Companies Act 2013- A comparison with the Companies Act, 1956
Presentation by- Manoj Kumar E: [email protected] M: +919910688433 Corporate Professionals D-28, South Ex., Part-I New Delhi 110049 (India)
History
The Companies Act, 1956 is an act of Parliament that
was enacted in 1956
The Companies Act, 2013 was recently passed by Rajya Sabha on 8th August 2013 and has received Presidential
assent on 29th August 2013.
An Overview
Companies Act, 1956 Companies Act, 2013
The Act is separated into 13 parts having 658 Sections along with 15 Schedules
The Act is separated into 29 Chapters having 470 Sections along with 7 Schedules
The Companies Act has a substantial part of the law prescribed within itself
The Companies Act gives substantial powers to the Government & hence major prescriptions would be in the form of Rules to be notified separately
Companies Act 1956 vs.
Companies Act 2013
THE COMPANIES Act, 2013:
The Government has been vested with powers to enforce different provisions of the Act at
different points of time.
The Companies Act, 1956 was however enacted on 1st April, 1956 in its entirety
The Preliminary Provisions
Introduction of new definitions in the Act which were not existing under the
Companies Act 1956
Key Managerial Personnel
Associate Company
Auditing Standards
CEO & CFO
Independent Director Promoter
Global Depository
Receipt
Related Party
Small Company
The Preliminary Provisions
Some of the existing definitions in the Act have been modified substantially
Earlier excluded, Corporation sole has now been covered in the
definition of body Corporate
The term “Listed Company” now includes all companies listed on a Stock Exchange
Subsidiary of a Public Co. shall be deemed to be a Public Co.
even if it is a Private Co. by its Articles
The definition of Employee stock Option now covers
Directors, officers & employees of Holding & subsidiaries also
The scope of “Officer in default” has been widened to include Registrars, Merchant Bankers related to the issue
Only “Apr-Mar” to be a Financial Year(exceptions: Foreign
Holding/ Subsidiary subject to tribunal’s approval)
The Preliminary Provisions
Incorporation and Matters Incidental
Introduction of concept of One Person Company
No approval required for conversion of Private
Company to One Person Company or vice versa
No approval required for conversion of Private Company into Public
Company
Changes - Incorporation
Changes towards Incorporation of Entity
MOA to carry the main objects only. Bifurcation of the Objects
clause into main, ancillary & other objects has been done away
with.
Even the Private Companies have to file the declarations for
Commencement of Business
Subsidiary can hold shares in Holding Company as trustee,
which is not allowed under the Companies Act 1956
Changes - Incorporation
Provisions regarding matters incidental to Incorporation
Changes - Incorporation
Penalizing Provisions
ROC empowered to strike off the name of a Company incorporated with wrong/incorrect
information
Person deliberately furnishing any false/incorrect information at the time of
incorporation shall be responsible for fraud under section 447 & stringent punishment
Any person can challenge the validity of incorporation before the tribunal in case of such
a Company
Prospectus & Allotment of Securities
Provisions towards Prospectus & Allotment of Securities
Now Company after varying the terms of contract or objects mentioned in the prospectus cannot use amount raised by it through Prospectus for buying/ trading/ otherwise dealing
in Equity shares of other Company
Changes - Prospectus & Allotment of Securities
Scope widened to include all type of securities than
just shares
Specification for raising of funds by Public Company
through:1. IPO/FPO2. Private Placement3. Rights/ Bonus Shares
PRIVATE PLACEMENT OFFER
CONDITIONS
Offer to section of public other than QIBs
Not more than 50 number of people
In compliance of prescribed terms & conditions
Made through Private Placement offer letter and not Prospectus
Conditions
fulfilled?
