Tuesday, 26 November 2013

Companies Act, 2013: Certain Important Issues


Current scenario:

As we all are aware, Companies Bill, 2012 has become a statute now and immediately after changing status from “Bill” to “Law”, Corporate Ministry issued notification as on 12thday of September, 2013 on the applicability of various sections and now with reference to this notification, 98 sections are in force with immediate effect. Now after this opening, both the paths are in use, one is under Companies act, 1956 and next one is 98 sections of Companies Act, 2013.As corporate sector need to tag on the provisions under both Acts, journey to settle down early by complying with legal requirements is not so far easy. Corporate Ministry isaccelerating its initiatives to make the law applicable part-wise which might lead inconvenience to all the companies including the businesses who are in a process of getting velvet cover of “Company”  

Highlights of some of applicable sections:

Section 2(68) vis-a-vis Section 3(1)(iii):

In Companies Act, 1956, the definition of “Private Limited” was clubbed in Section 3 and was defined under clause (iii) ofsub section 1. Entire section 3 was divided into definition of “company”, “existing company”, “private company and ‘public company”. Definition of “Private Company” was part of section 3. As per the provisions of Section 2(68) of the Companies Act, 2013, one of the major alterations is maximum number of members for Private Limited Company is now increased to 200. Apart from this, there are no alterations in its definition though entire definition has been framed in different way, base is same.

Section 100 vis-a-vis 169:

In light of Section 169 of Companies Act, 196, Extra Ordinary General Meeting had to be called on requisition of members of the Company. There was absence of liberty to Board of Directors to call EGM as and when they think fit to be called for. Now here is a catch! Directors can go and call for EGM whenever it is required, no need to receive any requisitions from members of the Company to convene EGM.

Section 102:

Provisions of section 102 enlighten the special matters to be transacted at the shareholders meeting. There are certain special businesses set out in provisions of section 102 where Companies need to annexe a statement setting out such special business to be transacted at the general meeting. Therefore, it was required for the companies to send the notices of general meeting with such statement consists certain material facts in connection with special items. This is entirely new section introduced by the Government and non-compliance of this sections led to heavy penalties to promoters, directors, manager or other key managerial personnel. Therefore, the companies who dispatched their notices before 12.09.2013 are out of this net of section 102 for this year.    

Section 103:

The provisions of quorum for general meeting are framed in section 103 of Companies 
Act, 2013. Requirement of minimum number of members for general meeting of private limited company is remained unchanged but there is a welcomed change in minimum number of members for quorum for general meeting of public limited company. The companies having the members are up to 1000, the quorum should be 5 members, in case companies having members above 1000 up to 5000, the quorum should be 15 and above 5000 members, quorum should be 30 members. In current scenario, all the companies having a general meeting after 12.09.2013 must ensure to comply with the provisions of section 103. Also Articles of Association of the companies states the requirements about quorum. So it was the requirement for all public limited companies to amend the articles of association first before general meeting.

Section 180 vis-a-vis Section 293:

In accordance with provisions of Companies Act, 1956, there were certain restrictions on Board of Directors to exercise their powers with ordinary resolution. The major change here in now after 12.09.2013, this has changes to special resolution. The catch is the Companies who already has issued notices of general meeting where certain items which require members approval, which provisions shall be considered. Fortunately on next day i.e. 13.09.2013, Ministry issued circular which gives clarity that if companies has issued notices prior to 12.09.2013, they can deal with such items with ordinary resolutions.

Considering some of the changed provisions and increasing complications because of part-wise applicability of law, it is tough to expect positive response from industry sector as well as professionals.  

Now, let’s analyse some hurdles in incorporation procedures:

As Articles of Association of the Company is the most important charter which states internal rules and regulation, the same has to be drafted with utmost care by analysing all the provisions of applicable law. Provisions incorporated in Articles of Association cannot override the provisions of the Act and it has to be in accordance with the Act. Now, companies which are in process of formation, they need to draft Articles of Association in such a way by clubbing the provisions of applicable provisions of Companies Act, 2013 as well as Companies Act, 1956.      

Company formation – procedural aspects:

The formation process starts with the drafting of Memorandum and Articles of Association. As both are the most important pillars of any Company, these are drafted very carefully and after due consideration of provisions of Company Law.



