APROJECT REPORT ON A CONCCEPTUAL FRAMEWORK OF COMPANIES COMPANIES ACT 2013 AND COMPARATIVE ANALYSIS OF CA 2013 VS CA 1956 (Submitted in partial fulfilment of degree of master of commerce) Submitted by
SAKTI RANJAN DASH Roll no!"mcom#$% Session& $#!"'$#! ND*R TH* +IDAN,* -. DR.PROBODH KUMAR HOTA
APROJECT REPORT ON A CONCCEPTUAL FRAMEWORK OF COMPANIES COMPANIES ACT 2013 AND COMPARATIVE ANALYSIS OF CA 2013 VS CA 1956 (Submitted in partial fulfilment of degree of master of commerce) Submitted by
SAKTI RANJAN DASH Roll no!"mcom#$% Session& $#!"'$#! ND*R TH* +IDAN,* -. DR.PROBODH KUMAR HOTA
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This is to certify that the project entitled “A report on “ A ,-N,,*/TA0 .RA1*2-RK -. ,-1/ANI*S A,T $#!" AND ,-1/ARATI3* ANA04SIS -. ,A $#!" 3S ,A !567 is a record of bonfire research work
carried out by SHAKTI RANJAN DASH under my supervision and guidance. It embodies the result of him original contribution. The project has reached the standard of fulfilling the requirements of regulation relating to the master degree of commerce. No part of this project has been submitted to any institution for the award of any degree. I wish him all the best and success in future endeavors.
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I do hereby declare that the project entitled “A ,-N,,*/TA0 .RA1*2-RK -. ,-1/ANI*S A,T $#!" AND ,-1/ARATI3* ANA04SIS -. ,A $#!" 3S ,A !567 “submitted by me as a partial fulfillment of
the requirements for the degree of )aster of commerce2 (tkal (niversity in the course curriculum. It is the original piece of work done by me under the guidance of DR /RA8-DH K1AR H-TA as my faculty guide and has not been submitted for the awards of any other degree elsewhere in full or in part.
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The satisfaction that accompanies the successful completion of any task would be incomplete without mentioning people who made it possible2 whose encouragement and consistent guidance crowned my effort with success. I e5press my deep sense of gratitude and indebtedness to my guide2 DR/RA8-DH K1AR H-TA 2 #.*. ept. $f commerce2 (tkal(niversity2 %hubaneswar for his suggestions2 constant inspiration and prompt guidance to carry out and complete this study. ast but not the least I especially thank all those who have helped me directly or indirectly to complete this project. I e5press my profound thanks to my teachers as well as my friends for their valuable suggestions and constant encouragement.
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Abstract
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,9apter!& Introduction
6.6 INT"$(-TI$N 6.7 Importance of the topic 6.8 literature review 6.9 "esearch gap : statement of the problem 6.; objectives of the study 6.< &ypothesis 6.= "esearch methodology 6.=.6 0ources of the data 6.=.7 0cope of the data 6.=.8 #eriod of the data 6.=.9 Tools and techniques 6.> "elevance of the study 6.? limitation of the study 6.6@ chapter plan ,9apter $& Regulatory frame:or; of companies in India& pre and post independence era
7.6 -ompany! A bird view 7.6.6 ,eature of a joint stock company 7.6.7 Types of companies 7.7"egulations of -ompanies before independence
7.8 "egulations of -ompanies after independence ,9apter '" &companies act $#!"
8.7 %ack ground of new companies act 8.7 "ationale behind new companies act 8.8 $bjectives of companies act 8.8-ompanies Act2 7@68! A statistical snapshot 8.9 0ilent feature of companies act 7@68 8.; ist of chapters in companies act 7@68 8.<. 'ey definitions and concept 8.; 8.;.6 specific provisions ,9apter <&comparati=e analysis of companies act $#!" > !56 and its impact study
9.6 major difference between companies act 6?;< : 7@68 with reference to accounting ,9apter & findings? suggestions and conclusion 8ibliograp9y :ebliograp9y
,HA/T*R !
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t has been a long time in waiting but India finally enacted its new -ompanies Act 7@68 the “-ompanies ActBC at the end of August 7@68. The -ompanies %ill was passed by the ok0abha the ower &ouse of the #arliament of IndiaC on 6> ecember 7@67 and in the "ajya0abha the (pper &ouse of the #arliament of IndiaC on > August 7@68. It received #residential Assent on 7?th August7@68 thereby creating the -ompanies Act 7@68. The new -ompanies Act replaced the old -ompanies Act 6?;<2 which although amended appro5imately 7; times was still considered to be out of date and inadequate compared to the legislation regulating companies in many other jurisdictions. It took four years to implement the -ompanies Act since it was first introduced as a -ompanies %ill in 7@@? but not all of its provisions will come into force immediately as a number of them require the Indian *overnment to draft rules and regulations for their implementation. 0ome of the provisions of the -ompanies Act 7@68 that did not require any additional rules or regulations for their implementation were brought into force on 67 0eptember 7@682 following a notification by the )inistry of -orporate Affairs. &owever2 these provisions only represented ?> out of the 9=@ sections of the -ompanies Act and it has caused confusion because businesses still have to look at both the old -ompanies Act and the new -ompanies Act to interpret the current law. )any have argued that the whole of the -ompanies Act should have been brought into force at onetimeD whilst other believes that a step by step approach provides businesses with time to get to grips with the new provisions. The draft -ompanies Act "ules “ RulesBC which are required for the implementation of some of the provisions have been issued for public comment. These have been issued in two phases2 with feedback on the 6st #hase "ules to be submitted by 6@ $ctober and feedback on the 7nd #hase "ules to be provided by 78 $ctober. 3e have set out below a brief summary of some of the key changes that are coming into force2 mainly we focus on provisions relating to accounting and made a comparison with previous act and its impact study. !$ I1/-RTAN,* -. TH* T-/I,&
3ith the everEchanging business environment the way in which business firms are supposed to work also changes. No nation can avoid the change in the corporate culture that comes as an e5ternal force due to the rapid linkage of various economies : their corporate entities : that not only provide ample of opportunities but poses a lot of challenges on variousfront. In the past ;= years during which the -ompanies Act2 6?;< “6?;< ActBC has been in e5istence2 the corporate and business environment has evolved significantly and hence there was a need to revamp the legislation governing companies. The -ompanies Act2 7@68 “Act of 7@68BC was enacted on 7?th August 7@68 after #residentFs assentD however. The Act of 7@68 is more of a rule'based legislation containing only 9=@ sections2 which means that the substantial part of the legislation will be in the form of rules. It is e5pected that the Act of 7@68 will become applicable and the corresponding portion of 6?;< Act will be repealed in a pha sed manner. The Act of 7@68 intends to promote selfEregulation and has also introduced some progressive concepts like -ne' /erson ,ompany? Small ,ompany? Dormant ,ompany? *'go=ernance? etc The concept of -orporate 0ocial "esponsibility has also been introduced to encourage a socially2 environmentally and ethically responsible behavior by companies. ,urther2 the Act of 7@68 aims to fortify investor protection : transparency by introducing terms like Insider Trading2 #rice 0ensitive Information2 -lass Action 0uits and other additional disclosures. It also intends to give greater responsibility to the auditors and to widen their role. A National -ompany aw Tribunal will also be a reality now and therefore the matters which used to linger in courts for years will be swiftly handled by this dedicated tribunal.
Taking cogniGance of rapid globaliGation2 provisions for crossEborder mergers have been introduced. )erger between small companies2 holding H subsidiaries and specified entities can now be done on a fastEtrack route. The Act of 7@68 is aimed at building a smooth and easy corporate environment along with the new and improved measures of strong investor protection norms and presents a model for other economies with similar characteristics to emulate “$bviously2 the intent is towards simplification2 which is critical for India to become more competitive on the ease of doing business. 3hether this objective is finally delivered will depend on two things H the rules that supplement the Act and what they look like2 and the change in attitude towards enforcementB 0o this topic has huge importance not only for corporate professionals but also for different academician who are keeping in touch with corporate world.
!" 0IT*RATR* R*3I*2&
India practice group7@68CEfocused on key changes being implemented in new companies act 7@68 such asE financial year2 one person company$#-C2 ormant company2 +ntrenchment provisions2 corporate social responsibility -0"C2 Auditor rotation2 irectors2 Independent irectors2 "elated party transactions2 oans to directors2 Investments2 mergers and Amalgamations2 -lass actions2 and opined that the new Indian -ompanies Act is a positive step towards moderniGing IndiaFs company law andaligning it to global standards. It has given increased decision making powers to the company2 and introduced provisions giving minority shareholders additional rights and protections. The Introduction of one person companies and small companies should alleviate some of theadministrative burdens that small businesses have to bear2 but larger companies should preparethemselves for further administrative burdens as a result of changes in the appointment of auditorsand directors.
&emant*oyal:4itender 4ain gave an comprehensive features of the new companies act 7@68. These are E"ehabilitation and iquidation #rocess2 ,inancial 1ear2 Auditors performing NonEAudit 0ervices2 "otation of Auditors2 iability on irectors and $fficers2 uties of irector defined2 0erving Notice of %oard )eeting2 Independent irectors2 "estriction on -omposition2 +lectronic )ode2 +ntrenchment in Articles of Association2 $ne #erson -ompany2 imit on )a5imum #artners2 Increase in number of 0hareholders2 #rohibition on forward dealings and insider trading2 -ross %order )ergers2 ,ast Track )ergers2 National -ompany aw Tribunal2 -orporate 0ocial "esponsibility2 0trengthening 3omen -ontributions through %oard "oom2 0upremacy of 0hareholders2 emocracy of 0hareholders
www.companiesact .in has made a comparison between the -ompanies Act 7@68 and -ompanies Act 6?;< on various topics under different chapters of the Act with a clear e5planation of this chapter. ,A ,9intan N /atel 2 =E,ebE69 had made a study on -hapter I ! 0ec. 67> to 0ec. 68> and chapter 5! section 68? to sec.69>. (nder chapter 5 he has focused on 0ec. 67> ! %ooks of account etc. to be kept by company20ec. 67? ! ,inancial 0tatement2 0ec. 68@ ! "eEopening of accounts on -ourtFs or TribunalFs orders2 0ec. 686 ! /oluntary revision of financial statements or %oardFs "eport20ec. 687 ! -onstitution of N,"A20ec. 688 ! -* to prescribe A02 0ec. 689 ! ,02 %oardFs reports etc.0ec. 68;! -orporate 0ocial "esponsibility2 0ec. 68! Internal Audit. 0imilarly under chapter 5 hehas focused on AppointmentJ+ligibility2 "emovalJ"esignation2#enal:#rovisions2 $thers.
+ port had made a study on %ackground of -ompanies Act2 7@682 key changes and definition2 Incorporation of -ompanies and matters incidental thereto20hare Allotment and -apital2irectors2 ')# s and *overnance2eclaration and #ayment of ividend2Accounts of -ompanies2oan and Investment by -ompanies2-orporate 0ocial "esponsibility2"egulatory %odies 2)ergers and Acquisitions ‟
!< R*S*AR,H +A/ > STAT*1*NT -. TH* /R-80*1& -ompanies act 7@68 is a relatively new issue many research have been conducting but no study have conducted on comparati=e study relating to its accounting pro=isions and its impacts on entities yet.so there is a scope for research . ! -8J*,TI3*S -. TH* STD4& 6. To study the regulatory framework of companies inIndia before independence :after independence. 7. To e5amine the provisions of new companies act for accounting. 8. To make a comparative analysis of companies act 6?;<: 7@68for accounting :its impact study !6 H4/H-TH*SIS& !%R*AR,H 1*TH-D-0-+4& !%!Sources of t9e data& )y entire project work is based on secondary data. )entioned below are the website links and names of the news papers and magaGines from where bulk of data has been collected. !%$Scope of t9e study& 0cope of study is a general outline of what the project will cover. In this project we shall undertake to find out what is regulatory framework of companies before and after independence era. 3ho is the regulatory authority of the companies actK )ainly we focus on new companies act and its provision relating to accounting2 how it is differ from companiesF act 6?;< and its impact study. !%"/eriod of t9e study& I have taken around 8months to conduct this study and studied various magaGines2 articles2 journals2. I also taken suggestion from various professors and teachers and discussed among seniors and my friends for conducting this study. !%< Tools and tec9niues !B R*0*3AN,* -. TH* STD4& This study will immensely help to many researchers2 corporateentities2 individuals2 practitioners2 and professional in their respective fields. !5 0I1ITATI-N -. TH* STD4& The prime limitation was the time constraint. If not for less time some more data could have been collected. )oreover2 new companies act 7@68 is at nascent stage .therefore not much data were available while conducting its impact study. &owever2 I gave my best possible effort to decipher through the data available and make a meaningful inference from the same. !!#,HA/T*R /0AN& As mentioned in the content that this project is consists of five chapters. The details about the chapter plan is mentioned belowE 6st chapter contained 7nd chapter contained 8rd chapter contained 9th chapter contained And finaly ;th chapter covers
,HA/T*R $ Regulatory frame:or; of companies in India& pre and post independence era
$! ,-1/AN4& A 8IRD 3I*2
“companyB means a company incorporated under this Act or under any previous company lawD A 4oint stock company is an incorporated association formed for the purpose of carrying on some business. It is an artificial person having a distinctive name and a -ommon seal. It may be defined as “an artificial person created by law with a distinctive name and a separate legal entity2 a common seal2 a common capital contributed by the members and comprising transferable shares of a fi5ed denomination2 with limited liability and with a perpetual succession.B According to ord 4ustice indley defined a company as2 Lan association of many persons who contribute money or moneyMs worth to a common stock and employ it is some trade or business and who share the profit and loss arising there from.L $!! .eature of a Joint stoc; company ! "egistration
7. 0eparate legal entity 8.