YES NO
PUBLIC OFFERComply with provisions
of Act, Securities Contract Regulation
Act, 1956 and SEBI Act, 1992
The Act defines the term Private Placement:
Changes - Prospectus & Allotment of Securities
Now Any person affected by misleading statement, any inclusion/omission of a
matter in the prospectus can file suit/ take an action :
Person responsible for fraudulently inducing others to invest money now liable for stringent punishment for fraud under
section 447 which shall be non-compoundable
For civil liability for misstatement in Prospectus
For punishment for fraudulently inducing persons to invest money
Changes - Prospectus & Allotment of Securities
Power of SEBI to administer provisions related to listed Company or Company going to be listed widened to include:
1. Kind of Share Capital to be issued2. Nature of Shares/Debentures3. Voting Right4. Variation of Shareholders’ Rights5. Further Issue of Capital
In Companies Act, 1956, only Public Financial Institutions, Public sector Banks or Scheduled Banks with main object as “financing”
were allowed to issue Shelf Prospectus
The government shall now prescribe the type of Companies that can issue Shelf Prospectus
Changes - Prospectus & Allotment of Securities
Penalizing Provisions
Persons authorizing the issue of the prospectus having misleading information
shall also be criminally liable besides holding the civil liability
Civil liability for misstatement in prospectus has been extended to experts
also
Changes - Prospectus & Allotment of Securities
General Changes - Share Capital & Debentures
Various changes in respect to Shares & Securities
Changes with respect to
VOTING RIGHTS
Changes with respect to
ISSUE OF SHARES
Various changes in respect to Shares & Securities
GENERAL CHANGES
General Changes - Share Capital & Debentures
Various changes in respect to Shares & SecuritiesCOVERAGE OF
ALL TYPES OF SECURITIES
Act seeks to regulate all type of Securities as
opposed to Equity and Debentures only
General Changes - Share Capital & Debentures
NEW VARIATIONS IN
SHAREHOLDERS’ RIGHTS
Company can issue shares with differential rights
as to other things also
in addition to voting or dividend
rights
Voting Right Changes
Equitable Voting rights for Equity and Preference share
holders with respect to their paid up capital
For vote on resolutions affecting rights of both
categories
Preference shareholders allowed to vote on every resolution placed before shareholders’
meeting
If dividend payable to any class of preference
shareholders in arrear for more than 2 years
No classification between cumulative and
non-cumulative preference shares
For identification of voting rights
General Changes - Share Capital & Debentures
Various changes in respect to Shares & SecuritiesVarious changes in respect to Shares & Securities
GENERAL CHANGES
Changes with respect to
VOTING RIGHTS
Changes with respect to
ISSUE OF SHARES
Issue of Shares
Private Companies also to comply with the provisions of further issue of
shares, which were applicable to Public Companies only
New provision for allotment of ESOP, rules will be provided soon
Changes - Share Capital & Debentures
Issue of Shares on Discount
No other shares except Sweat Equity Shares to
be issued at discount
No provision has been made for issue of shares on discount with the approval of Central Government
General Changes - Share Capital & Debentures
PROHIBITION ON BONUS ISSUE
Prohibition on Bonus Issue if the Company has defaulted in payment of:
Interest/ Principal in respect of Fixed Deposits or Debt Securities issued by it
Statutory dues of employees such as contribution to provident fund, gratuity , Bonus
Changes - Share Capital & Debentures
Other Changes
No reduction in Capital allowed if the Company is in arrears for payments of
deposits, accepted either before or after the Commencement of Act
Acceptance of Deposits
NBFCs will be governed only by the rules issued by the Reserve Bank of India
Deposits from persons other than members not allowed
Shareholders’ approval required for accepting deposits from members
The concept of Small Depositors done away with
Changes – Registration of Charges
All types of Charges to be registered as per the Act:
Whether created within or outside India1. On property, or2. On assets, or 3. On any undertaking whether tangible/otherwise4. Whether situated within/outside India
Under The Companies Act, 1956, specific events are provided when the charge has to be registered
The new law brings about changes in respect of some very important components of a Company
DIRECTORS & KEY MANAGERIAL
PERSONS
SHAREHOLDERS’ MEEETING
BOARD MEEETING
Requirement for appointment
Maximum number
Condition for Removal
Extended Duties
Quorum
Postal Ballot
Notice
Participation of Directors
Number & Timing
Changes - Management & Meetings
Changes - Management & Meetings
A prescribed class of Companies will be required to have:
Managing Director/ CEO/ Manager
Whole Time Director in the absence of MD/CEO/Manager
Company Secretary
A mandatory requirement to appoint such persons will ensure proper Governance of the Company
DIRECTOR’S APPOINTMENT
A Company can have maximum 15 Directors at Board instead of earlier 12 directors
Central Government’s approval for increase in number of directors has been dispensed with
MAXIMUM NUMBER OF DIRECTORS
Any increase beyond 15 will require an approval of shareholders by way
of Special Resolution
Changes - Management & Meetings
Only prescribed number of members can pass a resolution for removal of a Director in the following cases
A great relief to Company from frivolous application for removal of directors by small shareholders holding 1 share only
