 2014.
Chapter XXIX
The Companies (Adjudication of Penalties) Rules, 2014.
The Companies (Miscellaneous) Rules, 2014.
Companies (Corporate Social Responsibility Policy) Rules, 2014
Companies Act, 2013

8. TYPES OF
COMPANY
Companies Act, 2013

9. Companies Act, 2013 Small Company [Section 2(85)] Private Company
Turnover does not exceed Rs. 2 crores to 20 crores
Paid up capital does not exceed Rs. 50 lakhs to 5 crores.
Excludes
Holding Company
Subsidiary Company
Non profit company registered u/s 8
Company governed by Special Act
Companies Act, 2013

10. Significant transaction excludes
Dormant Company (Sec. 455) NEW
For a future project with no significant transaction
To hold an asset with no significant transaction
To hold intellectual property with no significant transaction
Inactive company
Significant transaction excludes
Payment of fees by a company to a Registrar
Payments made to fulfill the requirements of this Act or any other law
Allotment of share to fulfill the requirements of this Act
Payment for maintenance of its office and records
Companies Act, 2013

11. Subsidiaries and Associates
Companies Act, 2013

12. Subsidiary Company-Section 2(87)-notified
Subsidiary company in relation to any other company (that is to say the holding company), means a company in which the holding company—
controls the composition of the Board of Directors; or
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:
The term ‘subsidiary company’ has been defined with reference to words “total share capital” instead of “total voting power”
Rule 2(r)[CO.spf & defn rules] 14 for Section 2(6) & 2(87) Total Share Capital means Paid up Share Capital + Convertible Preference Share Capital
Companies Act, 2013

13. Subsidiary Company-Section 2(87)
Subsidiary shall include associate and joint venture
2(87): 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 (rules are silent)
Section 186(1) restricts layers of Investment Subsidiary up to 2 except in case of:
a company from acquiring any other company incorporated in a country outside India if such other company has investment subsidiaries beyond 2 layers as per the laws of such country
a subsidiary co. from having any investment subsidiary for the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force
Companies Act, 2013

14. Associate Company - Section 2(6) - notified
Associate Company means a company in which other company has significant influence and is not a subsidiary of other company and includes JV
Significant influence means control of at least 20% of total S/C, or of business decisions under an agreement
The term ‘Associate Company’ is defined to include ‘joint venture’ also and both terms also refer to ‘Total Share Capital’ instead of ‘Voting Power’
Further vide explanation to section 129(3) it is provided that for purpose of ‘consolidation’ the word ‘subsidiary’ shall include ‘an Associate’ or ‘JV’
Companies Act, 2013

15. Associate Company - Section 2(6) - notified
AS-23 makes holding of 20% or more of voting power as rebuttable presumption that company is an ‘Associate’
The combined reading of these provisions give rise to conflict as to consolidation of ‘Associate’ & ‘JV’ & manner thereof
However, the rule 6 [Co’s Accounts Rules 2014] attempts to remove the ambiguity w.r.t. to Consolidation and clarifies that Consolidation of FS shall be made in accordance with the Accounting Standards
Companies Act, 2013

16. New Definitions
Promoter [Section 2(69)] - the definition of promoter has been introduced to also include a person—(Notified on 12th September, 2013) (a) who has been named as such in a prospectus is identified by the company in the annual return (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-section (c) shall apply to a person who is acting in a professional capacity;
Companies Act, 2013

17. Free Reserves & Net worth - notified
Section 2(43): Reserves which are as per the latest audited balance sheet of a company available for distribution as dividend
Following shall not be treated as free reserve:
any amount representing unrealized gains, notional gains or revaluation of assets, whether shown as a reserve or otherwise,or
any change in carrying amount of an asset or of a liability recognized in equity, including surplus in profit and loss account on measurement of the asset or the liability at fair value
Section 2(57): net worth means the aggregate value of the paid-up S/C and all reserves created out of the profits and S.P. account, after deducting the aggregate value of the accumulated losses, deferred expenditure & 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
Companies Act, 2013

18. Turnover
Section 2(91)
Turnover means the aggregate value of the realization of amount made from the sale, supply or distribution of goods or on account of services
Reference to the other sections (eg.)
Sec 2(85) : Small Company
Sec : Acceptance of deposits from public
Sec : Corporate Social Responsibility
Whether adjustment needed for opening and closing trial balances
Any impact on preparation of financial statements
Companies Act, 2013

19. Financial Year Section 2(41) Companies Act, 2013 Particulars Act 2013
Period ending 31st March of the year
Transitional period of 2 years for existing companies
Applicable to all companies except foreign holding or subsidiary companies which requires –
Compulsory consolidation outside India; and
With prior approval of Tribunal
Period for which profit & Loss account placed before AGM
FY Period
(except 1st FY of incorporation)
12 months
Can not be less or more than 12 months
Normally it cannot exceed 15 months
Can extend it to 18 months, after getting permission from the registrar
Companies Act, 2013