-ommon seal
9. #erpetual succession ;. imited liability <. 0eparation of ownership from management =. Transferability of share >. 0eparate property $!$ T4/*S -. ,-1/ANI*S
-ompanies may be classified into different kinds or types from different points of view. These types of companies that can be formed under 7@68 Act has remained same as in 6?;< Act e5cept one more class ofcompany has been added. The new class of company is $#-. The various types of companies in which significant changeshave made areE #rivate imited -ompany2 0mall -ompany2 $ne #erson -ompany $#-C 0ec 7<7C of the 7@68 ActO!2 ormant -ompany section 9;; of the 7@68 ActO!2 ,oreign company!2 &oldingE0ubsidiary -ompany etc. These are discussed below under their respective heads.
6. ,lassification of companies from t9e point of =ie: of incorporation or registration& ,rom the point of view of their incorporation2 companies can be classified into three types. They are. aC ,9artered companies& If a -ompany is incorporated under a special charter granted by the monarch it is called a chartered companies and is regulated by that charter. -hartered companies were common in the 6=th and 6>th centuries. ,or eg. %ritish +ast India companies2 %ank of +ngland2 -hartered %ank of Australia etc. are e5amples of chartered companies. This form of organiGation does not e5ist in India2 as there is no
monarchy. bC Statutory ,ompanies& A statutory -ompany is a company which is incorporated under a special or separate act of the legisiature i.e..2 parliamentC. Astatutorycompany requires special powers and privileges which it does not get under the companies Act. 0o2 it is registered under a special act of the legislature. The powers and activities of a statutory companies are regulated by the special act under which it is established. This method of incorporation is adopted for companies of national importance and public utility companies2 such as railway companies2 electricity supply companies2 etc. The "%I2 0%I2 I-2 (TI2 etc are e5amples of statutory companies. cC Registered ,ompanies& A company is brought into e5istence by registration with the registrar of companies under the companies Act of 6?;<2 is called a registered company. The activities of these companies are governed by the comapanies Act. These constitute the most important 4oint stock companies. %ut now as per companies act 7@68 “register of companiesB means the register of companies maintained by the"egistrar on paper or in any electronic mode under this ActD P “"egistrarB means a "egistrar2 an Additional "egistrar2 a 4oint "egistrar2 a eputy "egistrar or an Assistant "egistrar2 having the duty of registering companies and discharging various functions under this ActD 7. ,lassification of Registered ,ompanies on t9e basis of t9e liability of members& ,rom the point of view of the liability of the members2 registered companies may be classified into three categories. They are! aC ,ompanies 0imited by S9ares& -ompanies limited by share are companies in which the liability of a member is limited to the nominal or face value of the shares held by him. In short2 these are the companies in which the liability of a member is limited only to the amount unpaid on the shares held by him. These companies are mostly trading companies. )ost of the companies registered under the companies Act are of this type.
bC ,ompanies 0imited by +uarantee& -ompanies limited by guarantee are companies in which the liability of each member is limited to a fi5ed amount which he has guaranteed ie.2 agreed to contribute to the assets of the company to meet the liabilities of the company in the event of its winding up. The amount guaranteed by each member is mentioned in the )emorandum of Association or Articles of Association of the -ompany. The members are required to pay the amount guaranteed by them2 not during the life of the company but only when the company is wound up and the assets of the company are not sufficient to meet the liabilities of the company. These are mostly nonEtrading companies formed for the purpose of promoting art2 culture2 charity 2 science and education2 etc. cC nlimited ,ompanies& (nlimited companies are companies in which the liability of members is unlimited i.e.2 members are liable for the debts of the company to an unlimited e5tent in the event of its winding up. +ach member is liable to contribute from his private assets in proportion to his capital2 in the company
towards the amount required for the payment of the entire or full liabilities of the company. If any of the members is unable to contribute anything from his private assets2 then2 that addltlonal deficiency is to be shared among the remaining members in proportion to their respective capital in the company.0imply “unlimited companyB means a company not having any limit on the liabilityof its membersD 8. ,lassification of companies on t9e basis of o:ners9ip& $n the basis of ownership2 companies may be classified into two kinds. They are! a. *overnment companies b. NonEgovemment companies aC +o=ernment contpanies& A -ompany in which not less than ;6Q of the share capital is held by the central government and or by any state government or governments is called a goverment companies. It may be a public company or a private company. 0ome of the prominent government companies are! &industan )achine Tools2 %harat +lectronic imited2 Indian Telephone Industries and &industan Aeronautics limited.
A *overnment company may be permitted by the central government to drop the words L #rivate imitedL or the word LimitedL from its name. The -entral *overnment can by notification in the official gaGette2 restrict or modify the application of certain provision of the companies Act in regard to government companies.
bC Non' +o=ernment companies& A nonEgovernment company is a company which is owned and managed by private investors. 9. ,lassifications of companies on t9e basis of nationality& $n the basis of nationality2 companies may be classified into two kinds2 They are! aC omestic companies bC ,oreign companies aC Domestic companies& A omestic company is a company which is inccrporated in India .Today most of the 4oint stock companies in India are domestic companies. bC .oreign ,ompany L,oreign -ompanyL is defined in 0ec7 97CO to mean any company or a body corporate incorporated outsideIndia and which H iC has a place of business in India whether by itself or through an agen t2 physically or through electronic mode6D and 1Under the rules: For the purposes of clause (42) of section 2 of the Act, ”electronic mode” means carrying out
electronically based,whether main serer is installed in !ndia or not, including, but not limited to " (i) business to business and business to consumer transactions, data interchange and other digital supply transactions# (ii) o$ering to accept deposits or initing deposits or accepting deposits or subscriptions in securities, in !ndia or from citi%ens of !ndia# (iii) &nancial settlements, web based mar'eting, adisory and transactional serices, database serices and products, supply chain management# (i) online serices such as telemar'eting, telecommuting, telemedicine, education and information research# and
iiC Econducts any business activity in India in any other manner. The e5pression Mplace of businessM is defined to include a share transfer or registration office. Application of Act to foreign companies& Section "%5 of t9e $#!" ActC 3here not less than fifty per cent of the paidEup share capital2 whether equity or preference or partly equity and partly preference2 of a foreign company is held by one or more citiGens of India or b y one or more companies or bodies corporate incorporated in India2 or by one or more citiGens of India and one or more companies or bodies corporate incorporated in India2 whether singly or in the aggregate2 such company shall comply with the provisions ofthis -hapter and such other provisions of this Act as may be prescribed with regard to the business carried onby it in India as if it were a company incorporated in India. 'Applicable provisions Chapter XXII -ompanies Incorporated outside India and under -ompanies"egistration of ,oreign -ompaniesC "ules2 7@69. 'As per ,+)A2 no person resident outside India shall2 without prior approval of "%I establish inIndia2 a branch2 project or a liaison office or any other place of business by whatever name called'A foreign company is required to register with "$- within 8@ days from the date of its establishing aplace of business in India sec 8>@O'0etting up of place of business in India by a foreign company through an agent or electronic modewill require registration under 7@68 Act. ,lassification of companies on t9e basis of control& $n the basis of control companies may be classified into
i. ii.
&olding companies 0ubsidiary companies.
&olding -ompanies and 0ubsidiary -ompanies0ubsidiary H meaning2 under 6?;< Act2 a company shall be deemed to be subsidiary of other company2 if other company e5ercise or controls the composition of %oard of directors or controls more than ;@Q of totalequity share capital or total voting capital (nder 7@68 Act2 the concept of holdingEsubsidiary company relationship2 as far as it relates to e5ercise orcontrol of more than half share capital is concerned2 requires one to consider the investor companyMsshareholding in the total paid up share capital i.e. equity and preferenceC of the investee company forwhichthe relationship is to be e5amined. (nder the 6?;< Act2 the investor companyMs shareholding in thetotal equity paid up share capital needed to be considered. -lass or classes of holding companies to be prescribed cannot have layers of subsidiaries beyond such numbers as may be prescribed &oldingEsubsidiary relationship will have to be reEe5amined especially where company is funded with lower equity share capital base and higher preference share capital. This is likely to trigger unintended consolidation.Lsubsidiary company>L or LsubsidiaryL2 in relation to any other company that is to say the holding companyC2 means a company in which the holding companyR iCcontrols the composition of the %oard of irectorsD or iiC e5ercises or controls more than oneEhalf of the total share capital either at its own or together with oneor more of its subsidiary companies! #rovided that such class or classes of holding companies as may be prescribed shall not have layers ofsubsidiaries beyond such numbers as ma y be prescribed. () all related data communication serices, whether conducted by e"mail, mobile deices, social media, cloud computing, document management, oice or data transmission or otherwise
Explanation.— ,or the purposes of this clause2R aC a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in subEclause iC or subEclause iiC is of another subsidiary company of the holding companyD bC the composition of a companyMs %oard of irectors shall be deemed to be controlled by another company if that other company by e5ercise of some power e5ercisable by it at its discretion can appoint or remove all or a majority of the directorsD cC the e5pression LcompanyL includes any body corporateD d C LlayerL in relation to a holding company means its subsidiary or subsidiariesD 0ubsidiary company not to hold shares in its holding company .+g. 3hen -ompany A has a control over company %2 company A is known as a holding company and company % which is so controlled is known as a subsidiary company. ;. ,lassification of companies on t9e basis of number of members& "egistered companies with share capital may be divided into two classes from the point of view of the the number of members i. ii.
