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COMPANIES ACT 2013 UPDATES ,

WAY FORWARD

From
CS GAURAV KUMAR SHARMA
www.csgauravsharma.com
gauravdelhirav@gmail.com
9990694230

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Amendments
Under Companies
Act,2013
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New Concepts
Introduced In
The Act
Auditing Standards

Associate
Company

Independent
Director

Small Company

Related Party
Promoter

CEO & CFO

Secretarial
Audit

Women
Director

Regulators

Key Managerial
Personnel
Global Depository
Receipt
Entrenchment
of Articles

Corporate
Social
CEO & CFO
Responsibility

One Person
company
Dormant
Company
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Company
Incorporation

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ONE PERSON COMPANY


Only ONE PERSON as a member
Can be incorporated only as a PRIVATE COMPANY

Basic
Requirements:

Minimum PSC=Rs. 1 Lakh

Restricts transfer of shares


&
Prohibits invitation to
subscribe for the securities
of the Company

One Person Company should be mentioned below the


name of the company wherever the name is affixed, used
or engraved.
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OPC COMPULSORY CONVERSION INTO PUBLIC OR


PRIVATE COMPANY
Compulsory Conversion, if

Paid Up Share Capital


exceeds Rs. 50 Lakhs

OR

Annual Turnover > Rs. 3


crore in 3 immediately
preceeding consecutive
years

OPC WILL ENJOY SAME PRIVILIGES AND EXEMPTIONS AS AVAILABLE TO


PRIVATE COMPANY . Additional Exemptions shall be Section
96,98,100,101-111 of Companies Act,2013.
The annual return of a One Person Company shall be signed by the
company secretary, or where there is no company secretary, by the
director of the company.
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SMALL COMPANY- SEC-2(85)


Only a private company can be classified as a small company.

Basic
requirements

Paid-up
share capital

Turnover

50 lakhs- 5
crore

2 crore-20
crore

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EXCEPTIONS TO THE ABOVE RULE:


A holding company or a
subsidiary company
Company registered under
section 8 of CA,2013
Company or body corporate
governed by any special Act

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PRIVATE COMPANY

[SECTION 2(68)]

The 2013 Act introduces a change in the definition for a private


company, inter-alia, the new requirement increases the limit of
the number of members from 50 to 200.

Increase in the Limit of Number of


Members from 50 to 200

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DORMANT COMPANY (SECTION 455)


The 2013 Act states that a company can be classified as
dormant when it is formed and registered under this 2013 Act for
a future project or to hold an asset or intellectual

property and
transaction.

has

no

significant

accounting

Such a company or an inactive one may apply to the ROC in such


manner as may be prescribed for obtaining the status of a
dormant company.

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SECTION 8 COMPANIES
New objects like environment protection, education, research,
social welfare etc., have been added to the existing object for
which a charitable company could be incorporated.

Contravenes the
provisions of the
Act

REVOCATION OF
LICENSE

FRAUDLENT
MANNER

Affairs of the
company are
conducted in a

Prejudicial to the

interest of
Public

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OFFICER (SECTION

2(59) )

Now Includes KMP &


PROMOTERS
Also

FINANCIAL YEAR (section 2(41))


Company or body corporate to
adopt uniform financial year of
1st April to 31st March every
year except in certain
exceptional cases

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KEY MANAGERIAL PERSONNEL(KMP) (SECTION 2(51) )

CEO*

CS
CFO

WTD

OTHER
OFFICER**

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CHANGES IN INCORPORATION- MOA

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ARTICLES OF ASSOCIATION (SEC 5)


INTRODUCTION OF:

ENTRENCHMENT PROVISIONS
An entrenchment provision enables a company to follow
a more restrictive procedure than passing a special
resolution for altering a specific clause of articles of
association.
A private company can include entrenchment provisions
only if agreed by all its members or, in case of a public
company, if a special resolution is passed.