Some important provisions in Articles of Association:

After the recent notification, there are many sections which are also applicable part-wise and not fully. For example, Section 23 of Companies Act, 2013 which talks about Public Offer and Private Placement. Now this section is in force except the provisions of its sub section 1(b) and sub section 2.


The provisions of Share Buy Back are also modified to some extent. Now entire Section 69 is applicable but section 70 is applicable in part-wise i.e. section 70 is applicable except its sub-section 2.

Here some of the challenges could be, in drafting are as follows:

Now while drafting any Articles of Association of the Company, provisions of both the Act are to be consideredand to be incorporated.


Till next notification, Articles of Association is to be drafted in such manner which will have entire coverage of existing sections as well as applicable sections under new provisions.


In case any new notification comes during the course, then the companies including newly floated after 12.09.2013, they need to again walk for alteration process of Articles of Association.


And when the Companies Act, 2013 will be in full force, again all such companies have to go for alteration process which might cause a major disappointment tocorporates.  


After the chargeability of such sections, procedural compliances are going to be more complicated in coming future.


Companies Law is in transformation phase, we can expect more and more complex issues in near future. As a professional, it is our primary duty to convey these procedural aspects to the Management of the Company or to clients in advance. After President’s assent on Companies Bill, Central Government is moving fast to make this law applicable at least in bits and pieces. Further, Companies Rules will be in picture in coming future which might cause majorly the provisions under existing scenario under the Act as well as provisions incorporated in Articles of Association.


Tuesday, 12 November 2013

Stop Wasting Your Time!!

While discussing with a team of young entrepreneurs I realised a few things and started observing the traits in few other companies as well: Start up entrepreneurs and owners of mid sized companies waste a lot of time. 

My observation shows the following activities which are typically undertaken:

1) Fixing furniture at office
2) Cleaning Office
3) Buying essentials
4) Dropping Cheques, doing banking related work
5) Waiting in line for small jobs
6) Trying to fix Computer (removing viruses)

These are just a few examples. In my personal opinion these activities need not be done by the owner. Yes as a startup or an owner there is a different joy in doing these activities, after all it is YOUR company, however I will try to explain why these activities should be done away with.

It is my observation with most of our clients that 20% of their clients give them about 80% of the revenue. I like to call this the 80/20 rule. I strongly feel the owner should concentrate on these 20% guys and not in the small activities which eat a lot of time.

One should understand and appreciate the concept of "core activities" and "opportunity cost" to get an insight into what I am trying to say. 

Most of the people I see feel that being busy is going to make them rich. Being busy does give you a sense of satisfaction but sit down and evaluate the  time spent on these activities by you. Are they really helping you in your top line or bottom line? I think not..

Most of these jobs can be done by a person who can be called as an assistant. For other activities you always have an option of "outsourcing" 
You shouldn't be sitting and wasting six hours just to clean up your system off viruses. Hire a guy who will do it for you for say ₹500.. There is no need for you to sit and draft those lengthy contracts (you aren't an expert) hire a consultant he will do a better job for you.

I personally spend most of the time at office relaxing. My mind is always planning my next strategic meeting, upcoming negotiation, upcoming meeting with Private Equity investor or the bankers.

Here is what you can do:

1) List out activities you do which can be done by others
2) Outsource 
3) Relax your mind and always plan your next strategic moves
4) Focus on your productive time slot. Productive time slot is a period where your mind works the best. Don't use that time for such activities. In fact never do the above activities unless very important and unavoidable.

To Conclude:

Don't waste your time on an activity which saves you ₹1000 but concentrate on an activity which can earn you ₹10,000. Being busy does not mean being efficient nor does it mean bringing in more revenues. Using your time will surely bring you closer to attaining your goals.

Ashutosh Muglikar

Monday, 11 November 2013

Service Costing Techniques

I get a call from a friend and the conversation goes somewhat like this:

R: Hey can you tell me how do I send a quote to a potential client for my services?

Me: I would be happy to write a blog post dedicated to you for this.

So as promised, I try to explain this while heavily depending on our work experience and our past advices to our IT clients:

Firstly let me make it clear that this is not a one size fits all solution. Service costing is a very very unique concept and it's not same for every business. It differs from service to service and also probably from company to company. 