#rivate -ompanies #ublic -ompanies
/ri=ate ,ompanies& “private companyB means a company having a minimum paidEup share
-apital of one lakh rupees or such higher paidEup share capital as may be prescribed2and which by its articles2R iC restricts the right to transfer its sharesD iiC e5cept in case of $ne #erson -ompany2 limits the number of its members to two hundred it is increased from ;@ to 7@@ 0ec 7<>C iiC of the7@68 ActOC It is provided that where two or more persons hold one or more shares in a company jointly2 they shall2 for the purposes of this clause2 be treated as a single member. #rovided further thatR AC persons who are in the employment of the companyD and BC persons who2 having been formerly in the employment of the company2 were members of the company while in that employment and have continued to be members after the employment ceased2shall not be included in the number of membersD and iiiC prohibits any invitation to the public to subscribe for any securities ofthe companyD
EThe condition of 6?;< Act to have a restriction in the AoA of a private company p rohibiting invitation or acceptance of deposits has been removed. &owever2 this deletion may not materially benefit a private company from borrowings by way of deposits as stringent measures have now been provided for acceptance of depositsby a company. Eirectorships in private limited companies now counted for the purpose o f ma5imum number of directorships i.e. 7@ 0ection 6<; of the 7@68 Act E Number of directorships.O. /ublic ,ompanies& “public companyB means a company whichR
aC is not a private companyD
bC has a minimum paidEup share capital of five lakh rupees or such higherpaidEup capital2 as may be prescribed! #rovided that a company which is a subsidiary of a company2 not being a private company2 shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles <. $ther 'inds of -ompanies! aC -ne 1an ,ompanies .amily ,ompanies& L$ne #erson -ompanyL means a company which has only one individual as a member the procedural guidance is under -ompanies (Incorporation) "ules2 7@698. A company may be an $#- having a sole member. The memorandum of such $#- is required to indicate the name of the person who shall become member in the event of death or incapacity of the sole member 0ection 86C provisoC$#- is required to specifically mention the word Lone person companyL below the name wherever it is used 7@68 Act provides additional fle5ibility to $#-. 0ome of the rela5ations provided to $#- are as under! iC $#- should have minimum 6 director iiC 3here an $#- has only 6 director2 the date on which the resolution is signed and dated by such director is considered as the date of the board meeting iiiC #rovisions of board meeting2 quorum and interested director shall not apply to $#ivC $#- need not hold an A*) vC #rovisions relating to notice2 e5planatory statement2 +*)2 quorum2 voting2 chairman2 poll2 pro5ies2 postalballot2 viC N-TMs power of calling for +*) does not apply to $#viiC ,inancial 0tatements can be signed by only one director viiiC ,inancial 0tatements are to be filed with "$- within 6>@ days from the end of ,1 i5C $#- can contract with the sole member who is a director -onverting a sole proprietary concern into an $#- will help carrying on the business with limited liability. If the conditions under the ta5 laws are satisfied2 such conversion from sole proprietorship to an $#- may be ta5 neutral7 2Under ompanies (!ncorporation) ules, 2*+4ule - .ne /erson ompany-"
(+) .nly a natural person who is an !ndian citi%en and resident in !ndia" (a) shall be eligible to incorporate a .ne /erson ompany# (b) shall be a nominee for the sole member of a .ne /erson ompany01planation-" For the purposes of this rule, the term resident in !ndia means a person who has stayed in !ndia for a period of not less than one hundred and eighty two days during the immediately preceding one calendar year(2) 3o person shall be eligible to incorporate more than a .ne /erson ompany or become nominee in more than one such company() here a natural person, being member in .ne /erson ompany in accordance with this rule becomes a member in another such ompany by irtue of his being a nominee in that .ne /erson ompany, such person shall meet the eligibility criteria speci&ed in sub rule (2) within a period of one hundred and eighty days(4) 3o minor shall become member or nominee of the .ne /erson ompany or can hold share with bene&cial interest(5) 6uch ompany cannot be incorporated or conerted into a company under section 7 of the Act(8) 6uch ompany cannot carry out 3on"9an'ing Financial !nestment actiities including inestment in securities of any body corporates() 3o such company can conert oluntarily into any 'ind of company unless two years hae e1pired from the date of
bCicenced -ompanies! Association formed not for profit2 but for promoting non trading purposes2 such as art2 science2 education2 sports2 regligion2 charity2 etc.2 can obtain a licence from the central layout and get themselves registered as compaines with limited liability under 0ec. 7; (J0 7;C of the companies act. They are called companies not for profit or licenced companies. +g.+ducation institutions2 cultural association2 sports2 clubs2 charitable association2 etc. Dormant ,ompany Esection < of t9e $#!" ActC&
3here a company is formed and registered under 7@68 Act and has no significant accounting transaction but is for a future project or to hold an asset or intellectual property2 such a company or an inactive company maymake an application to "$- to obtain status as a Ldormant companyL iC Linactive company6L means a company which has not been carrying on any business or operation2 or has not made any significant accounting transaction during the last 7 ,1s2 or has not filed financial statements and annual returns during the last 7 ,1sD iiC Lsignificant accounting transactionL means any transaction other than aC payment of fees by a company to "$-D bC payments made by it to fulfill the requirements of the 7@68 Act or any other lawD cC allotment of shares to fulfill the requirements of the 7@68 ActD and dC payments for maintenance of its office and records. In case of a company which has not filed financial statements or annual returns for 7 ,1s consecutively2 "$- shall issue a notice to that company and enter the name of such company in the register maintained for dormant companies.-ash flow statement is not required for dormant company iC %oard meetings required to be held at least in each half of a calendar year and the gap between the 7 meetings is not less than ?@ days iiC A dormant company shall have the prescribed minimum number of directors2 file prescribed documents and pay prescribed annual fee to "$- to retain its dormant status Small ,ompany&
L0mall company7LM means a company2 other than a public company2 whose paidEup share capital does not e5ceed "s ; million or such higher amount as may be prescribed not e5ceeding "s ;@ millionCD or whose turnover as per its last profit : loss account does not e5ceed "s 7@ million or such higher amount as may be prescribed not e5ceeding "s 7@@ millionC. E 0mall -ompany cannot be a holding or subsidiary company. 7@68 Act provides additional fle5ibility to small companies and $#-. 0ome of the rela5ations provided to a small company and $#- are as indicated below! E -ash flow statement is not required incorporation of .ne /erson ompany, e1cept threshold limit (paid up share capital) is increased beyond &fty la'h rupees or its aerage annual turnoer during the releant period e1ceeds two crore rupees-
E Annual "eturn can be signed by -0 or one director if there is no -0 E %oard meeting is required to be held at least once in each half of a calendar year and the gap between the 7 meetings is not less than ?@ days E )erger process between 7 or more Msmall companiesM is to be approved on fast track basis. 0uch merger would require approval of "$-2 $2 members holding at least ?@Q of total number of shares and majority ofcreditors representing ?J6@th in value 0ection 788 of the 7@68 ActO. $$ R*+0ATI-NS -. ,-1/ANI*S 8*.-R* IND*/*ND*N,* &
-ompany law is that branch of law which deals e5clusively with all aspects relating to companies2 such as incorporations of companies allotment of shares and share capital membership in companies management and administration of companies2 winding up of companies. etc. -ompany law in India is that branch of Indian law which regulates companies in India. &ence letFs have a look towards regulations of companies before independence . Joint stoc; companies act of !B#& -ompanies legislation in India owes its origin to the +nglish -ompany law. The
companies acts passed from time to time in India have been following the +nglish companies acts with certain modifications to suit Indian conditions. The first legislative enactment for L"egistration of 4oint stock companiesL was passed in the year 6>;@. This Act was based on the +nglish companies Act2 6>99 known as the 4oint stock companies Act 6>99C which recogniGed company as a distinct legal entity2 but did not grant to it the privilege of limited liability. Joint Stoc; ,ompanies act of !B%& The 4oint stock companies act of 6>;@ was replaced by the 4oint stock
companies act of 6>;=. This act of 6>;= conferred2 for the first time in India the benefit of limited liability on the members of companies. %ut this act did not e5tend the benefit of limited liability to the members of banking companies and insurance companies. Joint Stoc; ,ompanies Act or !B6#& The 4oint stock companies act of 6>;= was replaced by the 4oint stock
companies act of 6><<. The 4oint stock companies Act of 6><@ e5tended the benefit of limited liability to the members of %anking companies and insurance companies. T9e companies Act or !B66& The 4oint stock companies Act of 6><@ was replaced by the companies Act of 6><<.
The companies Act of 6><< was the first comprehensive companies Act passed in India. The companies Act of 6><< was based on the +nglish companies Act of 6><7. The companies Act of 6><< was intended to consolidate and amend the law relating to the incorporation2 regulation and winding up of trading companies and other associations. ,ompanies Act of!5!"& The Indian -ompanies Act2 6?68 did not take into acco unt the peculiar features of the Indian
trade and commerce and some peculiar institution such as Lmanaging agency.B The Act was2 therefore2 found to be
highly unsatisfactory in the course of its operation. Assuch2 this Act was subjected to a large number of amendments from time to time. $" R*+0ATI-NS -. ,-1/ANI*S A.T*R IND*/*ND*N,*
After independence there is a remarkable change in companies regulation2 a new act was came into e5istence i.e. H companies act 6?;< .this is detailed below. ,ompanies Act of !56& After the end of 3orld 3ar II2 the need for a further revision of the company law was felt.
)any changes had taken place in the organiGation and management of 4oint stock companies. The government of India2 therefore2 appointed on 7;th $ctober2 6?;@. A committee of 67 members representing various fields under the chairmanship of 0hri. &. -. %habha for a comprehensive review of the Indian companies Act 6?68. The committee submitted its report on all aspects of company law in April 6?;7. %ased on the recommendation of the %habha -ommittee companies Act of 6?;< was passed. The companies Act of 6?;< was based on the +nglish companies Act of 6?9>2 with some modifications to suit the Indian conditions. The companies Act of 6?;< came into force from 6st April2 6?;<. This act contains <;> sections and 69 schedules. -8J*,TI3* -. TH* ,-1/ANI*S A,T -. !56&
The main objectives of the companies Act of I?;< are! I.
To protect the interests of the investors by furnishing fair and accurate information in the prospectus.
II.
To recogniGe the rights of the shareholders to receive reasonable information for making an intelligent judgment with reference to the management.
III.
To ensure full and fair disclosure of the affairs of the companies in their published annual accounts.
I/.
To protect the interests of the 0hareholders by ensuring the holding of general body meeting and ensuring effective participation and control by the shareholders and providing for prevention of oppression of minority and mismanagement.
/.
To protect the interest of the creditors by preventing reduction of capital2 by convening the meeting of creditors and appointment of liquidators2 and taking over the companies in case of mismanagement.
/I.
To enforce proper performance of duties by persons responsible for the management of -ompanies.
/II.
To prevent misconduct and malpractices on the part of companyMs management and abuse of power vested in them.
/III.
To promote the healthy growth of companies by ensuring integrity in the conduct and management of the company by the board of directors2 placing restrictions on the borrowing powers of the board of directors and preventing any act which is prejudicial to the interest of the shareholders2 the public and the companies.
I.
To ensure that the activities of the company are carried on nut only in the interests of those directly concerned with them but also in furtherance of the economic and social policy i.e.2 the socialistic pattern of societyC of the country.
.
To empower the government to interfere and investigate into the affairs of the -ompany and to take over the -ompany when the business of the -ompany is carried on in a manner prejudicial to the interests of the 0hareholders2 the -ompany or the general public.
I.
To provide for the establishment of an appropriate authority for the administration of the -ompanies Act. ,-1/ANI*S A,T $#!"&
The new -ompanies Act hereinafter referred as -A7@68C is replacing old -ompanies Act2 6?;< hereinafter referred as -A6?;
0ections and repealing the relevant sections corresponded with -A6?;<
,HA/T*R "
8ac;ground of companies act&
Table no'! ,ompanies bill $##B&
The companies act 7@68first came as bill which was known as companies bill .it was introduced in the year 7@@> .named as -ompanies %ill 7@@>%ill No. ;= of 7@@>C ,ompanies bill $##5&
-ompanies %ill2 7@@> was not considered due to dissolution of ok0abha D and reintroduced as -ompanies %ill2 7@@? ;? of 7@@?C. The same was referred to 0tanding -ommittee on ,inance "eport of 0tanding -ommittee on ,inance was introduced in ok0abha in 7@6@ ,ompanies bill $#!!&
-ompanies %ill2 7@66 No. 676 of 7@66C introduced in ok0abha on 69thecember 7@66. ,ompanies bill $#!$&
-ompanies %ill27@67 as amended was approved by ok0abha on 6>thecember 7@67. ,ompanies act $#!"&
%ill was approved by "ajya0abha on >thAugust 7@682 and received #resident s assent on 7?thAugust 7@68 ‟
Rationale be9ind ne: companies act&' Immense increase innumberof-ompaniesfromabout8@2@@@appro5Cin6?;lakhsD "ecognitionofgoodcorporatepractices:technologicalimprovementsD 0implificationoflawbylocatingrelatedprovisionsunderoneclauseJsection Insertionofnewprovisionstomeetthecurrenteconomicenvironment
-bFecti=es of companies act $#!" Transparency through increased reporting framework &igher Auditor Accountability -reating fle5ibility and simplicity in the formation and maintenance of companies. Adopt IT and )odern %usiness and ,inancial #ractices *rowth through -orporate 0ocial "esponsibility agenda. 3ider irector and )anagement "esponsibility. To increase investor protection.
,-1/ANI*S A,T? $#!"& A STATISTI,A0 SNA/SH-T
The -A 7@68 contains 7? -hapters divided into 9=@ sections and = schedules?; definations2 as opposed to the <;> sections and 6; schedules under the -A 6?;<. &owever2 the new law also makes e5tensive reference to subEordinate legislation in the form of rules2 which form an integral part of the new law governing companies in India. #ursuant to the powers vested under the -A 7@682 the )-A has also finaliGed the rules under each chapter2 most of which have been notified. This can be shown in the following figure.
,igure 6! structure of companies act 7@68 SI0I*NT .*ATR* -. ,-1/ANI*S A,T (,A)$#!"& ! Democracy of S9are9olders& The -A7@68 has introduced new concept of class action suits with a view of
making shareholders and other stakeholders2 more informed and knowledgeable about their rights. 7. Supremacy of S9are9olders& The -A7@68 focused and provides major aspect on approvals from shareholders on various significant transactions. The *overnment has rightly reduced the need for the companies to seek approvals to managerial remuneration and the shareholders have been vested with the power to sanction the limit. 8. Strengt9ening 2omen ,ontributions t9roug9 8oard Room& The -A7@68 stipulates appointment of at least one woman irector on the %oard of the prescribed class of -ompanies so as to widen the talent pool enabling big -orporates to benefit from diversified backgrounds with different viewpoints. 9. ,orporate Social Responsibility& The -A7@68 stipulates certain class of -ompanies to spend a certain amount of money every year on activitiesJinitiatives reflecting -orporate 0ocial "esponsibility. There may be difficulties in implementing in the initial years but this measure would help in improving the (nderEprivileged : backward sections of 0ociety and the -orporate would in fact gain in terms of their reputation and image in the 0ociety. ;. National ,ompany 0a: Tribunal& The -A7@68 introduced National -ompany aw Tribunal and the National -ompany aw Appellate Tribunal to replace the -ompany aw %oard and %oard for Industrial and ,inancial "econstruction. They would relieve the -ourts of their burden while simultaneously providing specialiGed justice. <. .ast Trac; 1ergers& The -A7@68 proposes a fast track and simplified procedure for mergers and amalgamations of certain class of companies such as holding and subsidiary2 and small companies after obtaining approval of the Indian government. =. ,ross 8order 1ergers& The -A7@68 permits cross border mergers2 both waysD a foreign company merging with an India -ompany and vice versa but with prior permission of "%I. >. /ro9ibition on for:ard dealings and insider trading& The -A7@68 prohibits directors and key managerial personnel from purchasing call and put options of shares of the company2 its holding company and its subsidiary and associate companies as if such person is reasonably e5pected to have access to priceEsensitive information being information which2 if published2 is likely to affect the price of the companyFs securitiesC. +arlier these provisions were contained in regulations framed by 0+%I2 as the capital market regulator. Now2 it has also been informed that 0+%I is e5pected to discuss changes in certain norms for listed firms so as to make them in line with the rules in the new Act. ?. Increase in number of S9are9olders ! The -A 7@68 increased the number of ma5imum shareholders in a private company from ;@ to 7@@. 6@. 0imit on 1aGimum /artners& The ma5imum number of personsJpartners in any associationJpartnership may be upto such number as may be prescribed but not e5ceeding one hundred. This restriction will not apply to an association or partnership2 constituted by professionals like lawyer2 chartered accountants2 company secretaries2 etc. who are governed by their special laws. (nder the -A6?;<2 there was a limit of ma5imum 7@ personsJpartners and there was no e5emption granted to the professionals. 66. -ne /erson ,ompany ! The -A7@68 provides new form of private company2 i.e.2 one person company is introduced that may have only one director and one shareholder. The -A6?;< requires minimum two shareholders and two directors in case of a private company.
