Companies Act 2013

Some new concepts have been defined by the Companies Act 2013.

Financial Statement 

  • A balance sheet with the entire record of the financial year;
  • If it is a profit based company, a profit loss account is required. If not,  income and expenditure account of the financial year is needed.
  • A statement of cash flow for the year
  • If there have been changes in equity, an account of the same
  • Any explanatory note annexed thereto

A small or a one person company may or may not include the cash flow statement in Companies Act 2013.

Independent Director

independent director means a director other than a managing director or a whole-time director or a nominee director-

(a) Who must be a person of integrity with prior experience and known potential

(b) Was not in any way related to the company prior to this and not even to the associates of the Company

(c) Who is not in relation with the directors or the promoters of the Company.

(d) None of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;

(e) Who, neither himself nor any of his relatives—

  • Holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;
  • He has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of—
  1. A firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or
  2. Any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;
  • Who holds together with his relatives two per cent. or more of the total voting power of the company; or
  • He is a Chief Executive or director, by whatever name called, of any nonprofit organisation that receives twenty-five per cent. or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that hold two percent. or more of the total voting power of the company; or

(f) Who possesses such other qualifications as may be prescribed.

Key Managerial Personnel

(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;

One person company refers to a company with a single member;

Promoter 

Promoter can be the following person –

  1. Who has been appointed officially and has his name in the prospectus
  2. Controls the affairs of the Company in any way
  3. The board of director seeks his advice before taking any action

Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity;

Small Company 

Small company means other than a public company:

(i) The share capital of such a company must not be more than 50 lakh rupees

(ii) The turnover of the company must not be more than 20 lakh 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; or
(C) a company or body corporate governed by any special Act;

Important provisions 

Classification & Registration:

  • Concept of One Person Company (OPC limited) introduced;
  • Concept of Small companies under Companies Act 2013 have been introduced which shall be subjected to a lesser stringent regulatory framework;
  • Provision for Conversion of Companies under Companies Act 2013 already registered has been introduced;
  • The registration process has been made faster and compatible with e-governance.
  • For the first time, articles may contain provisions for entrenchment;
  • A declaration, in the prescribed form, required to be filed with the Registrar at the time of company registration that all the requirements of the Act in respect of registration and matters precedent or incidental thereto have been complied with, will be required to signed by both – a person named in the articles as a director, manager or secretary of the company as well as by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of the company.

Registered office

  • A company shall, on and from the 15th day of its incorporation and at all times thereafter have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.
    • Companies under Companies Act 2013 is required to furnish to the Registrar verification of its registered office within 30 days of company incorporation in the prescribed manner.
    • Where a company has changed its name(s) during the last two years, it shall paint or affix or print, along with its name, the former name or names so changed during the last two years.
    • Notice of change, verified in the manner prescribed, shall be given to the Registrar, within 15 days of the change, who shall record the same.

Commencement of business

  • A company having a share capital shall not commence business or exercise any borrowing powers unless a declaration is filed with Registrar by a director verified in the manner as may be prescribed that:
  • every subscriber to the memorandum has paid the value of shares agreed to be taken by him;
    • Paid-up capital is not less than Rs. five lakhs in the case of public company and one lakh in case of a private company.
    • the company has filed with the Registrar the verification of its registered office.

Acceptance of Deposits:

Under new Companies Act 2013, there are elaborated provisions for acceptance and/or renewal of deposits. A company may, subject to passing of a resolution in general meeting and subject to such rules as may be prescribed in consultation with the Reserve Bank of India, accept deposits from its members on such terms and conditions, including the provision of security, if any, or for the repayment of such deposits with interest, as may be agreed upon between the company and its members, subject to the fulfillment of the following conditions, namely:—

(a) issuance of a circular to its members including therein a statement showing the financial position of the company, the credit rating obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the company and such other particulars in such form and in such manner as may be prescribed;

(b) filing a copy of the circular along with such statement with the Registrar within thirty days before the date of issue of the circular;

(c) depositing such sum which shall not be less than fifteen percent of a number of its deposits maturing during a financial year and the financial year next following, and kept in a scheduled bank in a separate bank account to be called as deposit repayment reserve account;

(d) providing such deposit insurance in such manner and to such extent as may be prescribed;

(e) certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of this Act or payment of interest on such deposits; and

(f) providing security, if any for the due repayment of the amount of deposit or the interest thereon including the creation of such charge on the property or assets of the company:

Provided that in a case where a company does not secure the deposits or secures such deposits partially, then, the deposits shall be termed as ‘‘unsecured deposits’’ and shall be so quoted in every circular, form, advertisement or in any document related to invitation or acceptance of deposits.