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ROC Empowered to strike off name of the


company
Person deliberately furnishing any false/incorrect
information at the time of incorporation shall be
responsible for fraud u/s 447

Winding Up of the Company

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Prospectus and
Public Offer

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BASIC PROVISIONS

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ISSUE OF PROSPECTUS

Additional
Mandatory
disclosures
introduced:

1. Pending litigation during


the last 5 years immediately
preceding the year of issue of
prospectus against promoter
2. Sources of Promoter
Contribution

The 2013 Act states that the report by the auditors on the assets
and liabilities of business shall not be earlier than 180 days
before the issue of the prospectus [section 26 (1) (b)(iii) of 2013
Act]
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Variation in terms
of contract or
objects

Offer of sale of
shares by certain
members of the
company

By Passing

Special
Resolution
EXIT OFFER
by Promoters to
Dissenting
Shareholders

Members may
in consultation
of BOD offer
their share
holding to
public

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SHELF
PROSPECTUS

SEBI prescribes the


classes of
companies in this
aspect

GLOBAL
DEPOSITORY
RECEIPTS

Company, may, after


passing a special
resolution in its
general meeting,
issue GDRs subject
to conditions.

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PRIVATE PLACEMENT OFFER


CONDITIONS:
Offer to Section of
Companies
other
than QIBs

Not more than 50


number of people
The allotment with
respect
to
any
earlier
offer
or
invitation may have
been completed

YES

Money
payable
through Cheque/DD
but not in cash

Conditions fulfilled

Prior names to be
recorded by company
before making offer
No advertisement to
inform public at large

NO

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Share capital and


debentures

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GENERAL CHANGES:
COVERAGE OF

ALL TYPES OF SECURITIES

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VARIATION OF SHAREHOLDERS RIGHTS


(SECTION 48(1) )
an additional requirement in respect of those classes of share
holders whose rights are affected pursuant to any variation.
if the variation by one class of shareholders affects the
rights of any other class of shareholders,

Consent of 3/4th of the class of


shareholders shall be obtained
& apply provisions of this section

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FURTHER ISSUE OF SHARE CAPITAL

Rights issue can also be made to the


employees of the company who are under
a scheme of employees stock option,
subject to a special resolution and subject
to conditions as prescribed.

(SEC 62)

price of such
shares should
be determined
using the
valuation report
of a registered
valuer, which
would be
subject to
conditions as
prescribed

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ISSUE OF SHARES AT A DISCOUNT

No shares other than


sweat equity shares
can be issued at
discount

No provision has been made for issue of shares on


discount with the approval of CENTERAL GOVERNMENT

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ISSUE OF BONUS SHARES


New provision introduced in the act
No default in payment of interest or
principle of fixed deposit

PROHIBITIONS
No default i.r.o statutory dues of
employees like PF, Gratuity and
Bonus.

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OTHER CHANGES

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ACCEPTANCE
OF DEPOSITS

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NBFCs will be governed by the rules issued


by Reserve Bank of India
Deposits from persons other than members
not allowed
Shareholders Approval Required for
accepting deposits from members

Concept of Small Depositors no more in


existence.

An amount equivalent to 15% of deposits


maturing during the financial year shall be
kept in separate bank account in a
scheduled bank
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MANAGEMENT
AND
ADMINISTRATION

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ANNUAL RETURN (SEC 92)


Certification
by PCS

Extract of AR
shall form part
of Board Report

Unlisted Co.

PSC

10 Cr or
more

PCS IN DEFAULT-

Turnover

or

Form MGT-8

Listed Co.

Mandatory

>=50 Cr.

50K-5L
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PENALTY CLAUSE
C O M PA N Y
FINE

Rs. 50,0005,00,000

O F F I C E R I N D E FAU LT

OR

More
than 6
months

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PLACE OF KEEPING REGISTERS AND RETURNS


(SEC-94)

At any place in India, where

More than 1/10th of


the member resides

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ANNUAL GENERAL MEETINGS

(SEC-96)

First General Meeting

within nine months from the date of closing of


the first financial year of the company

Time Period
for holding
AGM

During
Business
Hours (9.00
A.M. to 6.00
P.M.)
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Shorter notice for calling AGM


Possible, with the consent of 95% of the
members
Disclosure of interest of every director,
manager and KMP and their relatives
need to be mentioned in the notice of the
meeting

Threshold
disclosure of
shareholding

Reduced from
20% to 2%
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QUORUM IN SHAREHOLDERS MEETING