67. *ntrenc9ment in Articles of Association& The -A7@68 provides for entrenchment of articles of association have been introduced. 68. *lectronic 1ode! The -A7@68 proposed +E*overnance for various company processes like maintenance and inspection of documents in electronic form2 option of keeping of books of accounts in electronic form2 financial statements to be placed on companyMs website2 etc. 69. Restriction on ,omposition ! +very company shall have at least one director who has stayed in India for a total period of not less than 6>7 one hundred and eighty twoC days in the previous calendar year. 6;. Independent Directors ! The -A7@68 provides that all listed companies should have at least oneEthird of the %oard as independent directors. 0uch other class or classes of public companies as may be prescribed by the -entral *overnment shall also be required to appoint independent directors. No independent director shall hold office for more than two consecutive terms of five years. 6<. Ser=ing Notice of 8oard 1eeting ! The -A7@68 requires at least seven daysM notice to call a board meeting. The notice may be sent by electronic means to every director at his address registered with the company. The -A6?;< did not prescribe any notice period to call the board meeting of a company. 6=Duties of Director defined ! (nder the -A6?;<2 a director had fiduciary duties towards a company. &owever2 the -A7@68 has N$3 defined the duties of a director. 6>. 0iability on Directors and -fficers ! The -A7@68 does not restrict an Indian company from indemnifying its directors and officers like the -A6?;<. 6?. Rotation of Auditors ! The -A7@68 provides for rotation of auditors and audit firms in case of publicly traded companies. 7@. Auditors performing Non'Audit Ser=ices ! The -A7@68 prohibits Auditors from performing nonEaudit services to the company where they are auditor to ensure independence and accountability of auditor. 76. .inancial 4ear ! +very companyFs financial year will be the period ending on 86 )arch every year. 77. Re9abilitation and 0iuidation /rocess ! The entire rehabilitation and liquidation process of the companies in financial crisis has been made time bound under -A7@68.
" 0IST -. ,HA/T*RS -. ,-1/ANI*S A,T? $#!" .-R 2HI,H DRA.T R0*S HA3* 8**N R*0*AS*D
Table no 7! list of chapters of companies act 7@68
"6 Key definitions and concepts
The 7@68 Act has introduced several new concepts and has also tried to streamline many of the requirements by introducing new definitions. This chapter covers some of these new concepts and definitions in brief.
,ompanies
$neEperson company! The 7@68 Act introduces a new type of entity to the e5isting list i.e. apart from forming a public or private limited company2 the 7@68 Act enables the formation of a new entity a MoneEperson companyM $#-C. An $#- means a company with only one p erson as its member section 86C of the 7@68 ActO. #rivate company! The 7@68 Act introduces a change in the definition for a private company2 interEalia2 the new requirement increases the limit of the number of members from ;@ to 7@@. 0ection 7<>C of the 7@68 ActO. 0mall company! A small company has been defined as a company2 other than a public company. iC #aidEup share capital of which does not e5ceed ;@ lakh IN" or such higher amount as may be prescribed which shall not be more than five crore IN" iiC Turnover of which as per its last profitEandEloss account does not e5ceed two crore IN" or such higher amount as may be prescribed which shall not be more than 7@ crore IN"! As set out in the 7@68 Act2 this section will not be applicable to the following! EA holding company or a subsidiary company EA company registered under section > EA company or body corporate governed by an y special Act section 7>;C of the 7@68 ActO ormant company! The 7@68 Act states that a company can be classified as dormant when it is formed and registered under this 7@68 Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction. 0uch a company or an inactive one may apply to the "$- in such manner as may be prescribed for obtaining the status of a dormant company.0ection 9;; of the 7@68 ActO Roles and responsibilities
$fficer! The definition of officer has been e5tended to include promoters and key managerial personnel section 7;?C of the 7@68 ActO. 'ey managerial personnel! The term Mkey managerial personnelM has been defined in the 7@68 Act and has been used in several sections2 thus e5panding the scope of persons covered by such sections section 7;6C of the 7@68 ActO. #romoter! The term MpromoterM has been defined in the following ways! EA person who has been named as such in a prospectus or is identified by the company in the annual return referred to in 0ection ?7 of the 7@68 Act that deals with annual returnD or Ewho has control over the affairs of the company2 directly or indirectly whether as a shareholder2 director or otherwiseD or Ein accordance with whose advice2 directions or instructions the %oard of irectors of the company is accustomed to act. The proviso to this section states that subEsection cC would not apply to a person who is acting merely in a professional capacity. 0ection 7
0ubsidiary! The definition of subsidiary as included in the 7@68 Act states that certain class or classes of holding company as may be prescribedC shall not have layers of subsidiaries beyond such numbers as may beprescribed. 3ith such a restrictive section2 it appears that a holding company will no longer be able to hold subsidiaries beyond a specified number section 7>=C of the 7@68 ActO.
$ne of the measures adopted in 7@68 Act to ensure transparency is to restrict oneMs ability to set up multiple investment companies. 0ec 7>=C rJw 0ec 6>
,inancial year! It has been defined as the period ending on the 86st day of )arch every year2 and where it has been incorporated on or after the 6st day of 4anuary of a2 the period end ing on the 86st day of )arch of the following year2 in respect whereof financial statement of the company or body corporate is made up. 0ection 796C of the 7@68 ActO. 3hile there are certain e5ceptions included2 this section mandates a uniform accounting year for all companies and may create significant implementation issues. -onsolidated financial statements! The 7@68 Act now mandates consolidated financial statements -,0C for any company having a subsidiary or an associate or a joint venture2 to prepare and present consolidated financial statements in addition to standalone financial statements. -onflicting definitions! There are several definitions in the 7@68 Act divergent from those used in the notified accounting standards2 such as a joint venture or an associate22 etc.2 which may lead to hardships in compliance.
Audit and auditors
)andatory auditor rotation and joint auditors! The 7@68 Act now mandates the rotation of auditors after the specified time period. The 7@68 Act also includes an enabling provision for joint audits. NonEaudit services! The 7@68 Act now states that any services to be rendered by the auditor should be approved by the board of directors or the audit committee. Additionally2 the auditor is also restricted from providing certain specific services. Auditing standards! The 0tandards on Auditing have been accorded legal sanctity in the 7@68 Act and would be subject to notification by the N,"A. Auditors are now mandatorily bound by the 7@68 Act to ensure compliance with 0tandards on Auditing. -ognisance to Indian Accounting 0tandards Ind A0C! The 7@68 Act2 in several sections2 has given cognisance to the Indian Accounting 0tandards2 which are standards converged with International ,inancial "eporting 0tandards2 in view of their becoming applicable in future. ,or e5ample2 the definition of a financial statement includes a Mstatement of changes in equityM which would be required under Ind A0. 0ection 79@C of the 7@68 ActO 0ecretarial audit for bigger companies! In respect of listed companies and other class of companies as may be prescribed2 the 7@68 Act provides for a mandatory requirement to have secretarial audit. The draft rules make it applicable to every public company with paidEup share capital "s. 6@@ crores. As specified in the 7@68 Act2 such companies would be required to anne5 a secretarial audit report given by a -ompany 0ecretary in practice with its %oardMs report. 0ection 7@9 of the 7@68 ActO 0ecretarial 0tandards! The 7@68 Act requires every company to observe secretarial standards specified by the Institute of -ompany 0ecretaries of India with respect to general and board meetings 0ection 66> 6@C of the 7@68 ActO2 which were hitherto not given cogniGance under the 6?;< Act. Internal Audit! The importance of internal audit has been well acknowledged in -ompanies Auditor "eportC $rder2 7@@8 the M$rderMC2 pursuant to which auditor of a company is required to comment on the fact that the internal audit system of the company is commensurate with the nature and siGe of the companyMs operations. &owever2 the $rder did not mandate that an internal audit should be conducted by the internal auditor of the company. The $rder acknowledged that an internal audit can be conducted by an individual who is not in appointment by the company.
The 7@68 Act now moves a step forward and mandates the appointment of an internal auditor wh o shall either be a chartered accountant or a cost accountant2 or such other professional as may be decided by the %oard to conduct internal audit of the functions and activities of the company. The class or classes of companies which shall be required to mandatorily appoint an internal auditor as per the draft rules are as follows! P S +very listed company S +very public company having paidEup share capital of more than 6@ crore IN" S +very other public company which has any outstanding loans or borrowings from banks or public financial institutions more than 7; crore IN" or which has accepted deposits of more than 7; crore IN" at any point of time during the last financial year Audit of items of cost! The central government may2 by order2 in respect of such class of companies engaged in the production of such goods or providing such services as may be prescribed2 direct that particulars relating to the utilisation of material or labour or to other items of cost as may be prescribed shall also be included in the books of account kept by that class of companies. %y virtue of this section of the 7@68 Act2 the cost audit would be mandated for certain companies. 0ection 69> of the 7@68 ActO. It is pertinent to note that similar requirements have recently been notified by the central government. Regulators
National -ompany aw Tribunal Tribunal or N-TC! In accordance with the 0upreme -ourtMs 0-C judgment2 on 66 )ay 7@6@2 on the composition and constitution of the Tribunal2 modifications relating to qualification and e5perience2 etc. of the members of the Tribunal has been made. Appeals from the Tribunal shall lie with the N-T. -hapter /II of the 7@68 Act consisting of section 9@= to 989 deals with N-T and appellate Tribunal. National ,inancial "eporting Authority N,"AC! The 7@68 Act requires the constitution of N,"A2 which has been bestowed with significant powers not only in issuing the authoritative pronouncements2 but also in regulating the audit profession. 0erious ,raud Investigation $ffice 0,I$C! The 7@6 8 Act has bestowed legal status to 0,I$. 1ergers and acuisitions
The 7@68 Act has streamlined as well as introduced concepts such as reverse mergers merger of foreign companies with Indian companiesC and squeeGeEout provisions2 which are significant. The 7@68 Act has also introduced the requirement for valuations in several cases2 including mergers and acquisitions2 by registered valuers. ,orporate social responsibility
The 7@68 Act makes an effort to introduce the culture of corporate social responsibility -0"C in Indian corporates by requiring companies to formulate a corporate social responsibility policy and at least incur a given minimum e5penditure on social activities. ,lass action suits
The 7@68 Act introduces a new concept of class action suits which can be initiated by shareholders against the company and auditors. /ro9ibition of association or partners9ip of persons eGceeding certain number
The 7@68 Act puts a restriction on the number of partners that can be admitted to a partnership at 6@@. To be specific2 the 7@68 Act states that no association or partnership consisting of more than the given number of persons as may be prescribed shall be formed for the purpose of carrying on any business that has for its object the acquisition of gain by the association or partnership or by the individual members thereof2 unless it is registered as a company under this 6?;< Act or is formed under any other law for the time being in force! As an e5ception2 the aforesaid restriction would not ap ply to the following! S A &indu undivided family carrying on any business S An association or partnership2 if it is formed by professionals who are governed by special acts like the -hartered Accountants Act2 etc.section 9<9 of the 7@68 ActO
/o:er to remo=e difficulties
The central government will have the power to e5empt or modify provisions of the 7@68 Act for a class or classes of companies in public interest. "elevant notification shall be required to be laid in draft form in #arliament for a period of 8@ days. The 7@68 Act further states no such order shall be made after the e5piry of a period of five years from the date of commencement of section 6 of the 7@68 Act section 9=@ of the 7@68 ActO. Insider trading and pro9ibition on for:ard dealings
The 7@68 Act for the first time defines Minsider trading and priceEsensitive information and prohibits any person including the director or key managerial person from entering into insider trading section 6?; of the 7@68 ActO. ,urther2 the Act also prohibits directors and key managerial personnel from forward dealings in the company or its holding2 subsidiary or associate company section 6?9 of the 7@68 ActO. Setting up of a company
The 7@68 Act introduces a new form of entity MoneEperson companyM and incorporates certain new provisions in respect of memorandum and articles of association. ,or instance2 the concept of including entrenchment provisions in the articles of association has been introduced. /ostal 8allot ESec $(6) r: !!# of t9e $#!" ActC
/oting by #ostal ballot through post J electronic mode is made applicable to all companies. Registered 3aluers ESec $<% of t9e $#!" ActC
3here any valuation is required to be made in respect of any property2 stocks2 shares2 debentures2 securities2 goodwill or other assets or of netEworth or liabilities under 7@68 Act2 such valuation shall be done by a person registered with the *overnment as a valuer. "egistered valuer shall be appointed by the audit committee or in its absence by the %$. S/*,I.I, /R-3ISI-NS& !S9are ,apital Key highlights U For defined infrastructural projects, preference shares can be issued for a period exceeding 2 !ear " U #ro$isions relating to further issue of capital %ade applicable to all co%panies& U'he ter%s for offer of securities, for% and %anner of (pri$ate place%ent( to be as prescribed U)hares cannot be issued at a discount except s*eat e+uit! shares U'i%e gap bet*een 2 bu!-bacs shall be %ini%u% / !ear 0 ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
Types of S9are ,apital 36ection 55(2)
46ec 82
56ec 8 r;w sec 84
66ec87
There is no change in the concept of types of share capital as in 6?;< Act. The shares can be of the following types=! iC +quity shares iC 3ith voting rightsD or iiC 3ith differential rights as to dividend2 voting or otherwise iiC #reference shares 0hares with ifferential "ights The provisions relating to issue of shares with differential rights as to dividend2 voting or otherwise have been retained in 7@68 Act. The conditions for issuance for such shares are through the prescribed "ule 9 of -ompanies S9are ,apital and Debentures C "ules2 7@69>. The proviso to section 9>6C of the 7@68 Act states that if the variation by one class of shareholders affects the rights of any other class of shareholders2 the consent of threeE fourths of such other class of shareholders shall also be obtained and the provisions of this section shall apply to such variation. "ule 7rC of the 7@68 Act !? “Total 0hare -apitalB2 for the purposes of clause =C of section 72 means the aggregate of the E aC paidEup equity share capitalD and bC convertible preference share capitalD Issue and redemption of preference shares6@ S Tenure of preference shares has been kept at 7@ years66. &owever2 companies having Linfrastructural projectsL as definedC can issue preference shares for tenure beyond 7@ years2 subject to the redemption of specified percentage of 76ec 4
8hapter4<6hare apital and =ebentures (rules) ule 4- 0>uity shares with di$erential rights-"
(+) 3o company limited by shares shall issue e>uity shares with di$erential rights as to diidend, oting or otherwise, unless it complies with the following conditions, namely:" (a) the articles of association of the company authori%es the issue of shares with di$erential rights# (b) the issue of shares is authori%ed by an ordinary resolution passed at a general meeting of the shareholders: /roided that where the e>uity shares of a company are listed on a recogni%ed stoc' e1change, the issue of such shares shall be approed by the shareholders through postal ballot # (c) the shares with di$erential rights shall not e1ceed twenty"si1 percent of the total post"issue paid up e>uity share capital including e>uity shares with di$erential rights issued at any point of time# (d) the company haing consistent trac' record of distributable pro&ts for the last three years# (e) the company has not defaulted in &ling &nancial statements and annual returns for three &nancial years immediately preceding the &nancial year in which it is decided to issue such shares# (f) the company has no subsisting default in the payment of a declared diidend to its shareholders or repayment of its matured deposits or redemption of its preference shares or debentures that hae become due for redemption or payment of interest on such deposits or debentures or payment of diidend# (g) the company has not defaulted in payment of the diidend on preference shares or repayment of any term loan from a public &nancial institution or 6tate leel &nancial institution or scheduled 9an' that has become repayable or interest payable thereon or dues with respect to statutory payments relating to its employees to any authority or default in crediting the amount in !nestor 0ducation and /rotection Fund to the entral ?oernment# (h) the company has not been penali%ed by ourt or @ribunal during the last three years of any o$ence under the esere 9an' of !ndia Act, +4, the 6ecurities and 01change 9oard of !ndia Act, +2, the 6ecurities ontracts egulation Act, +58, the Foreign 01change Banagement Act, + or any other special Act, under which such companies being regulated by sectoral regulators-
9ompanies (6peci&cation of de&nitions details) ules, 2*+4-
106ection 55
116ection 55
shares as per "ules67 to be prescribed2 on an annual basis at the option of the preference shareholders S 3here a company is unable to redeem any preference shares or to pay dividend thereon in accordance with the terms of issue2 it may redeem such preference shares by further issue of redeemable preference shares equal to the amount due and dividend due thereon. This is subject to E iC consent of the holders of 8J9th in value of such preference sharesD and iiC approval of N-T. S $n issue of such further redeemable preference shares2 the preference shares not redeemed earlier shall be deemed to have been redeemed. 3oting rig9ts on preference s9ares !"
