New Concepts

Companies' Act 2013

 Explain Associate company

• As per Section 2(6)

• “Associate company”, means a company in
which another company has a significant
influence, but which is not a subsidiary
company and includes a joint venture
company.
• “Significant influence” means control of at
least twenty per cent of total share capital, or
of business decisions under an agreement.
 Explain One Person Company(“OPC”)

• Section 2(62) of the Companies Act, 2013 (“Act”) defines

OPC as a company which has only one person as a
member.
• Simpler legal and governance regime for operation and
maintenance
• Waives a number of compliance requirements.
• ‘Lives on’ even after the death/disability of the sole
member
• Appointment of another person as a nominee member
in the event of the subscriber’s death or his incapacity
• Only natural person who is an Indian citizen and resident
in India is eligible to incorporate OPC.
 Exemptions for OPC
• Section 96. Option to dispense with the requirement of
holding an AGM
• Section 98. Power of Tribunal to call meetings of members
• Section 100. Calling of extraordinary general meeting.
• Section 101. Notice of meeting.
• Section 102. Statement to be annexed to notice.
• Section 103. Quorum for meetings.
• Section 104. Chairman of meetings
• Section 105.Proxies
• Section 106. Restriction on voting rights
• Section 107. Voting by show of hands
• Section 108. Voting through electronic means
• Section 109. Demand for poll
• Section 110.Postal ballot
• Section 111. Circulation of members’ resolution
 Restrictions for OPC
• Such Company cannot be incorporated or converted
into a company under section 8 of the Act.
• Such Company cannot carry out Non-Banking
Financial Investment activities including investment in
securities of anybody corporates.
• No such company can convert voluntarily into any
kind of company until expiry of 2 years from the date
of incorporation, except in cases where capital or
turnover threshold limits are reached.
• No minor shall become member or nominee of the
One Person Company or hold share with beneficial
interest.
• The paid up share capital should not exceeds fifty lakh
rupees or average annual turnover during the relevant
period not to exceed two crore rupees
 Explain the concept of Small
Company - Section 2 (85)
A company, other than a public company,—
1. Paid-up share capital of which does not exceed Rs.
50 lakh or such higher amount as may be prescribed
which shall not be more than Rs. 5 crore; or
2. Turnover of which as per its last P&L A/c does not
exceed Rs. 2 crore or such higher amount as may be
prescribed which shall not be more than Rs. 20 crore
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any
special Act*;
Special Provisions and Exemptions
• A small company need not include Cash Flow
Statement as a part of its financial statements.
• Provision regarding mandatory rotation of auditor
not applicable to a small company.
• Holding and subsidiary companies are specifically
excluded from the concept of small company.
• In other words, a holding or a subsidiary company
can never enjoy the privileges of a small company
even though they may fulfill the capital or turnover
requirement of a small company.
Foreign Company Section 2(42)

• any company or body corporate incorporated

outside India which—
• has a place of business in India whether by
itself or through an agent, physically or
through electronic mode; and
• conducts any business activity in India in any
other manner.
Application of Co’s Act to Foreign Company?

• Where not less than fifty per cent of the

paid-up share capital, of a foreign company is
held by Indian citizen or corporate (whether
singly or in the aggregate), such company shall
comply with the provisions of the Act as may
be prescribed with regard to the business
carried on by it in India as if it were a
company incorporated in India.”
 Dormant company
Where a company is formed and registered for
a future project or to hold an asset or
intellectual property and has no significant
accounting transaction, such a company or an
inactive company may make an application to
the Registrar in such manner as may be
prescribed for obtaining the status of a Dormant
Company.
• If such a company has not filed financial statements or
annual returns for two financial years consecutively, the
Registrar shall issue a notice and enter the name of such
company in the register maintained for dormant
companies.
• A dormant company shall have such minimum number of
directors, file such documents and pay such annual fee as
may be prescribed to the Registrar to retain its dormant
status in the register and may become an active company
on an application made in this behalf accompanied by
such documents and fee as may be prescribed.
• The Registrar shall strike off the name of a dormant
company from the register of dormant companies, which
has failed to comply….
EXPLAIN Woman
Director

Additional Nominee
Director Director

Board of
directors

Alternate Independent
Director Director

Resident
Director
Independent Director-Sec 149
Applicable to Public Co.
Rs. 10 crores
or more paid
up capital

Rs 100
Listed Independent Crores or
Company more
Director
turnover

Rs 50 Crores
or more
outstanding
borrowings
13
 Resident Director Sec 149(3)

• Mandatory for ALL Companies

• Every company must have a Director who has

stayed in India for a total period of 182 days or
more in previous calendar year.

