Top Twenty Highlights Of The New Companies Act, 2013 Effective From 01.04.2014

The Companies Act, 2013 passed by the Parliament has received the assent of the President of India on 29th August, 2013. The Act which consolidates and amends the law relating to companies has been notified in the Official Gazette on 30th August, 2013. While some of the provisions of the Act have been implemented by a notification published on 12th September, 2013, remaining Section including related Rules are being notified/implemented in phases. As on 01.04.2014, 283 sections have been notified which are effective from 1st of April, 2014. In this article, an attempt is made to cover the major provisions of the Companies Act, 1956 and the changes brought in under the new Companies Act, 2013 (“Act”) which may have significant impact on the Companies.

• One Person Company (OPC):

  The New Companies Act, 2013 has come up with a new concept of OPC which means a company which has only one person as a Member. However, it can have more than one Director. OPCs are exempted from
  many provisions of the Act.

• Key Managerial Personnel (KMP):

  The Provisions relating to appointment of KMP
  (includes (i) the Chief Executive Officer or the managing director or the manager; (ii)
  the company secretary; (iii) the whole-time director; (iv) the Chief Financial Officer;
  and (v) such other officer as may be prescribed  is applicable only for Public
  Limited Companies having paid up capital more than 10 crores and Private Limited
  Companies are exempted from appointment of KMPs.

• The Company has to get its name, address of its registered office and the “Corporate
  Identity Number” (CIN) along with telephone number, fax number, if any, e-mail and
  website addresses, if any, printed in all its business letters, billheads, letter papers
  and in all its notices and other official publications.

• Acceptance of Deposits:

  The Private Limited Companies are allowed to accept
  deposits as per the procedure prescribed under the Act and rules made there under.
  However, borrowings from Directors and Promoters are not considered as Deposits
  subject to some conditions.

• Loan to Directors:

  Giving loan to Directors or the companies in which there are
  common directors or shareholders is strictly prohibited under Section 185. This
  provision is applicable to private limited Companies also.

• Rotation of Statutory Auditors:

  Rotation of Statutory Auditor is required after
  transition period of 3 years form applicability of Companies Act 2013. Following
  companies are under the obligation to rotate the statutory auditors after 5 years or 10
  years:

  i. All unlisted public companies having paid up share capital of rupees ten crore
  or more;
  ii. all private limited companies having paid up share capital of rupees twenty
  crore or more;
  iii. all companies having paid up share capital of below threshold limit
  mentioned in (i) and (ii) above, but having public borrowings from financial
  institutions, banks or public deposits of rupees fifty crores or more.

• Other specialized services by Statutory Auditors:

  The Statutory Auditor of the
  Company not to give following specialized services directly or indirectly :
  a) accounting and book keeping services;
  b) internal audit;
  c) design and implementation of any financial information system;
  d) actuarial services;
  e) investment advisory services;
  f) investment banking services;
  g) rendering of outsourced financial services;
  h) Management services; and other services as may be prescribed.

• Borrowing:

  All companies will have to pass special resolution u/s. 180 for taking
  approval from Shareholders for approving limit of total loan exceeding paid up
  capital and free reserves. Earlier, this was not applicable to private limited
  companies.

• Resident Director:

  As per Section 149 of the Act, every company shall have at least
  one director who has stayed in India for a total period of not less than one hundred
  and eighty-two days in the previous calendar year.

• Woman Director:

  The following class of companies shall appoint at least one woman
  director-
  (i) every listed company;
  (ii) every other public company having paid–up share capital of one hundred
  crore rupees or more; or turnover of three hundred crore rupees or more.

• Consolidation of accounts:

  Consolidation of accounts is mandatory in case of
  subsidiary or associate companies. Associates companies are those in which a
  company having control of 20% or more in share capital of other company.

• Corporate Social Responsibility (“CSR”):

  CSR committee of the Board has to be
  constituted and 2% of the average net profits of the last three financial years are to be
  mandatorily spent on CSR activities by an Indian company if any of the following
  criteria is met:
  i. Net worth of Rs.500 crores; or
  ii. Turnover of Rs. 1000 crores or more; or
  iii. Net profit of Rs. 5 crores or more.

• Further issue of shares:

  This section corresponds to section 81 of the Companies
  Act, 1956 which was applicable to only public limited Companies. For any increase of
  subscribed share capital, an offer is to be made on pro rata basis to all existing
  shareholders. Otherwise, the shareholders will have to approve the proposal by a
  special resolution in which case issue price of shares is subject to valuation by a
  registered valuer.

• Secretarial Audit:

  Secretarial Audit from Practicing Company Secretary is
  compulsory only for Public Limited companies having Paid Up Capital more than 50
  crores or Turnover 250 Crores or more.

• Internal Audit:

  Provisions are applicable, among others, even to every private
  company having-
  (i) turnover of two hundred crore rupees or more during the preceding financial
  year; or
  (ii) outstanding loans or borrowings from banks or public financial institutions
  exceeding one hundred crore rupees or more at any point of time during the
  preceding financial year.

• Financial statements:

  Financial Statements are now defined under the Act as
  comprising of the following. All companies are now mandatorily required to maintain
  the following, (except one person Company, small company and dormant company
  which may not include the cash flow statement):
  i. A balance sheet as at the end of the financial year;
  ii. A profit and loss account / an income and expenditure account for the
  financial year, as the case may be;
  iii. Cash flow statement for the financial year;
  iv. A statement of changes in equity, if applicable; and
  v. Any explanatory note annexed to, or forming part of, any document referred
  to in sub-clause (i) to sub-clause (iv);

• Financial Year:

  As per the new Act, Financial Year in relation to any company or
  body corporate, means the period ending on the 31st day of March every year, and
  where it has been incorporated on or after the 1st day of January of a year, the period
  ending on the 31st day of March of the following year, in respect whereof financial
  statement of the company or body corporate is made up. Accordingly, all the
  Companies having different financial year will have to align their financial year in
  line with the above definition within two years.
  However, on an application made by a company or body corporate, which is a
  holding company or a subsidiary of a company incorporated outside India and is
  required to follow a different financial year for consolidation of its accounts outside
  India, the Tribunal may, if it is satisfied, allow any period as its financial year,
  whether or not that period is a year.

• Fraud Reporting:

  This is an important provision. If an auditor of a company, in the
  course of the performance of his duties as auditor, has reason to believe that an
  offence involving fraud is being or has been committed against the company by
  officers or employees of the company, he shall immediately report the matter to the
  Central Government within such time and in such manner as may be prescribed.

• Attending Board Meeting:

  As per section 167 of the Act, a Director shall vacate his
  office if he absents himself from all the meetings of the Board of Directors held during
  a period of twelve months with or without seeking leave of absence of the Board. That
  mean to say, attending at least one Board Meeting by a director in a year is a must.
  Otherwise he has to vacate his office.

• Appointment of Managing Director:

  If a Company proposes to appoint a managing
  director, whole-time director, it can appoint him for a term not exceeding five years
  at a time and no re-appointment shall be made earlier than one year before the
  expiry of his term.
  As can be seen from the above, the new Act dilutes the distinction between the
  private limited Company and public limited/listed companies as compared to the old
  Act of 1956. Further, the Act is proposed to be implemented through subordinate
  regulations called ‘Rules’ giving flexibility of amendment to suite the requirements of the
  time. Also, Fines/Penalties proposed to be imposed for any contravention of the
  provisions of the Act have been increased manifold compared to the old Act expecting
  stakeholders/corporates to fall in line with the law in letter and spirit.

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Written by: Vivek Hegde, B.com, ACS, CWA
Proprietor