S 7@68 Act provides that where a dividend in respect of a class of preferences shares has not been paid for a period of 7 years or more2 such class of preferences shareholders shall have a right to vote on all the resolutions placed before a general meeting of the company. This is irrespective of whether the preferences shares are cumulative or nonE cumulative. Thus2 unlike 6?;< Act2 7@68 Act makes no distinction between cumulative preferences shares and nonE cumulative preferences shares in the matter of the vo ting rights in the event of nonEpayment of dividend. .urt9er issue of capital !<
S #rovisions relating to further issue of capital are made applicable to all types of companies i.e. even private companies have to comply with these provisions for any further issue of capital. This e5tension to private companies is to ensure that the shareholders are consulted a nd their opinion considered for issue of shares b y special resolution. S #ricing of a preferential issue of shares by a company shall be determined by a "egistered /aluers89. -onditions are 6; prescribed in the "ules for preferential issue by companies . S Amounts received as share application money by private companies also will not be available for use until it allotment of shares. S 0helf prospectus i.e. prospectus in respect of which securities are issued for subscription in one or more issues without the issue of a further prospectusC can be issued by classes of companies to be prescribed by "egulations of 0+%I. Issue of 8onus s9ares !6
S (nlike 6?;< Act2 conditions are specified for issue of %onus shares under 7@68 Act which are made applicable to all companies. Accordingly2 issue of fully paidEup bonus shares can be made out of its free reserves or the securities premium account or capital redemption reserve account. &owever2 company cannot issue bonus shares by capitaliGing revaluation reserves. S A company is required to comply with the following conditions in addition to the conditions to be prescribed under the "ules before issuance of bonus shares! iC authoriGation by A$A iiC shareholdersM approval in a general meeting iiiC not defaulted in payment of interest or principal in respect of fi5ed deposit or debt securities issued by itD 12ompanies (6hare apital and =ebentures) ules, 2*+4
136ection 4(2)
146ection 82
15ule +-!ssue of shares on preferential basis "of ompanies (6hare apital and =ebentures) ules, 2*+4-
166ection 8
ivC not defaulted in payment of statutory dues of the employees like provident fund2 gratuity and bonusD vC partly paid shares outstanding on the date of allotment should be fully paidE up prior to issue of bonus shares and S 7@68 Act further provides that bonus shares cannot be issued in lieu of dividend. Allotment? transfer and transmission of securities !%
S 0ecurities or any interest of any member in a public company shall be freely transferable. &owever2 any contract or arrangement between 7 or more persons in respect of transfer of securities shall be enforceable as a contract. S 7@68 Act lays down new timelines for issuance of certificates in respect of allotment2 transfer and transmission of securities. The revised timelines are as under! -ertificates for 0hares E on subscription to the )$A and A$A i.e. on incorporation of a company 0hares E allotted subsequent to incorporation
0hares E for transfer ebentures
Time stipulated for issuance of certificates within 7 months from the date of incorporation within 7 months from the date of allotment if shares are issued in physical formD or immediately on allotment to the depository where shares are issued in demat form within 6 month from the date of receipt of the instrument of transfer within < months from the date of allotment of ebentures
Table no! Issue of s9ares at a discount
S 6?;< Act permitted issue of shares at a discount to its par value subject to conditions. 7@68 Act prohibits issue of shares at a discount e5cept in case of Lsweat equity sharesL issued to the e mployees of the -ompany6>. E L s*eat e+uit! shares/1 %eans such e+uit! shares as are issued b! a co%pa n! to its directors or e%plo!ees at a discount or forconsideration, other than cash, for pro$iding their no*-ho* or %aing a$ailable rights in the nature of intellectual propert! rights or $alue additions, b! *hate$er na%e called 2 tiliation of securities premium $! 0ecurities premium may be applied for permitted purposes. (tiliGation of securities premium for any other purpose 176ection 58
186ection 58
196ec 2(77)
20 Also see rule 7 under ompanies (6hare apital and =ebentures) ules, 2*+4-
216ec 52(2)
would entail compliance with provisions relating to reduction of capital. aC towards the issue of unissued shares of the company to the members of the company as fully paid bonus sharesD bC in writing off the preliminary e5penses of the companyD cC in writing off the e5penses of2 or the commission paid or discount allowed on2 any issue of shares or debentures of the companyD d C in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the companyD or eC for the purchase of its own shares or other securities under section <>. ,or classes of companies to be prescribed in the "ules2 utiliGation of securities premium for the following purposes will require such a company to ensure that the Accounting 0tandards prescribed have been complied! a C in paying up unissued equity shares of the company to be issued to members of the company as fully paid bonus sharesD or bC in writing off the e5penses of or the commission paid or discount allowed on any issue of equity shares of the companyD or cC for the purchase of its own shares or other securities under section <>. $ D*8*NTR*S (S*, %! > %$) A -ompany may issue debentures either with an option to convert such debentures into shares wholly or partly at the time of redemption. The issue of such debentures shall be approved by a special resolution passed at a general meeting. iC ebentures cannot carry any voting rights iiC 0ecured debentures may be issued by a company subject to prescribed terms and conditions iiiC -ompulsory creation of ebenture "edemption "eserve (DRR)! 3here the debentures are issued by a company2 the company is required to create a "" out of profits of the company available for payment of dividend and the amount credited to such account is to be utiliGed only for the redemption of debentures Appointment of Debenture Trustees ! %efore issuing a prospectus or making an offer or invitation to the public or to its members e5ceeding ;@@2 for the subscription of its debentures2 a company is required to appoint one or more debenture trustees Responsibility of Debenture Trustees& In cases where the debenture trustee comes to a conclusion that the assets of the company are insufficient to pay principal amount as and when it becomes due2 debenture trustee may file a petition before N-T to impose restrictions on the company from incurring an y further liabilities
"DI3ID*ND& Key highlights U 3andator! transfer of profits to reser$es before declaration of di$idend done a*a! *ith. Co%panies %a! $oluntaril! transfer a portion of itsprofits to reser$es. U 3andator! transfer of profits to reser$es for di$idend declaration dispensed *ith. '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
S ividend to be paid out ofD Eprofits of the company for the year after providing for depreciationD or Eprofits of the previous years arrived at after providing for depreciation and remaining undistributedD or Eboth of the above 0ec678 of the 7@68 ActO. S 0ec6788C of the 7@68 ActO Interim dividend may be declared only out of surplus in #rofit : oss Account and out
of profits of the ,1 in which dividend is sought to be declared. In case a company has incurred losses up to the preceding quarter of the current ,1 then interim dividend shall not be declared at a rate higher than the average dividend declared by the company during the immediately preceding 8 ,1s. S ,ailure to comply with provisions relating to acceptance and repayment of deposits will prevent a company to declare any dividend during the period of such nonEcompliances S ividend to be distributed within 8@ days of its declaration in cash only. ividend cannot be distributed in kind. S 3here unpaid J unclaimed dividend has been transferred to I+#,2 the corresponding shares on which such dividend was unpaid J unclaimed shall also be transferred by the company to I+#, S Amounts that can be credited to I+#, widened to include Eamount received on disgorgementD Eredemption amount of preference shares remaining unpaid J unclaimed for = years or moreD Esale proceeds of fractional shares arising out of issuance of bonus shares2 merger and amalgamation for = years or more. The provisions for declaration and payment of dividend are simplified 0ubject to "ules to be prescribed2 dividend can be paid out of accumulated reserves without restrictions as to rate of dividend "ules! -hapter>Veclaration and #ayment of ividend "ule 8. eclaration of dividend out of reserves.E In the event of adequacy or absence of profits in any year2 a company may declare dividend out of surplus subject to the fulfillment of the following conditions2 namely!E 6C The rate of dividend declared shall not e5ceed the average of the rates at which dividend was declared by it in the three years immediately preceding that year! #rovided that this subErule shall not apply to a company2 which has not declared any dividend in each of the three preceding financial year. 7C The total amount to be drawn from such accumulated profits shall not e5ceed oneEtenth of the sum of its paidEup share capital and free reserves as appearing in the latest audited financial statement. 8C The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which dividend is declared before any dividend in respect of equity shares is declared. 9C The balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up share capital as appearing in the latest audited financial statement. ;C No company shall declare dividend unless carried over previous losses and depreciation not provided in previous year are set off against profit of the company of the current year the loss or depreciation2 whichever is less2 in previous years is set off against the profit of the company for the year for which dividend is declared or paid.
<A,,-NTS AND ADIT Key highlights UCo%panies to ha$e a unifor% financial !ear - ending on "/ 3arch each !ear. U/10 Act allo*ed co%panies to ha$e financial period of upto / %onths and /4 %onths *ith special per%ission of 56C. 'his flexibilit! isre%o$ed. U'he definition of F7 of the 2/" Act has been aligned *ith the 'ax la*s. UConsolidation of financials for a co%pan! ha$ing a subsidiar!, associate or a joint $enture %ade %andator!. U 8ational Financial 5eporting Authorit! 98F5A: to be constituted b! Central ;o$ern%ent to pro$ide for dealing *ith %atters relating toaccounting and auditing policies and standards to be follo*ed b! co%panies and their auditors. U 3andator! audit rotation for listed and prescribed classes of co%panies. U 5estriction placed on pro$ision of specified non-audit ser$ices b! an auditor to ensure independence and accountabilit! of the auditor. U 3andator! internal audit for prescribed classes of co%panies. U 3andator! fir% rotation. U'he pro$isions relating to appoint%ent of auditor, period of appoint%ent, dis+ualifications of auditors and ser$ices that an auditor cannotpro$ide ha$e been substantiall! %odified in 2/" Act.