This blog only gives certain criteria that have to be taken into consideration while quoting:

In my opinion these three factors should be considered while drawing up a quote:

A) Labour and Material Costs
B) Overheads
C) Profit expectations

Each concept in detail:

A) Labour and Material Costs

While quoting write down all the estimated expenses you will incur for providing the particular service. For typical service provider, a part of the work is off loaded to a sub-contractor. So obtain the costs of the sub-contractor. Some services require purchase of some softwares: obtain their costs. You might need some manpower. Estimate the number of human resources needed and their associated costs. If you are a freelancer then you need to put a cost to your own labour. Estimate the time you would be putting in. Obtain information from sources in industry as to the level of "salaries" paid to a person with your experience and expertise. Gather all costs and add them up.

The above activity will give you a brief idea of your "expenses". Mark this group as "1". You will notice that "1" forms a significant part of your "expenses"

B) Overheads

Overheads are expenses which are indirect in nature. Few examples could be: travelling expenses, hotel lodging boarding, telephone, internet expenses, printing stationery etc, rent if any, electricity etc. Mark this group as "2"

C) Profit

Profit is the income post all the expenses. When calculating the price of a service, profit is applied in same number as markup on the cost of a product. For example, if your labour costs are ₹200 and you plan to net 20% before taxes on your gross sales as profits, then you will have to apply a profit factor of about 25%  to your labour and overheads. Mark this as "3"

Bid price= 1+2+3

We have adviced few clients to determine their overheads and double the same to arrive at "bidding price" and this advice has proved to be quite successful for many IT companies in our client list. 

To conclude:

Pricing is a very time consuming activity. Some people "guess+estimate" while arriving at the right price for bidding and it seems to be working for them. Although we always advice for a scientific way of arriving at costing but few people choose to go with their "instincts"

If you not experienced then costing could be a difficult activity for you. If you quote too low, it might affect your enthusiasm and quality, if you quote too high, you might lose the bid and potential loss in profits. 

Therefore learn to calculate your costs properly, estimate overheads and develop a knack of arriving at the right bidding cost.

Reach us for a more customised solution for your service/product costing techniques.

Hope it solves your queries Mr. R.

Ashutosh Muglikar

Thursday, 7 November 2013

Business Plans Or Fiction Novels?

Every second day I meet a new person and the typical conversation that follows is this:

A: This is my product XYZ. It will take about ddd million as investment. I have roped in DEF as the technical director. He will take care of production/deliverables. I will do the selling. Margins are 45%. I hope for GHI millions as turnover by 2015.

Me: ok!

So why do these plans not excite me? 90% of the times my reaction is a cold ok. Let me make it clear: frankly being enthusiastic, having the willingness to toil and vision to succeed are not the only things that will take your business ahead.

Logic is: NOT having these qualities will surely mean failure but having them will give you SOME leverage that you MIGHT succeed.

My experience has shown me the following facts:

Majority of the startups fail. The plans which were envisioned are never achieved. So what do these enthusiastic  entrepreneurs lack?

A Propelis Study:

Myself and our Research Team decided to dig deeper into reasons for Corporate Failures.

Our Key Findings:

What's the aim of business we asked ourselves. The answer was: the purpose of business is to create a customer. If a customer/consumer is created rest of the things fall in place.

So stop making those meaningless projections, those Spreadsheets, the write ups, the statistics, ratios etc.

If you are not clear who will be your customer, what are his needs, why he/she will choose your product or service, you will never be able to sustain your business. 

Ashutosh Muglikar

Wednesday, 6 November 2013

Concept of Advisory Board

Propelis Research Team recently undertook an exercise to study the need and importance of advisory boards. We at Propelis act as an advisory board for a large manufacturing Company and this prompted us to study further on its need and development in India. Here are the insights.

The Need:

If you are a startup or a Company which has a great plan we recommend having an advisory board. Making an organisation successful takes a lot of individual and group efforts. It always helps  for an enterprise to use cross industry expertise, insights, experience, network and views. Having people who are committed to your success can only help you to see your ideas grow. 