Registration of Charges:

Companies Act 2013 requires the Company to register the particulars of EVERY CHARGE created by it on its property or assets or any of its undertaking including pledge.

Annual Return:

Every company shall prepare a return in the prescribed form containing the particulars as they stood at the close of the financial year. Annual Return is required to be signed by:

  1. A director and the Company Secretary, or where there is no Company Secretary, by a Company Secretary in whole-time practice.
  2. It means that now in respect of all the companies under Companies Act 2013 (except one person companies and small companies), w appointed by the company, the Annual Return is compulsorily required to be signed by the Company Secretary in practice.
  3. in addition to the above, the annual return, filed by a listed company or by a company having such paid-up capital and turnover as may be prescribed, shall be certified by a company secretary in practice that the annual return discloses the facts correctly and adequately and that the Company has complied with all the provisions of the Act.
  4. It means, in the case of a listed company and other prescribed companies, even if the Annual Return is signed by the Company Secretary in employment, it is further required to be certified by the Company Secretary in Whole-time practice.
  5. In relation to a One Person Company and Small Company, the annual return is required to be signed by the Company Secretary, or where there is no Company Secretary, by one director of the company.
  6. Every listed company shall file a return in the prescribed form with the Registrar with respect to change in the number of shares held by promoters and top ten shareholders of such company, within fifteen days of such change.

Place of Keeping Registers:

The new Act permits a company to keep its registers or copies of returns at any other place other than the registered office in India (not necessarily within the city, village or town in which the registered office is situated) if following conditions are fulfilled:

  1. More than 10% of the total members entered in the register of members reside at that place;
  2. The keeping of registers or copies at that place is approved by a special resolution passed by the members in the general meeting;
  3. The Registrar has been given a copy of the proposed special resolution in advance;

General Meeting:

  1. Every AGM shall be called during business hours, i.e. between 9 A.M. to 6 P.M. on any day that is not a National Holiday;
  2. The Concept of Statutory Meeting has been omitted;
  3. First AGM is required to be held within 9 months from the end of the first financial year.
  4. A general meeting of a company may be called by giving not less than clear twenty-one days’ notice either in writing or through electronic mode in such manner as may be prescribed;
  5. To encourage wider participation of shareholders at General Meetings, the Central Government may prescribe the class or classes of companies in which a member may exercise their vote at meetings by electronic means.
  6. One person companies have been given the option to dispense with the requirement of holding an AGM.
  7. Every listed company shall prepare a Report on each Annual General Meeting including confirmation to the effect that the meeting was convened, held and conducted as per the provisions of the Act and the Rules made there under. A copy of the report shall be filed with the Registrar within 30 days of the conclusion of the AGM.
  8. A quorum of the public company has been increased from 5 to 30 members personally present depending upon the number of members as under:
  9. Up to 1000 members = 5 members personally present
    2. 1001 to 5000 members = 15 members personally present
    3. More than 5000 members = 30 members personally present

Corporate Social Responsibility

Every company having net worth of rupees five hundred crore or more, or 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 Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. The Board’s report shall disclose the composition of the Corporate Social Responsibility Committee.

Every company satisfying any of the above criteria has to mandatory spend 2% of the average net profits of the 3 immediately preceding financial years on Corporate Social Responsibility.

Auditors

Every company has to appoint, at the first Annual General Meeting, individual or a firm (firm shall include LLP) as an auditor who shall hold office till the conclusion of sixth Annual General Meeting and thereafter till the conclusion of every sixth AGM. Accordingly, the appointment of auditors is to be made for 5 years. The appointment is subject to the ratification of the members at every annual general meeting.

Listed and certain other prescribed classes of companies cannot reappoint:-

(a) an individual as an auditor for more than one term of five consecutive years;
(b) an audit firm as auditor for more than two terms of five consecutive years:

All notices of, and other communications relating to, any general meeting shall be forwarded to the auditor of the company, and the auditor shall attend either by himself or through his authorized representative, who shall also be qualified to be an auditor, any general meeting and shall have right to be heard at such meeting on any part of the business which concerns him as the auditor.

Cost Audit

The previous approval of Central Government is no longer required for appointment of Cost Auditor as section 148 of the Act has dispensed with this requirement. Remuneration of the Cost Auditor also will be decided by the members.