'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' ,inancial 1ear
S L,inancial yearL2 in relation to any company or body corporate2 means the period ending on the 86st day of )arch every year.0ec 796C of the 7@68 ActO EThis requirement in case of a company or body corporate2 e5isting on the commencement of the 7@68 Act2 is to be complied within a period of 7 years from commencement of the 7@68 Act. E3here a company has been incorporated on or after the 6st day of 4anuary of a year2 the period ending on the 86st day of )arch of the following year2 in respect whereof financial statement of the company or body corporate is made up. S A company or body corporate2 which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different ,1 for consolidation of its accounts outside India2 the N-T may allow any period as its ,12 whether or not that period is a year. S A subsidiary in India of a foreign company may2 with the approval of N-T follow a different period as its ,1. The question for consideration is whether an application will be entertained by N-T for following a different period as ,1 by company in India which is an associate company or joint venture company of a foreign entity. ,inancial statements S 6?;< Act does not define the term L,inancial 0tatementL. 7@68 Act defines the term Lfinancial statementL0ec 79@C of the 7@68 ActO in relation to a company to include! i. a balance sheet as at the end of the ,1D ii. a profit and loss account2 or in the case of a company carrying on any activity not for profit2 an income and e5penditure account for the ,1D iii. cash flow statement for the ,1D iv. a statement of changes in equity2 if applicableD and v. any e5planatory note anne5ed to2 or forming part of2 any document referred to above. The financial statement2 with respect to $#-2 small company and dormant company2 may not include the cash flow statement S The books of account and other relevant papers are to be kept at the registered office or such other place in India as %o may decide and such books can also be kept in electronic mode in the manner to be prescribed 0ec 67> of the 7@68 ActO S As per 6?;< Act2 balance sheet and statement of profit and loss are required to be signed by manager or secretary and by 7 irectors including ) where there is one. 7@68 Act 0ec 6896C of the 7@68 Act requires ,inancial 0tatements to be signed at least by Echairperson of the company2 if authoriGed by %$ or E7
S
S
S S
S
directors including )2 where there is one and E-+$ if he is a irector2 E-,$ and -02 wherever they are appointed. In case of $#- balance sheet and statement of profit and loss are required to be signed by one director only. -onsolidation of financial statements is made mandatory for all companies where a company has one or more subsidiaries whether Indian or foreign S The mandatory consolidation applies to all companies whether such company is! isted or unlistedD Eprivate or public. ,or the purposes of consolidation of financial statements2 the e5pression subsidiary includes associate company and joint venture 0ec67? 8C of the 7@68 ActO EMAssociate companyM0ec 7 years where any investigation has been ordered. -,$ made responsible and liable for penalty and J or prosecution for nonEcompliance with various provisions such as maintenance of books of accounts2 preparation : filing of annual accounts2 disclosure of financial information in offer document2 risk management2 internal control etc. -onsolidation of financial statements of subsidiaries whether in India or abroadC is applicable to all the companies. , Re'-pening of accounts and =oluntary re=ision to .inancial Statements or 8oard Report ESec !"# of t9e $#!" ActC
S (nder 7@68 Act2 on an application made by -*2 IT authorities2 0+%I or any other statutory regulatory body or authority or any person concerned and on an order being made by a -ourt or N-T2 a company can reEopen its books of accounts or reEcast its financial statements on the below g rounds! Ethat the relevant earlier accounts were prepared in a fraudulent mannerD or Eaffairs of the company were mismanaged during the relevant period casting a doubt on the reliability of the financial statements. S The company may voluntarily revise the financial statement or irectorsM report in respect of any of the 8 preceding ,1s after obtaining approval of N-T2 if the %$ believes that the financial statements or irectorsM report do not comply with the relevant provisions of the 7@68 Act. A detailed e5planation would be required to be given in irectorMs report for the relevant ,1 for which such revision is made 0ec 686 of the 7@68 ActO ,ognisance of Accounting Standards In several instances across the 7@68 Act2 there are provisions which are also covered within the accounting standards currently notified under section 7668-C of the 6?;< Act and the -ompanies accounting standardsC "ules2 7@@< there under. There are certain differences in the manner in which a few terms have been defined under the 6?;< Act. 3hile the differences in some of these terms may not have any adverse impact2 in certain cases2 these differences may create implementation issues. ifferences in definitions e5ist in the following cases! S Associate company S -ontrol S 0ubsidiary company S "elated party Associate company! The definition of an associate company poses certain challenges since! S It includes joint ventures S 0ignificant influence is defined to mean Mcontrol ... of business decisions under an agreementM
S It differs from the definition of an associate as per the Accounting 0tandard 78! Accounting for Investments in Associates in -onsolidated ,inancial 0tatements. S The status of an associate and a joint venture cannot be equated since2 the degree of control that a company can e5ercise in such entities2 varies significantly. 3hile Mjoint controlM is the driving factor in case of joint ventures2 a company can at the most only MparticipateM in the operating or financing decisions in case of an associate company. S 3ith regard to the e5planation to the section in the 7@68 Act2 which defines the term Msignificant influence2 it is to be noted that if a company has McontrolM control has been defined in section 77=C of the 7@68 ActO with respect to business decisions of another company2 such other company will in fact be tantamount to a subsidiary and not an associate company. &ence2 the use of the term McontrolM within the definition of significant influence leads to a conflict between the two definitions associate company and subsidiary companyC. 3e believe that the terms which have been defined in the accounting standards2 which also form a part of the -ompanies Act2 6?;<2 must not been defined again in the case of an associate2 control and subsidiary company2 in order to eliminate contradictions and ambiguity in compliance requirements. The concept of definitions of the accounting standards having primary significance has already been given cogniGance in the "evised 0chedule /I to the -ompanies 6?;< Act2 as well. ,urther2 the definitions of the terms MassociateM and Msignificant influenceM are also not consistent with the definitions provided within the Accounting 0tandard 6>! "elated #arty Transactions2 and Accounting 0tandard 78! Accounting for Investments in Associates in -onsolidated ,inancial 0tatements A0 78C. 0ubsidiaries! The term McontrolM2 which is relevant with respect to identifying subsidiaries2 has been defined in section 77=C of the 7@68 Act. 3hile this definition mandates consideration of Mshare holdingM as one of the factors2 the corresponding definition in A0 76! -onsolidated ,inancial 0tatements A0 76 C refers to Mvoting powerM. This issue is an e5isting one since a similar difference e5ists between the definition of MsubsidiaryM2 where the term McontrolM is relevant under the e5isting 6?;< Act section 96C of the 6?;< ActO. Accordingly2 while for consideration of an entity as a subsidiary for the purpose of consolidated financial statements -,0C2 reference is made to A0 762 for the purpose of any compliance with the 6?;< Act2 reference is made to section 96C of 6?;< Act. Now that the requirement of preparing consolidated financial statements has been included within the 7@68 Act itself2 a conflict arises as to whether the definition as per the 7@68 Act should be considered for identifying a subsidiary or the definition as per the A0 76. In any case2 the company will be nonEcompliant with the requirement of either the 7@68 Act or the A0. 3ith regard to related party2 while there is a substantial difference between the definition under the 7@68 Act and A0 6>2 the difference does not impact the financial statements2 since the disclosures in the financial statements will be continued to be made as per A0 6>. National .inancial Reporting Aut9ority ESec !"$ of t9e $#!" ActC
S N,"A to be constituted by -entral *overnment to provide for dealing with matters relating to accounting and auditing policies and standards to be followed by companies and their auditors S 7@68 Act provides functions of N,"A2 which shall include! E)ake recommendations to -* on the formulation of accounting and auditing policies and standardsD E)onitor and enforce compliance with accounting and auditing standardsD E$versee the quality of service of the professions and suggest measures required for improvement in quality of services and such other related matters as may be prescribedD E#erform other prescribed functions in relation to above as ma y be prescribed. S -* may prescribe standards of accounting or any addendum thereto2 as recommended by the I-AI in consultation with and after e5amination of the recommendations made by N,"A. S N,"A to consist of -hairperson and other part time and the full time members not e5ceeding 6;. S The -hairperson and full time members of N,"A shall not be associated with any audit firm including related consultancy firmsC during the course of their appointment and 7 years thereafter S 7@68 Act provides powers to N,"A2 which includes! EInvestigate into the matters of professional or other misconduct committed by member or firm of -A. E#owers as are vested in a civil court under the -ode of -ivil #rocedure2 6?@> while trying a suit. E3here professional or other misconduct is proved2 N,"A have the power to make order for imposing monetary
penalty or debarring the member or the firm from engaging himself or itself from practice as member of the institute for a minimum period of < months or for such higher period not e5ceeding 6@ years. S Any person aggrieved by the order of N,"A can prefer an appeal to N,"AA.
< Auditor
Appointment of first auditor E on incorporation 0ec 68?
)andatory firm rotation
The 7@68 Act has introduced the concept of rotation of auditors as well as audit firms. It states that in case of listed companies and other class esC of companies as may be prescribedC it would be mandatory to rotate auditors every five years in case of the appointment of an individual as an auditor and every 6@ years in case of the appointment of an audit firm with a uniform cooling off period of five years in both the cases. ,urther2 firms with common partners in the outgoing audit firm will also be ineligible for appointment as auditor during the cooling off period. The 7@68 Act has allowed a transition period of three years for complying with the requirements of the rotation of auditors section 68?7C of the 7@68 ActO. ,urther2 the 7@68 Act also grants an option to shareholders to further require rotation of the audit partner and staff at such intervals as they may choose section 68?8C of the 7@68 ActO. -urrently2 while the 6?;< Act does not have any requirements relating to the auditor or audit firm rotation2 the -ode of +thics issued by the I-AI has a requirement to rotate audit partners2 in case of listed companies2 after every seven years with a coolingEoff period of two years. %
4oint audits
The 7@68 Act provides that members of the company may require the audit process to be conducted by more than one auditor section 68?8C of the 7@68 ActO. -
NonEaudit services to audit clients
The 7@68 Act states that any service to be rendered by the auditor needs to be approved by the board of directors or the audit committee. ?8
"ead with rules under -hapter6@VAudit and Auditors
?9
"ead with "ules E -hapter6@VAudit and Auditors "ule <. )anner of rotation of auditors by the companies on e5piry of their term.E
Auditor cannot provide following services Ldirectly or indirectlyL to the company or its holding company or subsidiary company2 namely! E accounting and book keeping servicesD Einternal auditD Edesign and implementation of any financialinformation systemD Eactuarial servicesD Einvestment advisory servicesD Einvestment banking servicesD Erendering of outsourced financial servicesD Emanagement servicesD and Eother services to be prescribed under the "ules. An auditor or audit firm who or which has been performing any nonEaudit services on or before the commencement of the 7@68 Act shall comply with the above before the closure of the 6st ,1 after the date of such commencement. Lirectly or indirectlyL shall include rendering of services by the auditor2R E3here auditor is an individual E +ither himself or through his relative or any other person connected or associated with such individual or through any other entity2 whatsoever2 in which such individual has significant influence or control2 or whose name or trade mark or brand is used by such individual E3here auditor is a firm E +ither itself or through any of its partners or through its parent2 subsidiary or associate entity or through any other entity2 whatsoever2 in which the firm or any partner of the firm has significant influence or control2 or whose name or trade mark or brand is used by the firm or any of its partners. ,urther2 the 7@68 Act provides that such services cannot be rendered by the audit firm either directly or indirectly through itself or any of its partners2 its parent or subsidiary or through any other entity whatsoever2 in which the firm or any other partner from the firm has significant influence or control or whose name or trademark or brand is being used by the firm or any of its partners section 699 of the 7@68 ActO. The 6?;< Act currently does not specify any requirements relating to nonEaudit services. These restrictions are aimed at achieving auditor independence. Auditor independence is fundamental to public confidence on the reliability of the auditorsM reports. This concept adds credibility to the published financial information and value to investors2 creditors2 companies2 employees as well as other stakeholders. Independence is the audit professionMs primary means of demonstrating to the public as well as the regulators that auditors and audit firms are performing in line with established principles of integrity and objectivity. To comply with these independence norms2 the 7@68 Act provides for a transitional period of one year2 that is2 an auditor or an audit firm who or which has been performing any nonE audit services on or before the commencement of the 6?;< Act shall comply with these provisions before closure of the first financial year after the date of commencement.
Auditors liability
The scope and e5tent of the auditorMs liability2 has been substantially enhanced under the 7@68 Act. Now2 the auditor is not only e5posed to various new forms of liabilities2 however2 these liabilities prescribed in the e5isting 6?;< Act have been made more stringent. The auditor is now subject to oversight by multiple regulators apart from the I-AI such as The National ,inancial "eporting Authority N,"A2 and the body replacing the NA-A0C is now authorised to investigate matters involving professional or other misconduct of the auditors. The penalty provisions and other repercussions that an auditor may now be subject to as per the 7@68 Act includes monetary penalties2 imprisonment2 debarring of the auditor and the firm2 and in case of frauds2 can even be subject to class action suits. Internal audit S -lasses of companies to be prescribed to appoint an internal auditor who shall be -A or cost accountant or such other professional as may be decided by the %$. ,ollowing provisions relating to auditors are applicable to all companies! S The members at every subsequent A*) will be required to ratify the appointment of auditor2 in case a fresh appointment is not made S The company may resolve!
S If Audit firm is appointed2 the audit partner and his team shall rotate at such intervals as may be resolved by members. < # a g e
EAudit shall be conducted by more than 6 auditor i.e. joint auditorC. S The 6?;< Act requires all the partners of the firm to be a qualified -A and practicing in India. 7@68 Act provides that! E)ajority of partners practicing in India should be qualified -AD EIf # is appointed as auditor2 only partners who are -A shall be authoriGed to sign S #rocedure and manner of selection of auditor to be prescribed by the "ules S Additional grounds for disqualifications for appointment as auditor provided 9. 0oan to Directors ESec!B of t9e $#!" ActC Key highlights U 8o co%pan! shall directl! or indirectl! ad$ance an! loan 9including loan represented b! a boo debt: or gi$e guarantee or pro$ide securit! inconnection *ith such loan to an! director < related persons. - An exception to the abo$e rule is %ade for 3= or a *hole ti%e director 9>'=: if such loan is in accordance *ith the ter%s of ser$ices extended to all e%plo!e es or is appro$ed b! shareholders b! special resolution. U'he /10 Act exe%pted pri$ate co%panies and allo*ed public co%panies to gi$e loans etc. *ith prior appro$al of C;, restrictions on gi$ingloans etc. to directors ha$e been extended in 2/" Act e$en to pri$ate co%panies $i? #ro$isions for loan to directors applicable to pri$ate co%panies. '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
7@68 Act provides that a company cannot2 directly or indirectly2 Eadvance any loan2 including any loan represented by a book debt to any director or any other person in whom the director is interested as specifiedCD or Egive any guarantee or provide any security in connection with any loan taken by its director or such other person S The above restriction is not applicable to Eoan to a ) J 3T which is as a part of contract of services e5tended to all its employees or pursuant to any scheme approved by members by special resolution. EA company which in the ordinary course of its business provides loan2 guarantee or security for due repayment of any loanC and charges interest which is not less than %ank "ate declared b y "%I. S Ability of a company2 whether public or private2 to give loan etc. to directors is substantially curtailed S +ven if a loan etc. obtained in contravention of the above provisions is repaid2 the contravener would still be e5posed to punishment by way of imprisonment. S These provisions should be considered applicable prospectively and should not affect e5isting loans etc. which are given in compliance with the 6?;< Act but which are not in conformity with 7@68 Act. After the enactment of the 7@68 Act2 any renewal of loan etc. needs to be in conformity with 7@68 Act. These read with rules under -hapter67V)eetings of %oard and its #owers viG "ule 6@?;.