We have observed that most of the entrepreneurs don't have the willingness to undertake this exercise. In fact most find it difficult to accept the need in itself. Once convinced they find it difficult to find advisors who are willing to be a part of the advisory board.

Here are a few tips to help you:

1) Choose a person who is a community influencer
2) Look beyond your contacts
3) Do not make your relatives or friends as advisors
4) Invest time to develop a relationship with your advisory board

Each of the above mentioned points have unique reasoning which need no elaboration.

Propelis Advantage:

At Propelis we have a dedicated team which focuses on entrepreneurial development, startup incubation etc. We understand your needs and can bring about the much needed "third party view"  to your business. 

The commercial logic for a successful advisory board is always based on mutual growth, trust and confidence and this important requirement should not be overlooked by the startups.

Ashutosh Muglikar

Tuesday, 5 November 2013

Should China Be Discounted?

Our Research team has found some worrying  trends wrt China as an economy. The growth rates in china are in the range of 7-8% which is way too higher than other economies but way too lower than 9%-15% which China was clocking earlier. 

So what were the reasons for such high growth rates?
Our research suggests these three factors:
1) Cheap Labour
2) Cheap loans
3) Starting at bottom of the growth pyramid.

Current Scenario:
1) Cheap labour is available elsewhere too.
2) loans going bad
3) "late mover" advantage chickened out
The Communist ideology kept the growth rates down for almost 40 years and then China saw highest growth rates but now what is the pertinent question!

It will be interesting to see what the ruling party decides and our research tells that any decision will have a global impact.

Considering this: should we discount China?

Other Questions:
1) which Management Style China follow?
2) slowdown means is China joining the big league?
3) rural china: opportunities galore.

Read more in coming days....

Sunday, 20 October 2013

Aspects Startups Miss Out

Ideas are dime a dozen; People who implement them are priceless
                                                                                ~Mary Kay Ash
The world is full of incredible ideas that never go anywhere because great ideas are useless without someone full of passion to implement them. I realise that most of the people I come across have a lot of enthusiasm while running their businesses. They are the ones who try to “implement” their ideas. They know what it takes to run a “successful” enterprise. They know how to draw business plans, cash flows etc. However in most of the cases I have observed that two of the most vital aspects are not addressed properly or they are totally ignored. They are: The Employee Compensation Plan and the Product/Service Pricing Plan.
Shockingly these aspects are not given their due justice and I share my views and the importance of these in running a successful enterprise.
Every startup makes business plans, power point presentations, executive speeches, interviews, org charts, website, brochures, videos, blogs etc. If you are an entrepreneur I am sure you have covered most of the things I have mentioned. They are vital as well but my observation is these activities may sometimes lead the investors astray and impede their ability to really understand your Company. This could delay fund infusion or in some cases may also lead to the deal being called off.
I have worked on both sides of the investment cycle i.e. the investor side and the Entrepreneur’s side and it is my observation that having a detailed Employee Compensation Plan and a pricing strategy is the quickest way to gauge any business. A considerable amount of time and efforts need to be put to draw an acceptable strategy. These two aspects can make or break a deal.
It is very important for start-ups to understand that financial incentives are one of the key tools to implement any strategy. A startup should have a plan to give incentives to not just its employees (read sales team) but also to its customers.
The entrepreneur should imagine himself to be an employee or a customer. I feel questions like these need to be answered by these plans:
As an employee
ü  Are my earnings capped?
ü  Do I get more if I close deals or am I being forced to wait till next sales period?
ü  Is my work recognised on selling to existing clients or on getting  new clients?
As a customer:
ü  Do I get incremental benefits if I continue to place orders with this firm?
ü  Is my loyalty to the product/service being recognised and rewarded?
ü  Do I get rewarded for buying single service or a combination of services?

In quite a few cases I have found that:
·         These documents are non-existant
·         If they are drafted then they reflect views exactly opposite to that of the publicly stated strategies.
Aligning  both these plans with the overall strategy will help the entrepreneur to convince potential investors. I firmly believe that business plan and other documents are usually very well scripted but an experienced investor will always check these two aspects before investing, therefore due importance needs to be placed on the facets of an investment deal.
Like I said earlier this could make or break your deal, after all Employees and customers are supposedly the most important aspects of any business.

Ashutosh Muglikar