Saturday, 22 March 2014

Key Highlights: Companies Act 2013 Part II

Continued Post...

8. Inter corporate loans / investments

  • Loans, guarantee and security made to any person and not just body corporates will attract the 2013 Act compliance requirements. The scope has been widened.
  • Rate of interest on loans granted cannot be lower than the prevailing yield of 1 year, 3 year, 5 year or 10 year Government Security closest to the tenure of the loan
  • The list of exemptions has been curtailed. Basically the norms have become stricter.

 9. Loan to Directors

  • No loans to be extended directly or indirectly. Also no loan can be extended by a book debt. Company cant give guarantee or provide security in connection with such loan to any director / related persons

– Exception to the rule is for MD or a whole time director (WTD) if such loan is in
accordance with the terms of services extended to all employees or is approved by shareholders
by special resolution
  • These provisions are applicable to private companies  as well

10. Mergers & Acquisitions

  • Restriction on multi-layer investment
  • Merger of Indian company with a foreign companyis now possible
  • Fast track merger for small companies and between holding company and its wholly owned subsidiary introduced
  • Persons holding 90% or more equity shares can purchase the remaining shares from minority shareholders
  • Any valuation of shares / assets etc. required under 2013 Act to be performed by a Registered Valuer

11. Measures for investor protection

  • Provisions relating class action suits introduced
  • Exit options for minority holders on reorganization

12. National Company Law Tribunal (NCLT)

  • Replacement of the High Court with NCLT

13. Miscellaneous

  • Transfer of profits to reserves for dividend declaration removed
  • Inability to pay debts is one of the reason to be considered a sick company
  • Provisions of revival and rehabilitation of sick companies to all companies 
  • Serious Fraud Investigation Office will be constituted 
  • Any person representing the company is made liable for punishment for fraudulently obtaining credit facilities from any bank or financial institutions for making any false, deceptive or misleading statement, promise or forecast 

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......

Background To The New Companies Act, 2013

My concentration generally has been Startups, Entrepreneurship Funding etc however I was recently reminded by my Partner that we (Team Propelis) has to start studying the new Companies Act, 2013 as the new legislation is now a law (pending implementation)..

The Series of blogs will be posted on the Subject 'Companies Act, 2013" based on the discussion/training sessions conducted/held at our Propelis Offices. These posts are for reference purposes only and should not be used for forming legal opinions or legal actions. We welcome different opinions and would love to hear yours too. 

The Background: 

Companies Act, 2013 (2013 Act) is set to be implemented from 1st April 2014 and the buzz around is that all the sections will be notified from this date in a phased manner. So why so much importance for this act? We pondered.... 

The 2013 Act lays down far more enhanced self-regulation rules coupled with higher emphasis on corporate democracy and provides for amongst others, business friendly corporate regulation (atleast on paper)/ pro-business initiatives, e-governance initiatives, good corporate governance requirements, Corporate Social Responsibility (CSR) requirements, enhanced disclosure norms, enhanced accountability of management (tighter rules), stricter enforcement, audit accountability, protection for minority shareholders, investor protection and activism and better framework for insolvency regulation and institutional structure.

The next post shall be regarding the Key Highlights and from there Team Propelis shall update a separate blog for each section/or a set of sections... Keep reading and commenting...