?;
"ule 6@. oans to irector etc. under section 6>;.E 6C Any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company is e5empted from the requirements under this sectionD and ? 7C Any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company is e5empted from the requirements under this section! #rovided that such loans made under subErule 6C and 7C are utilised by the subsidiary company for its principle business activities.
=. In=estment? loan? guarantee? security by company& Key highlights U @oans, guarantee and securit! %ade to an! person 9the /10 Act dealt onl! *ith bod! corporate: *ill attract co%pliance re+uire%ents. U 5ate of interest on loan granted cannot be lo*er than the pre$ailing !ield of / !ear, " !ear, !ear or / !ear ;o$ern%ent )ecurit! closest tothe tenure of the loan. U'he list of exe%ptions has been curtailed. ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
0oan and in=estment by company ESec !B6 of t9e $#!" ActC
S -ompany may give a loan to any person or other body corporate or give any guarantee or provide security in connection with a loan to any other body corporate or person or acquire by way of subscription2 purchase or otherwise2 securities of any other body corporate no t e5ceeding the higher of! E<@Q of paid up share capital2 free reserves and securities premiumD or E6@@Q of free reserves and securities premium. 3here the amount of investment2 loan2 guarantee or security2 as the case may be2 e5ceeds the above limits2 prior approval by special resolution is to be obtained. These read with rules under -hapter67V)eetings of %oard and its #owers viG "ule 66?<. S ,ree reserves are reserves which are available for distribution as dividend as per latest audited balance sheet but e5clude unrealiGed J notional gains2 revaluation reserve2 any change in carrying amount of an asset or of a liability recogniGed in equity2 including surplus in profit and loss account on measurement of the asset or the liability at fair value. S 7@68 Act covers within its ambit giving loans2 guarantee and security not only to a body corporate but also to any other person. S "ate of interest on the loan granted shall not be lower than the prevailing yield of 6 year2 8 year2 ; year or 6@ year *overnment 0ecurity closest to the tenure of the loan. 6?;< Act benchmarked the minimum interest to the %ank "ate as made public by "%I. S -ompany will have to disclose in the financial statements the full particulars of loans2 investments2 guarantee or security and the purpose for which loans2 guarantee or security are proposed to be utiliGed by the recipient of it S 7@68 Act contains following e5emptions! Eoan given or guarantee or security provided by S banking company or insurance company or housing finance company in ordinary course of businessD S company engaged in the business of financing of companies or of providing infrastructural facilities as specified. EInvestment and lending by N%,-2 registered with "%I2 whose principal business is acquisition of securities EAcquisition by companies having principal business of acquisition of securities EAcquisition of shares pursuant to a Mrights issueM S -lasses of companies to be prescribed and companies registered with 0+%I cannot take intercorporate loan or deposit e5ceeding the limit to be prescribed under the "ules 6. -ompanies will have to ensure that their e5posure is within the ceiling in view of the provisions having been e5panded to include investment J loan J guarantee J security made to Many other personME e.g. if a loan is given to a partnership firm2 it would require compliance of the above provisions 7. The following e5emptions available under the 6?;< Act are no longer available!
?<
"ule 66. oan and investment by a company under section 6>< of the Act.E 6C 3here a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company2 or acquisition is made by a holding company2 by way of subscription2 purchase or otherwise of2 the securities of its wholly owned subsidiary company2 the requirement of subEsection 8C of section 6>< shall not apply! #rovided that the company shall disclose the details of such loans or guarantee or security or acquisition in the financial statement as provided under subEsection 9C of section 6><. 7C ,or the purposes of clause aC of subEsection 66C of section 6><2 the e5pression “business of financing of companiesB shall include2 with regard to a NonE%anking ,inancial -ompany registered with "eserve %ank of India2
“business of giving of any loan to a person or providing any guaranty or security for due repayment of any loan availed by any person in the ordinary course of its businessB. 8C No company registered under section 67 of the 0ecurities and +5change %oard of India Act2 6??7 and also covered under such class or classes of companies which may be notified by the -entral *overnment in consultation with the 0ecurities and +5change %oard2 shall take any interEcorporate loan or deposits2 in e5cess of the limits specified under the regulations applicable to such company2 pursuant to which it has obtained certificate of registration from the 0ecurities and +5change %oard of India.
Investment by banking company or insurance company or housing finance company in the ordinary course of its business2 or a company engaged in the business of providing infrastructural facilities S oan J investment J guarantee J security by a private company S oan J investment J guarantee J security by a holding company to its 3$0 S oan J guarantee J security by a company whose principal business is acquisition of securities 8. After the enactment of the 7@68 Act2 any renewal of loan etc. needs to be in conformity with 7@68 Act These provisions should be considered applicable prospectively and should not affect e5isting investments2 loans etc. which are given in compliance with the 6?;< Act but which are not in conformity with 7@6 8 Act. ;. $ne would have to e5amine the "ules to be notified in this regard.
%Related party transactions& Key highlights U 5e+uire%ent of obtaining Central ;o$ern%ent appro$al for related part! transactions not re+uired. U Appro$al of related part! transactions b! Audit Co%%ittee < Board of =irectors at Board %eeting %ade %andator!. U 5elated part! transactions to also re+uire prior shareholder(s appro$al b! special resolution for co%panies ha$ing prescribed paid up capital ortransactions exceeding prescribed a%ounts. U 5elated part! transactions to be disclosed in the =irector(s 5eport along *ith justification thereof. ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
"elated party and relative are defined as! 0ec 70 C of the 7@68 Act Lrelated partyL2 with reference to a company2 meansR iC a director or his relativeD iiC a key managerial personnel or his relativeD iiiC a firm2 in which a director2 manager or his relative is a partnerD i$C a private company in which a director or manager is a member or directorD $C a public company in which a director or manager is a director or holds along with his relatives2 more than two per cent of its paidEup share capitalD $iC any body corporate whose %oard of irectors2 managing director or manager is accustomed to act in accordance with the advice2 directions or instructions of a director or managerD $iiC any person on whose advice2 directions or instructions a director or manager is accustomed to act! /ro=ided that nothing in subEclauses $iC and $iiC shall apply to the advice2 directions or instructions given in aprofessional capacityD $iiiC any company which isR AC a holding2 subsidiary or an associate company of such companyD or BC a subsidiary of a holding company to which it is also a subsidiaryD ixC such other person as may be prescribedD ,urther under E -ompanies 0pecification of definitions detailsC "ules2 7@69. "ule 8. "elated party! E ,or the purposes of subEclause i5C of clause =C 0ister! #rovided that the term “0isterB includes the stepEsister.
3hereas "elated party transactions provisions are under sec 6>> wherein! S Any transaction can be entered into by a company in the ordinary course of its business with a related party on an armMs length basis. ArmMs length transaction means a transaction between two related parties that is conducted as if they were unrelated2 so that there is no conflict of interest. S 3here a transaction with a related party is iC not in the ordinary course of business or iiC is in the ordinary course of business but not on an armMs length basis2 the consent of the %$ by a resolution at a board meeting and compliance with the conditions to be prescribed is necessary before a company can enter into a transaction with a related party i.e. any contract or arrangement with a related party with respect to! aC sale2 purchase or supply of any goods or materialD bC buying2 selling or disposing of property of any kindD cC leasing of any kind of propertyD dC availing or rendering of any servicesD eC appointment of agent for purchase or sale of goods2 material2 services or propertyD fC related partyMs appointment to any office or place of profit in the company2 its subsidiary company associate companyD or gC underwriting the subscription of any shares in or derivatives thereofD 6?;< Act2 subject to certain e5emptions2 regulated related party transactions relating to aC2 dC and gC only. The concept of armMs length transaction was not enacted in the 6?;< Act S "elated party transactions by a company having paidEup capital or e5ceeding value of transaction2 to be prescribed2 will require prior approval of members by special resolution if such transaction iC is not in the ordinary course of business or iiC is in the ordinary course of business but not on an armMs length basis. "elated party who is a member of such a company cannot vote on such a special resolution. S "equirement of obtaining -* approval for related party transactions2 as provided in 6?;< Act2 done away with S Transaction with a director of the company or its holding2 subsidiary or associate company or a person connected for acquisition or sale of assets for consideration other than cash to require prior approval of the members in a general meeting and supported by values determined by "/. If the director or connected person is a director of the holding company2 approval of shareholders is required to be obtained by passing a resolution in general meeting of the holding company. S If $#- enters into a contract with the sole member of the company who is also its director2 the company shall2 unless the contract is in writing! Eensure that the terms of the contract or offer are contained in the memorandum or are recorded in the minutes of the first %oard meeting held after entering into the contract. Einform "$- about such contract within 6; da ys of entering into the contract. S "elated party transactions to be disclosed in irectorMs report along with the justification for entering in to such transactions. S "emoval of taking -* approval for related party will remove the uncertainty in timeline and e5ecution of the related party transactions. S "elated party transactions at armsM length price will call for aligning the benchmarking under transfer pricing norms as per Income Ta5 Act for both domestic and international transactions. B ,orporate Social Responsibility& ,orporate Social Responsibility (,SR) 5B S 7Q of average net profits of last 8 years to be mandatorily spent on -0" by companies having #rovisions applicable to every company having! Enet worth of "s ; billion or moreD or Eturnover of "s 6@ billion or moreD or Enet profit of "s ;@ million or more during any ,1
S %$ of such companies is mandated to spend2 in every ,12 minimum 7Q of the average net profits of the company made during the 8 immediately preceding ,1s2 in pursuance of its the -0" #olicy. S 0uch companies are required to constitute -0" committee of its %$ which is responsible for formulating and recommending to the %$ the -0" #olicy of the company.
S %$ is required to approve the -0" policy and disclose its content in the irectorMs "eport and also place the same on the companyMs website. S The company is required to give preference to local area and areas where it operates for spending the amount earmarked for -0". S If the company fails to spend such amount2 %$ is required to specify the reasons for not spending the amount in the irectorMs report. S In view of the mandatory requirement under the 7@68 Act2 e5penditure on -0" may be allowed as deduction under the Income Ta5 Act depending on the facts.
?>
0ec 68; -orporate 0ocial "esponsibility
-&A#T+"E9 A comparative analysis of companies act 7@68 vs companies act 6?;<
A comparative analysis of companies act 7@68 vs companies act 6?;< with special reference to the above discussed provisions. S9are capital
%asis of -ompanies Act 7@68 difference 'inds of ,or issuance of +quity 0hare -apital share with differential voting rights2 the conditions to be complied has been changed. 0ome of key conditions are! •
•
-ompanies Act 6?;< ,or issuance of +quity 0hare -apital with differential voting rights2 following conditions have been prescribed in the rules! •
AuthoriGation in the Articles
•
0hareholdersF approval by 0pecial
AuthoriGation in the Articles 0hareholdersF approval by
"esolution. In 0hareholdersF approval by 0pecial "esolution. In case of listed company2 by postal ballot.
0pecial "esolution. In case of listed company2 by postal ballot or a poll at a *eneral )eeting. • •
Number of such shares W
the total post issue paid up equity share capital.
7;Q of the total post issue paid up equity share capital. • •
Track record of dividend payment of 6@Q for the last 8 preceding financial year.
•
istributable profits for last 8 preceding financial year.
•
No default in the repayment payment of deposits or interest thereon on due date or redeem its debenture on due date or pay dividend.
No default in the payment of a declared dividend to its shareholders or repayment of its matured deposits or redemption of its preference shares or debentures that have become due for redemption or payment of interest on such deposits or preference shares or debentures or repayment of any term loan from a public financial institution or 0tate level financial institution or scheduled %ank that has become repayable or interest payable thereon or dues with respect to statutory payments
Number of such shares W 7;Q of
•
No default in meeting investors grievances.
•
•
isclosures
in
+5planatory
0tatement with Number2 #rice2 0cale etc.
respect to 4ustification2
+5isting equity share capital with voting rights shall not be converted into equity share capital carrying differential voting rights and viceHversa. "ule 8 of
relating to its employees to any authority. •
the the -omp -ompani anies es Iss Issue ue of 0har 0haree -apital -apital with ifferenti ifferential al /oting "ightsC "ules2 7@@6C
isclo isclosur sures es in +5plana +5planatory tory 0tat 0tatem emen entt and and ire irect ctor orss "eport with respect to Number2 #rice2 4ustification2 Allottees2 #re and #ost 0hareholding #attern etc.
