COMPANIES ACT 2013 – Impact on Private Limited Companies - By CS Makarand Joshi -...
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Transcript of COMPANIES ACT 2013 – Impact on Private Limited Companies - By CS Makarand Joshi -...
Change in approach of Companies Act 2013 Shift from Shareholders Protection to
stakeholders protection Corporate Governance /Investor Protection is
Mantra Lot of Disclosures Strict penalties and prosecution Liabilities of Directors / Professionals
increased Cost of Limited Liability increased Coverage of the Act increased
Change in Approach
Pushing towards more policy based functioning
Pushing towards more capitalized companies
Pushing towards financially independent companies
Pushing towards inclusive working Compliance is paramount Pushing towards LLP?
Coverage of Session
Commencement of Business Allotment of Shares / Securities Borrowings / Deposit Fixed Assets Managerial Remuneration CSR Listing compliance for Private Company? Miscallaneous
Commencement of Business Commencement of business certificate is
not required for any company Private & Public company can commence if –1. Confirmation w.r.t. receipt of share
subscription money has been filed with ROC in 180 days
2. Verification of registered office is filed with ROC within 30 days
In absence of aforesaid, company can be struck off
What is commencement of Business? Company can not enter into any contract Company can not borrow Company can not hire employees
Promoters need to be cautioned that unless, they open bank account and pay for shares subscribed, company can not start busienss
Share Capital
All Shares to be offered on rights basis; ELSE It is Private Placement Private Placement requires - Special Resolution
+ valuation report Private Placement offer document!!! Separate Bank account required in private
placement Funds can not be used till allotment is completed Any mis statement in Offer document can be
alleged as ‘Fraud’
Who can approve borrowing? Board of Directors can approve
borrowing Board can delegate this power to
committee or to MD If borrowing exceeds paid up capital +
free reserves, it requires prior special resolution
All the resolutions [shareholders / directors] to be filed with ROC
Charge – secured loan
Means an interest or lien created on –1. Property or2. Asset of a company or3. Any of its undertakingas a security and includes mortgage Now requires charge registration for lien
on FD or pledge of shares Charge on vehicle is also required to be
registered.
What if not complied?
If charge is not registered – secured lender is at part with unsecured lender
Penatly = 100,000 – 500,000 + imprisonment of 6 months
If borrowing made without special resolution, borrowing may be considered as ultra vires
Repayment of Deposits
Deposits as on 1 April 2014 to be repaid till 31 March 2015
Deposit under Old act or Under New Act? Penalty for non repayment = 1cr >10 cr
+ officer liable for imprisonment >7 years and fine 25 lacs>2cr
What is ‘deposit’ under acceptance of deposit rules? The major highlights of this definition are – This is an inclusive definition. It says ‘deposit’
includes any receipt of money by way of deposit or loan or any other form, by a company, but does not include.....
There are 14 exclusions from the definition of deposit
Here any other manner has to be read in the context of receipt either as deposit or loan.
Any amount received against issue of commercial paper or any other instrument issued under guidance of RBI
What are 14 exclusions?
1. Any amount received from government or from any other source whose repayment is guaranteed by central government
2. Any amount received from foreign source, so long as it is in compliance with Foreign Exchange Management Act
3. Any loan or facility received from Bank
4. Any loan or financial assistance received from public financial institutions
5. Any amount received against issue of commercial paper or any other instrument issued under guidance of RBI
What are 14 exclusions?
6. Any amount received from any other company
7. Any application money received under this act, against issue of any securities [so long as the allotment is done in 60 days of receipt of money]
8. Any amount received from Director of the Company [however the amount received should not be out of borrowed funds]
9. Any amount received against issue of secured bond or debentures OR Any amount received against issue of compulsory convertible bond or debentures [bond should be convertible into shares within a period of 5 years]
What are 14 exclusions?
10. Any security deposit received from employee of the company [not exceeding 12 months salary]. This deposit should be non interest bearing.