(SEC-103)
Public Company

No of members as on
date of meeting

Quorum

1000

1000<Q5000 15
5000

Private Company

2
members
personally
present

30

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PROXY (SEC-105)
Number of members which a
proxy can represent:
Number of
Members

50

number of

shares holding
in the aggregate

not more than 10


% of the total
share capital of
the company
carrying voting
rights
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REPORT ON ANNUAL GENERAL MEETING


(SEC-121)

Listed companies will be required to


file with the ROC a report in the
manner prescribed in the rules on
each annual general
meeting
including a confirmation that the
meeting was convened, held and
conducted as per the provisions of the
2013 Act and the relevant rules

New
Provision
under
CA,2013

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DIRECTORS

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WOMAN DIRECTOR (SECTION 149(1))


Women
director

Other
public co

Listed co

PSC

T/O

100 Cr or
more

300 cr. Or
more

Mandatory

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NUMBER OF DIRECTORSHIP
A company can have maximum 15 directors instead
of earlier 12 directors

15

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INDEPENDENT DIRECTORS (SEC-149)


Public Companies
Paid Up Share
Capital

10crores or
more

Turnover

Rs.100 crores
or more

outstanding
Exceeding Rs.
loan,
50 crores
debentures and
deposits

New
Provision

Listed Companies

at least one-third
of the total
number of
directors as
independent
directors

Differing compliance requirements with respect to the appointment of


independent directors, remuneration thereto, imposed by multiple
regulators will lead to hardship as well increased cost of compliance for
companies.
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OTHER PROVISIONS FOR ID


Tenure of
a maximum of two tenures of five consecutive years, with a
office of an
cooling-off period of three years between the two tenures.
independent
director
Stock
options

an independent director will not be eligible to get stock


options but may get payment of fees
and profit linked commission subject to limits specified or to
be specified in the rules [section 149 (9) of 2013 Act]. This
again, is in contradiction with SEBIs requirements, whereby
for the purpose of granting stock options, the term employee
includes independent directors also.

MCA had released the corporate governance voluntary guidelines in


2009, which permitted 3 tenures (with other conditions) for an ID
while as per the clause 49 of the equity listing agreement, an ID
cannot serve for more than nine consecutive years.
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Contradi
ory
Provisio

APPOINTMENT OF AN ADDITIONAL DIRECTOR


Sec 161 of CA,2013

any person who fails to get elected as a


director in the general meeting can no
longer be appointed as an additional
director by the board of directors

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ADDITIONAL COMPLIANCE REQUIREMENTS FOR


PRIVATE COMPANIES
Provisions mandated
Appointment of director to be voted
individually

only for public


companies and private
companies which are
subsidiaries of public
companies.

Option to adopt principle of proportional


representation for appointment of directors
Ineligibility on account of non-compliance with
section 274(1)) (g) now extended for
appointment or reappointment as a director in
a private limited company also.

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CHANGES - MANAGEMENT & MEETINGS

Board Meeting

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Notice of the Meeting Participation


of Directors

Number & Timing of


Meetings

Minimum 7 days Notice

At least 4 meetings in
a year

In person, or

To be given to all
By video conferencing, or
directors whether or not
in India

Not necessary to be
held in every quarter

Can be sent through


any means; hand
delivery, post or e-form

Time gap of not more


than 120 days
between 2 meetings

Any other audio-visual


means capable of
recording, recognizing
and storing the
participation of director
with date & time

Meeting at shorter notice allowed subject to attendance by at least 1


Independent director or subsequent ratification of decision by all
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directors.

BOARD COMMITTEES

Audit committee

Every Listed Company


All public companies

Nomination and
remuneration
committee

Every Listed Company


All public companies

stakeholders
relationship
committee

more than one thousand


shareholders, debenture-holders,
at any time during a financial year

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AUDIT COMMITTEE (SEC 177)


Listed
Companies

Public Companies
Paid Up Capital

Turnover
All
Companies Outstanding Loans Or
Borrowings Or
Debentures Or Deposits

Rs.10 Crores or more


Rs.100 Crores or more
exceeding Rs.50 Crores
or more.