Directors:

  1. The Board shall consist of individuals as directors;
  2. Maximum 15 directors. Company may appoint more than 15 directors after passing special resolution in this regard;
  3. Such class or classes of companies as may be prescribed shall have a woman director;
  4. Every company shall have at least one of the directors who have stayed in India for 182 days or more in the previous calendar year;
  5. Every listed company shall have at least 1/3rd independent directors;
  6. An independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for reappointment on the passing of a special resolution by the company and disclosure of such appointment in the Board’s report. No independent director shall hold office for more than two consecutive terms, but such independent director shall be eligible for appointment after the expiration of three years of ceasing to become an independent director;
  7. Every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish his Director Identification Number and a declaration that he is not disqualified from becoming a director under this Act;
  8. Consent is to be filed within 30 days and the director shall act as director only after filing of such consent;
  9. A person who is not a retiring director be eligible for appointment to the office of a director at any general meeting, if he, or some member intending to propose him as a director, has, not less than fourteen days before the meeting, left at the registered office of the company, a notice in writing under his hand signifying his candidature as a director or, as the case may be, the intention of such member to propose him as a candidate for that office, along with the deposit of one lakh rupees or such higher amount as may be prescribed which shall be refunded to such person or, as the case may be, to the member, if the person proposed gets elected as a director or gets more than twenty-five per cent. of total valid votes cast either on show of hands or on poll on such resolution.
  10. No person shall hold office as a director, including any alternate directorship, in more than twenty companies at the same time. Provided that the maximum number of public companies in which a person can be appointed as a director shall not exceed ten. The members of a company may, by special resolution, specify any lesser number of companies in which a director of the company may act as directors.
  11. The provisions of qualification shares have been omitted;

Meeting of the Board:

  1. Every Company shall hold first meeting of its Board of Directors within 30 days of its incorporation;
  2. Four meetings of the Board of Directors should be held every year in such a manner that not more than 120 days shall intervene between 2 consecutive board meetings;
  3. The participation of directors in a meeting of the Board may be either in person or through video conferencing or other audio visual means, as may be prescribed, which is capable of recording and recognising the participation of the directors and of recording and storing the proceedings of such meetings along with date and time;
  4. Not less than 7 days notice is to be given for board meeting which may be given electronically;
  5. Participation of Directors through video conferencing shall also be counted for the purpose of quorum;
  6. Prohibition on insider trading on Directors and Key Managerial Personnel;

Managerial Personnel:

  1. No company shall appoint or re-appoint any person as its managing director, whole-time director or manager for a term exceeding five years at a time;
  2. Most of the provisions of Schedule XIII of earlier Companies Act, 1956 have been incorporated in this Chapter;
  3. No person shall be appointed as MD as well as Chairperson at the same time except articles provides otherwise;
  4. Every company belonging to such class or classes of companies under Companies Act 2013 as may be prescribed shall have the following whole-time key managerial personnel,—
  5. managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;
    b. company secretary; and
    c. Chief Financial Officer

Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration. If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.

Company Secretary & Secretarial Audit

  1. Every listed company and a company belonging to other class of companies under Companies Act 2013 as may be prescribed shall annexe with its Board’s report, a secretarial audit report, given by a company secretary in practice, in such form as may be prescribed.
  2. Functions of Company Secretary have been prescribed which includes:
  3. to report to the Board about compliance with the provisions of this Act, the rules made there under and other laws applicable to the company;
    b. To ensure that the company complies with the applicable secretarial standards;
    c. to discharge such other duties as may be prescribed.

Compromises, Arrangements, and Amalgamations:

  1. No compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company’s auditor has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed.
  2. Separate provisions have been provided for the merger or amalgamation between two small companies or between a holding company and a wholly owned subsidiary company.
  3. Provision for cross-border amalgamations between Indian Companies and companies incorporated in the jurisdictions of such countries as may be notified from time to time by the Central Government.
  4. Specific provision for purchase of minority shares in case an acquirer or person acting in concert with the acquirer become the holder of 90% or more of the issued capital of the company, either directly or by virtue of any amalgamation, share exchange, conversion of securities or any other reason.

Winding up

  1. two modes of winding up are permitted a) by tribunal b) voluntarily
  2. Powers of courts have been shifted to Tribunal;
  3. New basis for winding up have been introduced and some older ones are omitted
  4. Circumstances in which company may be wound up by Tribunal:
  5. if the company is unable to pay its debts;
  6. Resolved to wind up by tribunal
  7. If the company acts against the constitutional norms, an integrity of the country and security of the state.
  8. if the Tribunal has ordered the winding up of the company under Chapter XIX;
  9. If the tribunal believes that the company has been conducting its affairs in a fraudulent manner.
  10. if the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years; or
  11. If the tribunal finds it legitimate for the company to be wound up

Restructuring and Liquidation:

The process has a certain time limit

  1. If revival is not possible, only then winding up is allowed
  2. An interim administrator is appointed by the tribunal from the panel of CAs and CSs maintained by the central government itself.
  3. The administrator must prepare a scheme of revival
  4. If revival scheme is not approved by the creditors, the Tribunal shall order for winding up of the company