11. Any non interest bearing amount received or held in trust [by the company]
12. Any amount received in the course of and for the purpose of business of the company –
as an advance for the supply of goods or provisions of services accounted for in the manner, provided that such advance is appropriated against supply of goods or services within a period of 365 days from acceptance of deposit
What are 14 exclusions?
as advance accounted for in any manner, received in connection with consideration for property
as security deposit for performance of contract for supply of goods or services
as advance under long term projects for supply of capital goods
13.any amount brought by promoters in pursuance of stipulation imposed by the lending institution
14.any amount accepted by a Nidhi Company in accordance with section 406 of the Companies Act 2013.
Acceptance of Deposit
Private Company can take deposit only upto 25% of paid up capital + free reserves, if –
1. Credit rating is obtained
2. deposit insurance is obtained
3. Special Resolution is passed Only Public companies with min. networth of
Rs.100 Cr or turnover of Rs.500 can accept Public Deposit [other than shareholders]
Limits may be relaxed to 100% of paid up capital for private companies!!
Assets
All ‘investments’ in assets should be made in company’s name
1. Motor Car?2. Agricultural Land? Depreciation to be changed on useful life
from next financial year
Disposal of Assets
Any disposal/ lease / sell of undertaking OR substantial undertaking of the Company requires Special Resolution
Undertaking includes – property / investment / business undertaking
Undertaking = undertaking in which investment of the company exceeds 20% of its net worth OR
Undertaking which generates 20% of total income of the Company as per last financial year
This section does not apply to company, where selling and leasing property is an Ordinary Course of Business
Disposal of Assets
Buyer will not be impacted if he proves that he acted in good faith
If buyer is aware about this non compliance, title will be faulty
It is subject to litigation If you are acquiring property from the
Company, get this special resolution passed and filed with ROC
What is Investment?
Laying of money in such a manner that it would produce some revenue
It may include following –1. Shares, 2. Debentures3. Property [which is not purchased for
business]4. Fixed Deposit is investment? – Yes, it can be
said as Investment for the purpose of section 179
Who is covered under CSR?
Every company having: Net worth of Rs. 500 crore or more, or Turnover of Rs. 1000 crore of more, or Net profit of Rs. 5 crore or more
during 3 previous financial year Foreign company havg branch
office or project office are also included
How much to be spend?
At least 2 % of the average net profits of the company made during the three immediately preceding financial years
Profit to be calculated as prescribed under section 198 of the Act
What if not spend?
The reason for same shall be mentioned in Board report
Section 450? Duties of Director
Monitoring and Reporting of CSR Spending MONITORING - CSR Committee to
formulate and recommend CSR Policy, recommend amount to be spent and monitor the CSR policy
REPORTING: In Board report as per prescribed format In case of foreign company, the balance
sheet to contain as annexure
Remuneration
Board and Shareholder approval essential Require compliance of schedule V No remuneration restriction on private
company, if –no default in payment of debts Disclosure is required in the annual report Interested Directors should not vote [section
166] Related Shareholders can vote [Se. 188 does
not cover these transactions]
Liabilities
Every working Director/ KMP is officer in default
Director made accountable is officer in default
If there is no working Director, all Directors will be officer in default
Non executive / independent Directors are liable for acts / omissions occurred with his knowledge attributable through broad process
Actionable for Private company Printing of CIN, website, mail id, phone, fax,
registered office on letterhead and official publication
Induction of new directors Appointment of CS (?)/ MD / WTD Appointment of Internal Auditor Policy for related party transaction Articles of Association needs revision Borrowing in excess of paid up capital + reserves
require special resolution to be filed with ROC Repayment of deposit in 1 year
Actionable for Private company Every borrowing / loan / investment requires prior board
resolution and interest to be charged Private Company can not give loan/ guarantee / security
to another entity in which Director is interested Minutes/ Registers / Share Certificates to be maintained Statutory Registers to be maintained in new format [since
incorporation] ROC filing to be maintained up to date without any delay Every Director to mention his DIN / Address etc in
correspondence Constitute CSR Policy and Spend 2% of avg. profits