REMOVAL OF DIRECTORS
Company with Share Capital Other Company
Members holding 1/10th of the voting power
Members holding shares valued at an aggregate of Rs. 5 lakh or
more
OR
ONLY
Changes - Management & Meetings
DUTIES OF A DIRECTOR
To not assign his office (any such assignment will be void)
To act in accordance to the Articles of Association
To act in good faith in order to promote the objects of the Company in the best interests of its members, shareholders, employees, community and environment
To exercise duties with due and reasonable care, skill and diligence
To not involve in a situation in which he may have a direct/ indirect interest that conflicts or may conflict with the interest of the Company
To not achieve or attempt to achieve any undue gain or advantage to himself or his relatives/ partners or associates
Changes - Management & Meetings
Bring accountability in the functioning of Director
Ease of finding the case of negligence by directors
EXPRESS DUTIES OF DIRECTORS
Changes - Management & Meetings
Shareholders Meeting
Changes - Management & Meetings
Management & Meetings
QUORUM shall now be considered as:
QUORUM (No. of Members
personally Present)
NUMBER OF MEMBERS AS ON THE DATE OF MEETING
5 ≤ 100015 1000 < number ≤ 500030 ≥ 5000
Fixing of a higher quorum as compared to the earlier requirement will ensure greater participation by shareholders
Board Meeting
Changes - Management & Meetings
Changes - Management & MeetingsSOME NEW PROVISIONS
Notice of the Meeting
Minimum 7 days Notice
To be given to all directors whether or not in India
Can be sent through any means; hand delivery, post or e-form
Participation of Directors
In person, or
By video conferencing, or
Any other audio-visual means capable of recording, recognizing and storing the participation of director with date & time
Number & Timing of Meetings
At least 4 meetings in a year
Not necessary to be held in every quarter
Time gap of not more than 120 days between 2 meetings
1 2 3
Meeting at shorter notice allowed subject to attendance by at least 1 Independent director or subsequent ratification of decision by all directors
Changes - Audit & Auditors
Listed & other prescribed companies shall not appoint or reappoint:
An individual auditor for more than 1 term of 5 consecutive years
An auditor firm for more than 2 terms of 5 consecutive years
A gap of at least 5 years should elapse after completion of the aforesaid term before the same
auditor can be reappointed
A period of 3 years available as a transition period for compliance after enactment of this law
Changes - Audit & Auditors
Auditor shall not provide the following services whether directly/ indirectly to Company and its
Holding & subsidiary Companies:
Design & Implementation of Financial Information system Accounting & book Keeping Services
Internal Audit Actuarial Services
Investment Banking & Advisory Management Services
Changes - Payment of Dividend
No dividend shall be declared or paid by a Company from its reserves other than free
reserves.
Instead of transferring a fixed percentage of Profits to reserves before declaring dividend, the Company can transfer the amount as it deems fit
(Also, Such a transfer is not mandatory now)
Changes - Restructuring & Revival
Sick Company
Fast Track Merger
Compromise or Arrangement
Reduction of Capital
Changes - Restructuring & Revival
Reduction of Capital
No application to be sanctioned unless accounting treatment proposed by the Company for such reduction is in conformity with the accounting standards
No Reduction Allowed if the Company is in arrears for payment of deposits
Changes - Restructuring & Revival
Compromise or Arrangement
Notice of any meeting in this matter also to be given to Central Government, Income Tax Authorities, Reserve Bank of India, SEBI and CCI
Calling of meeting of members or creditors now mandatory (after consent received by postal ballot) for approval of compromise by persons representing at least 3/4th of the value of members of creditors
Changes - Restructuring & Revival
Compromise or Arrangement
Abolition of Treasury Stocks
Any shares arising out of arrangement or compromise to be cancelled and extinguished and not to be held by the Transferee Company in its own or a Trust’s name whether on its behalf or on behalf of a subsidiary/associate Company
Changes - Restructuring & Revival
Fast Track Merger
Shorter route prescribed for merger between 2 small Companies or a holding and its wholly owned subsidiary and some other class of Companies
Power to Central Government to approve & effect the scheme if no objections by Official Liquidator and the Registrar to the scheme
Changes - Restructuring & Revival
Fast Track Merger
Cross mergers allowed between Indian Companies and Foreign Companies incorporated in prescribed jurisdictions
Prior approval from RBI required and the scheme must provide for payment to shareholders of the merging Company in any combination of cash and IDRs
Changes - Restructuring & Revival
Sick Company
Applicability: Any Company can be declared as a Sick Company and not necessarily an Industrial Unit
Criteria for application: Criteria of 50% Net Worth erosion dispensed with A Company unable to repay 50% or more of secured debts within 30 days
of notice served by the Creditors can be declared sick on application moved by:
The Company itself, OR The Creditors representing 50% or more of secured debts
Changes - Restructuring & Revival
“ It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. ”
Charles Darwin
011-40622214/+91- 981027551 [email protected]
Thank You
33.
Manoj Kumar
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