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AUDIT COMMITTEE(CONT)
Establishment of Vigil
Mechanism

Companies which accept deposits from the public

Companies which have borrowed money from Banks


and PFI in excess of Rs.50 crores

Disclosed by the company in the website, if any,


and in the Boards Report
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NOMINATION AND REMUNERATION COMMITTEE


AND STAKEHOLDERS RELATIONSHIP
New
Provision
COMMITTEE (SEC 178)
Stakeholders
Relationship
Committee

Nomination And Remuneration Committee

The Board of Directors Listed


of a company which Companies
consists of more than
one
thousand
shareholders,
debenture-holders,
All
deposit-holders and any
other security holders
at any time during a
financial year -

Other Public Companies

Paid up capital

Rs.100 crores
or more;

OR
Aggregate of
outstanding loans exceeding
or borrowings or
Rs.50 crores.
debentures or
deposits

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Audit &
Auditors

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Listed & other prescribed companies shall not appoint or


reappoint:

An individual auditor for more than 1 term of 5


consecutive years

An auditor firm for more than 2 terms of 5 consecutive


years

A gap of at least 5 years should elapse after completion of the


aforesaid term before the same auditor can be reappointed

A period of 3 years available as a transition period for


compliance after enactment of this law
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Auditor shall not provide the following services whether


directly/ indirectly to Company and its Holding & subsidiary
Companies:

Design & Implementation of


Financial Information system

Accounting & book


Keeping Services

Internal Audit

Actuarial Services

Investment Banking &


Advisory

Management Services
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Dividend

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No dividend shall be declared or paid by a Company from its reserves


other than free reserves.
Instead of transferring a fixed percentage of Profits to
reserves before declaring dividend, the Company can
transfer the amount as it deems fit

Such a transfer is not mandatory now

Transfer of shares to the investor education and protection fund


(IEPF)
Along with the unclaimed dividend, the shares on which dividend is
unclaimed, also to be transferred to the IEPF.
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CORPORATE
SOCIAL
RESPONSIBILITY
(Section 135 )

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companies would spend at least 2% of the average net-profits


of the immediately preceding three years on CSR activities

net worth

500 crore INR, or more

New
Provision

OR
turnover

1000 crore INR or more

net profit

5 crore INR or more

If not spent, explanation for the reasons thereof to be given in the


directors report

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Revival and rehabilitation of


sick companies
and
Compromises, arrangements
and amalgamations

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SICK COMPANY
Any Company can be declared as a Sick Company and not
necessarily an Industrial Unit

Criteria of 50% Net Worth erosion dispensed with

Company unable to repay 50% or more of secured debts within 30 days


of notice served by the Creditors can be declared sick on application
moved by:
The Company itself, OR
The Creditors representing 50% or more of secured debts

To speed up the revival and rehabilitation process, the


2013 Act provides a one year time period for the
finalisation of the rehabilitation plan.
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STREAMLINING REQUIREMENTS
Section extends to the reduction of share capital, buy-back,
takeovers and corporate debt restructuring as well
objection to any compromise or arrangement can
now be made only

by persons holding not less than 10% of share


holding
OR
having an outstanding debt amounting to not
less than 5% of the total outstanding debt as
per the latest audited financial statements

Act merely requires filing of the order with the ROC


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CROSS-BORDER MERGERS
allowed between Indian Companies and Foreign
Companies incorporated in prescribed jurisdictions
Prior approval from RBI required and the scheme
must provide for payment to shareholders of the
merging Company in any combination of cash and
IDRs

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SQUEEZE OUT PROVISIONS (SEC 236 )


The 2013 Act has introduced new provisions for enabling
the acquirer of a company (holding 90% or more shares)
by way of amalgamation, share exchange, etc. to acquire
shares from the minority holders subject to compliance
with certain conditions.

This has also introduced the requirement for registered


valuers, since the price to be offered by majority
shareholder needs to be determined on the basis of
valuation by a registered valuer.

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REGULATORS:

National Company Law Tribunal (Tribunal or


NCLT):
National Financial Reporting Authority
(NFRA)
Serious Fraud Investigation Office (SFIO):

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THANKS

www.csguaravsharma.com
9990694230
gauravdelhirav@gmail.com

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