Saturday, 22 March 2014

Key Highlights: Companies Act 2013 Part I

Key Highlights

1. Changes in types of companies

  • Maximum number of members in a private company increased from 50 to 200
  • Limit of number of members in an association or partnership (without incorporation) to be increased up to 100
  • One Person Company (OPC) - a new vehicle for individuals for carrying on business with limited liability

2. Changes in the provisions for Share capital

  • Infra projects get a breather, preference shares can be issued for a period exceeding 20 years
  • Further issue of capital provisions made applicable to all companies
  • No Shares cannot be issued at a discount except for sweat equity shares
  • Time gap between 2 buy-backs to be minimum 1 year.

3. Deposits

  • Stringent norms provided for acceptance of fresh deposits from members and public.
  • Any deposit accepted before the commencement of 2013 Act or any interest due thereon to be repaid within 1 year from the commencement of 2013 Act or from the date on which such payments are due, whichever is earlier.
  • Credit rating mandatory for acceptance of public deposits

4. Corporate Social Responsibility (CSR)

  • 2% of average net profits of last 3 years to be mandatorily spent on CSR by companies having
– net worth of ` 5 billion or more; or
– turnover of ` 10 billion or more; or
– net profit of ` 50 million or more

5. Audit and Accounting

  • To align with the provisions of the Income tax Act, companies to have a uniform financial year - ending on 31 March each year
  • Consolidation of financials
  • National Financial Reporting Authority (NFRA) to be constituted
  • Mandatory audit rotation
  • Restriction placed on non-audit services
  • Mandatory internal audit

6. Management, administration and corporate governance

  • At least 1 director of a company shall be a person who has stayed in India for 182 days or more in the previous calendar year. Existing companies to comply with this provision within 1 year from the date of commencement of the 2013 Act.
  • Listed and prescribed class of companies to have at least 1 woman director. Existing companies to comply with this provision within 1 year from the date of commencement of the 2013 Act.
  • Prescribed class of companies to have whole-time Key Managerial Personnel (KMP)
– Chief Finance Officer to be a whole time KMP for prescribed classes of companies
– Whole time Director included in definition of KMP

  • Electronic voting for Board and shareholders meetings introduced
  • Following committees of the Board made mandatory for listed and prescribed classes of companies:
– Audit committee
– Stakeholder relationship committee
– Nomination and Remuneration committee
– Corporate Social Responsibility committee

  • Director to vacate office on remaining absent from all the meetings of the Board of Directors held during 12 months with or without obtaining leave of absence
  • Contents of Directors’ Report elaborated. Directors to annually report on the existence and effective operations of systems on compliance with all applicable laws
  • Secretarial audit mandatory for listed and prescribed classes of companies
  • Approval of Central Government required for certain managerial remuneration 

7. Related Party Transactions

  • Requirement of obtaining Central Government approval removed
  • Approval by Board of Directors made mandatory
  • Related party transactions to also require prior shareholder’s approval by special resolution for
    companies having prescribed paid up capital or transactions exceeding prescribed amounts.
  • Related party transactions to be disclosed in the Director’s Report along with justification thereof
To be continued in my next post......

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