20. IMPACT ON COMPANIES
Companies Act, 2013

21. KEY MANAGERIAL PERSON
Companies Act, 2013

22. Definitions – KMP [Section 2(51)]
Key Managerial Personnel [Section 2(51)] (Notified on 12th September, 2013) - in relation to a company, means
The CEO or the MD or the manager
Company Secretary
Whole – time Director
CFO
Any other prescribed officer
As per AS – 18:
KMP means those persons who have the authority and responsibility for planning, directing and controlling the activities of the reporting enterprise
Companies Act, 2013

23. Related Party Transactions
What does the Companies Act, 1956 say ? [Section 297 (1)]
Central government approval required for entering into specific contracts, where paid-up capital of the company is not less than Rs.1 crore; for other Companies – the Board approval where interested Directors are not to participate
Following transactions are covered:
Sale, purchase or supply of any goods, material or services
Underwriting the subscription of any shares or debentures
Sale/purchase of goods/services for cash at prevailing market prices not exceeding Rs 5K – are exempted
No specific disclosure required in the Board Report
Companies Act, 2013

24. Related Party Transaction (notified)
Sec 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 co. in which a director or manager is a member or director;
(v) a public co. in which a director or manager is a director or holds
along with his relatives, more than 2% of its paid-up S/C;
(vi) any body corporate whose BoD, M.D 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: Provided that nothing in sub-clauses (vi) and (vii) shall
apply to the advice, directions or instructions given in a professional capacity;
(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
Companies Act, 2013

25. Related Party Transactions ….cont’d
Provisions of Sec 188 of New Act
Prior approval by SR at GM required if paid-up capital of Co is Rs.10 Cr or more OR the transaction with RP does not exceed such sum, as may be prescribed (The word “not” is mis-placed in Section). The limits for clauses (a) to (e) as per rules are prescribed as 25% of annual Turnover or 10% of Net worth of Co as per last audited FS
Interested member not to vote on SR – (issue for some Co’s)
Disclosure in board report required along with appropriate justification for RPT
Section exempts: Any transaction entered by company in its ordinary course of business other than transactions which are not an arm’s length basis
Companies Act, 2013

26. Related Party Transaction
Limited scope of transactions and persons covered under Co Act
(Sec. 297)
Prior approval of Central Govt. required in case paid-up capital exceeds Rs. 10 Crore
Enhanced scope of transactions
Enhanced scope of related parties to include KMP and relatives, directors with certain shareholding, persons in advisory capacity (other than professional advice) to board
Prior approval of shareholders by SR if:
paid-up capital exceeds Rs. 10 Cr
Transaction exceeding higher of 25% of T/O or 10% of N/W as per last audited FS
Appointment exceeding Remuneration of Rs. 2.5 Lac pm
Underwriting remuneration etc exceeding 1% of net worth
No member shall vote if he is related party
Companies Act, 2013

27. Related Party Transactions …cont’d
Following transactions are covered u/s 188
sale, purchase or supply of any goods or materials;
selling or otherwise disposing of, or buying, property of any kind;
leasing of property of any kind;
availing or rendering of any services;
appointment of any agent for purchase or sale of goods, materials, services or property;
such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and (Rs. 2.5 Lakh per month or more)
underwriting the subscription of any securities or derivatives thereof, of the company (remuneration not more than 1% of net worth)
Companies Act, 2013

28. “Related Parties”- Defined Term
2013 Act
1956 act
KMP or his relative
Yes No
Senior Management of the Co. (All members of management 1 level below the executive directors, including the functional heads)- as per rules
A firm in which such director, manager or relative is a partner
Some changes
Public co. in which a director or manager is a director
Holding, subsidiary , fellow sub. or an associate co. along with their directors & relatives, their KMPs & relatives, their Senior management
Companies Act, 2013

29. “Related Parties”- Defined Term
2013 Act
1956 act
Public co. in which a director or manager is a Director holds along with his relatives, > 2% of its paid-up S/C
Yes
Some changes
Any person on whose advice, directions or instructions a director or manager is accustomed to act, unless advice is given in a professional capacity
Body corporate whose BOD’s, MD or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager unless advice is given in a professional capacity
Companies Act, 2013

30. Change in Definition - (Relative) [Co’S spf & defn.rules 2014]
Section 2(77) Rule
Act 2013
Act 1956
Members and HUF Y
Husband and wife
Father (including step-father)
Mother (including step-mother)
Father’s father N
Mother’s father
Father’s mother
Mother’s mother
Son (including step-son)
Daughter (NOT MENTIONED including step-daughter)
Son’s wife
Daughter’s husband
Son's son/ daughter
Daughter’s son daughter
Son’s son’s wife
Daughter’s son’s wife
Son’s daughter’s husband
Daughter’s daughter’s husband
Brother
Sister
Companies Act, 2013

31. RPT: Disclosure Requirements
What has changed?
Boards’ report to capture RP arrangement – this was not required as per the old act
Boards’ report shall also capture the justification of undertaking such RPT
Sec 186 disclosure around loans, investments etc now through the ‘FS’ – earlier through ‘register’ (Sec372 A)
Companies Act, 2013

32. Any Questions or Queries?
Companies Act, 2013

33. Companies Act, 2013