•
/oting rights
+5isting equity share capital with voting rights shall not be converted into equity share capital carrying differential voting rights and viceHversa. "ule no. 8.C 3her 3heree pref prefer eren ence ce • share holder a re enti entitl tled ed to vote vote on every resolution placed before the meeting then the proportion of the voting rights of +quity +quity shareh sharehold olders ers to the voting rights of the #reference shareholders shall be in the same proportion as the paidEup capital in respect of the +quity shares to the paidEup capital capital in respect respect of the #reference shares •
No classification of preference shares as cumulative and nonE cumu cumula lati tive ve for for the the purpose of identification of voting rights
•
#reference shareholders can vote on every every reso resolu luti tion on
•
No such provision in this Act. #refer #reference ence shares shares classi classifie fied d as cumula cumulativ tivee and nonEcu nonEcumul mulati ative ve #reference #reference shares shares for the purpose purpose of identification of voting rights
•
In case of cumulative #reference shares2 if the dividend has remained remained unpaid for an aggregate aggregate period of not less than 7 years preceding the date of commencement of meeting and in case case of non non cumula cumulati tive ve shar shares es either in respect of period of not less than 7 years ending with the e5piry of the financial immedia diately ely pre preceding ding the commencement of the meeting or in respect of any aggregate period of not less than 8 years comprised in the the < year yearss endi ending ng with with the the e5pi 5piry of the financi ncial year ear afores aforesaid aid22 then then such such prefer preferenc encee share holders can vote on every res resolut olutiion plac placed ed bef before ore the company at any meeting
placed before the company at any meet meetin ing g only only when when dividends payable in respect of a class of preference shares are in arrears for a period of 7 years or more Application of premium
•
-ertain class of companies2
•
No such provision under this act
as may be pres prescr crib ibed ed22 and and whose whose financ financial ial statem statement entss comply with the accounting standards prescribed for such clas classs of comp compan anie iess unde under r sectio section n 6882 can utiliG utiliGee the share premium account only for the following 8 purposes. •
in paying up unissued equity shares of the company to be issu issued ed to membe embers rs of the the company as fully paid bonus shares or
•
in writing off the e5penses of or the the commi commiss ssio ion n paid paid or dis discoun countt all allowed owed on any any issue of equity shares of the company or
Issue shares discount
of at
+mploye stock option+0$# C
•
for the purchase of its own
•
shar shares es or other other secur securit itie iess under section <> -ompany cannot issue
•
A company may issue shares at a
•
discount subject to the conditions spec specif ifie ied d and and appr approv oval al of the the -entral *overnment No specific provision p rovision provided in
shares at discount other than as sweat equity2 equ ity2 •
3her 3heree a comp compan any y havi having ng shar sharee capi capita tall prop propos oses es to incr ncrease its subs ubscribed capital by the issue of further shar shares es22 such such shar shares es apar apartt from from e5is e5isti ting ng shar shareh ehold older er may also be offered to employees by way of +0$#
the Act •
In case of listed companies2 0+%I +0$# *uidelines to be complied with
•
In
case
of
(nlisted
#ublic
subj subject ect to the the appr approva ovall of shareho eholder ders by way of special resolution and subject to certain conditions •
In case case of listed listed company company22 with 0+%I +0$# *uidelines.
•
In case of (nlisted company2 with the conditions as prescribed under "ule No. 67 0ome of the major conditions are given below!
•
"equirement
to
seek
approval approval from shareholders shareholders by special resolution even by private companies •
)and )andat atory ory
disc disclo losu sure ress
in
e5planatory statement anne anne5e 5ed d to the the noti notice ce for for passing the 0pecial "esolution •
+5ercise
price
can
be
resolution
is
determined freely •
0eparate
required for grant of options to employ employees ees of subsid subsidiar iary y or holding companyD andJor grant of option to identified employ employees2 ees2 during during any one year2 equal to or e5ceeding 6Q of the issue ssued d capi capita tall e5clu cluding outstandin ding warrants and conversionsC of the company at the time of grant of option. •
)inimum period of one year between grant of options and vesting of options.
•
)andatory )andatory disclosure disclosure about
compan companie ies2 s2 rule ruless as pres prescr crib ibed ed under (nlisted #ublic -ompanies #referenti #referential. al. Allotmen AllotmentC tC "ules2 "ules2 7@@8 to be followed
•
+0$0 in irectorsF "eport. ,reedom to specify the lockE in period.
•
03+AT +X(IT1
•
•
$ptions
granted
are
not
transferable and shall not be pledged2 hypothecated2 mortgaged or otherwise encumbered or alienated in any other manner. "ule no 67 A company may issue sweat A company may issue sweat equity shares! equity shares! %y
passing
resolution meeting.
a in
special
•
general meeting.
general •
•
•
•
In
case
of
•
(nlisted
-ompany2 subject to the compliance of the following conditions but not limited to!
•
The special resolution passed
•
No validity period prescribed for special resolution. )a5imum
Number
of
sweat
equity shares during the year! 6;Q of the e5isting paid up equity share capital in a year or shares of the issue value of "s ; crore2 whichever is higher.
)a5imum Number of sweat equity shares during the year! 6;Q of the e5isting paid up equity share capital in a year or shares of the issue value of "s ;crore2 whichever is higher. &owever at any time2 the ma5imum number of sweat equity shares should not be more than 7;Q of the paid up equity capital of the company.
In case of (nlisted -ompany2 subject to the compliance of the following conditions!
for the purpose of issue of sweat equity shares is valid for 6 year. •
After the lapse of 6 year from the date on which the company has commenced business.
After the lapse of 6 year from the date on which the company has commenced business.
%y passing a special resolution in
•
ocked in 0hares! 0weat equity shares issued to employees or directors shall be locked in for a period of 8 years from the date of allotment period of 8 years from the date of allotment.
•
isclosures
in
+5planatory
•
0tatement and irectors "eport. #reparation of "egister. In case of isted -ompany2
•
ocked in 0hares! 0weat equity shares issued to directors or employees shall be locked inJnon transferable for a period of 8 years from the date of allotment. The fact that the share certificates are under lockEin for the specified period shall be mentioned on the share certificate
•
•
0weat
+quity
allowed
to
be
granted to an employee of subsidiary company incorporated outside India.
isclosures in +5planatory 0tatement "eport
•
compliance required with the 0ecurities and +5change %oard of India Issue of 0weat +quityC "egulations2 7@@7
and
irectors
#reparation of "egister in accordance with ,orm No. 0&.8.
•
In case of isted -ompany2 compliance required with 0ecurities and +5change %oard of India Issue of 0weat +quityC "egulations2 7@@7
%$N(0 0&A"+0
•
0weat
+quity
cannot
be
•
granted to employee of subsidiary -ompany incorporated outside India. "ule no >C A company may issue fully paidEup bonus shares to its members2 in any manner whatsoever2 out of its free reserves2 securities premium account or the -apital "edemption "eserve account
•
)embersF resolution
now
mandatory •
No
bonus
issue
from
•
-ompany can issue %onus 0hares but no detailed conditions was prescribed
revaluation reserves possible now even for unlisted companies •
%onus issue once announced cannot be withdrawn. "ule no. 69C
#reference shares
•
A company engaged in the setting up and dealing with of infrastructure projects as prescribed under 0chedule /I of -ompanies Act2 7@68 may issue preference shares for a period e5ceeding 7@ years but not e5ceeding 7@ years2 subject to the redemption of a minimum 6@Q of such preference shares per year from the 7@ first year onwards or earlier2 on proportionate basis2 at the option of the preference shareholders. "ule no 6@C
•
•
No company limited by shares shall issue any preference shares which are redeemable after the e5piry of a period of 7@ years from the date of issue
•
There
is
no
such
provision
regarding consent of shareholders and Tribunal for issuance of further redeemable shares. •
No such disclosures required to be made in the resolution.
,or the issuance of further redeemable shares in case if the company is not in a position to redeem any preference shares or to pay any dividend on such shares as required2 the consent of the holders of 8J9th in value of such shares is required along with the consent of Tribunal
•
isclosures such as payment of dividend2 conversion2 voting rights2 redemption etc. shall be made by the company in the resolution with respect to the issue of preference shares "ule No. ?C
#rovisions related to Transfer and Transmission
•
0cope of the section has been
•
widened to all 0ecurities •
The period for depositing instrument of transfer has been modified. It shall be delivered within <@ days of its e5ecution irrespective of
0cope of the section limited to shares and debentures only.
•
#eriod of 67 months or book closure2 whichever is later2 in case of listed companies and 7 months in case of unlisted companies within which an instrument of
the nature of the company. In case instrument of transfer is deposited after the prescribed time2 the company will register the transfer subject to indemnity.
•
7
months
in
case
The power of making appeal in case of refusal of transfer is to the transferor or the transferee or the person who give intimation for the transmission by operation of law as the case may be.
•
The
•
contravention of the order of the Tribunal in case of registration of transfer is compoundable Instrument of transfer was in
•
,orm No. =% #eriod for
penalty
in
issue
case
of
of
share
•
certificates No period prescribed in case of
•
incorporation months in case of allotment of
•
shares 7 month in case of receipt of
Instrument of transfer shall be in ,orm no. 0& 9 "ule No. 666CC #eriod for issue of share certificates
•
•
The power of making the appeal in case of refusal of transfer has now been limited for the Transferee only. The penalty in case of contravention of the order of the Tribunal regarding registration of transfer or transmission or rectification of register is now nonE compoundable.
•
transfer shall be deposited with the company.
instrument of transfer intimation of transmission
or
of
incorporation •
7 months in case of allotment of shares
#rivate #lacement
•
6 month in case of receipt of
•
instrument of transfer or intimation of transmission 0eparate provisions for #rivate #lacement of securities for both isted and (nlisted -ompanies ,unds can be raised only through issuance of a private placement offer letter to not more than 7@@ people in aggregate in a financial year. Any offer beyond such number shall be treated as public offer
•
#rivate -ompanies were out of purview of the private placement
•
Not more than 9? persons can be offered or invited to subscribe to shares and debentures of the -ompany. Any offer beyond such number shall be treated as public offer
•
No
other
conditions
were
provided in this Act. •
The value of such offer or invitation per person shall be with an investment siGe of not less than "s 7@ thousand of face value of securities
•
Allotment of securities shall be made within <@ days from the date of receipt of application money.
,urther issue of 0hare -apital
•
The provision of this section
•
will be applicable in case of allotment of shares at any time after the incorporation of the company •
further shares applicable only if the company at any time after the e5piry of 7 years from the incorporation of the company or at any time after the e5piry of the one year from the allotment of shares in that company made for the first time after its formation2 whichever is earlier2 proposed to increase the subscribed share capital.
The provisions of this shall also be applicable to private company
•
An allotment pursuant to a
•
special resolution is needed to be completed within a period of 67 months from the date of the passing of special resolution. In case the company fails to do so2 a fresh special resolution shall be needed to be passed by the company. The price at which share will
•
be issued in case of company other listed2 shall be determined by the registered valuer. The term preferential issue is
•
defined. In case of right issue2 the offer shall remain open for not less than 6; days and not e5ceeding 8@ days from the date of the offer2 within which the offer2 if not
The provisions related to issue of
•
This
provision
was
only
applicable to public company •
No time period was provided in respect of theresolution.
•
•
validity
of
No such term was defined. In case of right issue2 the offer shall remain open for not less than 6; days but no ma5imum period was defined.
•
accepted2 will be deemed to have been declined. The disclosure requirement
•
in the e5planatory statement has been increased."ule no 68C #rovisions of the preferential allotment shall be read with private placement provisions
#rohibition on %uyback in certain cases
ebenture trustee
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A
company
can
make
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buyback if any default regarding repayment of deposit or
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interest payable thereon2 redemption of debentures or
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A company cannot make buyback
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if a default regarding! repayment of deposit or interest
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payable thereon2 redemption of
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#reference shares or payment of dividend to any
#reference shares or payment of dividend
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shareholder or repayment of any term loan
shareholder or repayment of any term loan or
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or interest payable thereon to any financial institution or bank have been remedied and a period of 8 years must have lapsed after such default ceased to subsist No concept of buyEback
interest payable thereon to any financial institution or bank is subsisting #rovides for buyEback out of oddE
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from odd lot since it is not relevant today The tenure of debentures
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shall not e5ceed6@ years e5cept in case of companies engaged in the setting up of infrastructure projects in which case it shall not e5ceed8@ years. The company is required to appoint debenture trustee only when the company issues #rospectus or makes an offer or invitation to the public or to its members e5ceeding ;@@ hundred for the subscription of its debentures additional disqualifications • has been prescribed. No
debentures to
or any
lots
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No tenure provided. The company is required to appoint debenture trustee when the company issues #rospectus or make an offer or invitation to the public2 irrespective of the number.
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No person shall be appointed as a
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debenture trustee2 if he beneficially holds shares in the
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company is beneficially entitled to moneys which are to be
person shall be appointed as a debenture trustee2 if heE •
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beneficially holds shares in the company is a promoter2 director or key managerial personnel or any other officer or an employee of the company or its holding2 subsidiary or associate company is beneficially entitled to moneys which are to be paid by the company otherwise than as remuneration payable to the debenture trustee is indebted to the company2 or its subsidiary or its holding or associate company or a subsidiary of such holding companyD has furnished any guarantee in respect of the principal debts secured by the debentures or interest thereonD has any pecuniary relationship with the company amounting to 7Q or more of its gross turnover or total income or "s ;@ lakh or such higher amount as may be prescribed2 whichever is lower2 during the 7 immediately preceding financial years or during the current financial year is relative of any promoter or any person who is in the employment of the company
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as a director or key managerial personnel Any debenture trustee may be removed from office before the e5piry of his term only if it is approved by the holders of not less than 8J9th in value of the debentures outstanding2 at their meeting.