• Existing Companies, not fulfilling this condition, to

appoint Resident Director at earliest.
Which companies must appoint a Woman director?
(Sec. 149)

Listed
Company

Public Women Public

company Director Company
having capital having
of Rs. 100 turnover of Rs
Crores or 300 Crores or
more more
 Who is an ADDITIONAL Director?
Sec. 161
• The Board of Directors can appoint any person
as additional director by passing a resolution.
• A person who fails to get appointed as a
director in a general meeting cannot be
appointed as an Additional Director by the
Board of Directors.
• Shall hold office up to the date of the next
Annual General Meeting/Last date for holding
AGM, whichever is earlier.
Who is an Alternate Director? Sec. 161

• The Board of Directors may appoint an

alternate for a director during his absence
from India for a period of not less than
three months
• An alternate director vacates office when
the original director returns to India
• A person shall not be appointed as alternate
director for more than one person in a
company
 A Nominee Director? Sec. 161

• The Board may appoint any person as a director

nominated by any institution including banks and
financial institutions
• Such appointed nominee director shall not be
treated as an independent director.
• The institution, instead of appointing director on
the board can appoint an observer on the board.
• Companies law has not defined the role and
liabilities of observer.
 Special Courts?
• To provide speedy disposal of offences
punishable under the Companies Act, 2013,
• Cases punishable with imprisonment of 2
years or more
• With effect from 18 May 2016.
• To let magistrate courts try minor violations,
and that graver offences should be dealt by
Special Courts.
Secretarial Standards and Audit
• Every company shall observe secretarial
standards with respect to general and Board
meetings specified by the Institute of
Company Secretaries of India
• Quorum for Board Meetings : Section 174
• Passing of Resolution by Circulation : Section
175
• Defects in Appointment of Directors not to
Invalidate Actions Taken: Section 176
 Class action
• Section 37 states that a class action suit (where the
shareholders of a company collectively institute a
suit against the company) may be filed by any
person, group of persons or any association of
persons affected by any misleading statement or
the inclusion or omission of any matter in the
prospectus
• The requirement for this provision was felt in 2009
when the Satyam scam shareholders were
unsuccessful in claiming damages while the
American investors were able to claim their part of
damages in the US courts through a class action suit
 Registered valuers?
• The Central Government shall maintain a register to be called
as the Register of Valuers
• The following persons shall be eligible as a valuer:
• A chartered accountant, company secretary or cost
accountant who is in whole-time practice…
• Section 247 of the Act requires that where a valuation is to be
made of any property, stocks, shares, debentures, securities
or goodwill or any assets or net worth of a company or its
liabilities under the provisions of the Act, the same shall be
valued by a person having the requisite qualifications,
experience, registered as a valuer and member of a registered
valuers organisation
 Rotation of auditors

• Section 139(2) of the Companies Act, 2013

• mandatorily rotate their auditors once he has
served office as an auditor for a period of 10 or
more consecutive years
• beginning 1 April 2017, all will have to rotate their
existing auditors if the Current Firm has held office as
such company’s auditor for a period of 10 years or
more
 Vigil mechanism
• Section 177(9) of the Companies Act requires every listed
company, companies which accept deposits from the public and
which have borrowed money from banks and public financial
institutions in excess of fifty crore rupees to establish a vigil
mechanism
• Help Directors and Employees report genuine concerns on
unethical behavior / misconduct / actual or suspended frauds /
violation of code conduct…
• Any Director or employee can directly email his/her concern or
complaint to email id as mentioned in the Whistle Blower & Vigil
Mechanism policy.
• The Company will take appropriate action for its resolution.
• Anonymous communications will not normally be entertained.
Corporate Social Responsibility
• Every company having net worth of rupees five hundred crore or
more, or turnover of rupees one thousand crore or more or a net
profit of rupees five crore or more during any financial year shall
constitute a Corporate Social Responsibility Committee of the Board
consisting of three or more directors, out of which at least one director
shall be an independent director.
• The Company needs to spend at least 2% of its average net profit for
the immediately preceding three financial years on corporate social
responsibility activities.
• The CSR activities should not be undertaken in the normal course of
business and must be with respect to any of the activities mentioned
in Schedule VII of the 2013 Act.
• Contribution to any political party is not considered to be a CSR activity
• Only activities in India would be considered for computing CSR
expenditure.
 Cross Border Mergers?
• Under the previous Companies Act, 1956 (sections 391-
394) it was possible for a foreign company to merge with
an Indian company, but an Indian company could not be
merged with a foreign company to ensure that the
company that continues after the merger is an Indian
company over which the Indian regulatory authorities
continue to exercise control
• Under the Companies Act 2013, Section 234 allows cross-
border mergers both ways, subject to the fulfillment of
certain conditions.
• Requires the approval of the Reserve Bank of India
 Prohibition of insider training
• “ Insider Trading” means – An act of subscribing, buying, selling,
dealing or agreeing to subscribe, buy, sell or deal in any securities, by
any director or key managerial personnel or any other officer of a
company either as principal or agent if such director or key managerial
personnel or any other officer of the company is reasonably expected
to have access to any non-public price sensitive information in respect
of securities of company; or
• An act of counseling about procuring or communicating directly or
indirectly any non-public price-sensitive information to any person;
• If any person contravenes the provisions of this section, he shall be
punishable with imprisonment for a term which may extend to five
years or with fine which shall not be less than five lakh rupees but
which may extend to twenty-five crore rupees or three times the
amount of profits made out of insider trading, whichever is higher, or
both.”
 Global Depositories Receipts
• GDR is an instrument in the form of a depository
receipt or certificate created by the Overseas
Depository Bank outside India and issued to Non-
resident investor against the issue of ordinary shares
or Foreign Currency Convertible Bonds of Issuing
Company.
• Regulation 4 of Schedule I of FEMA Notification no.
20 allows an Indian company to issue its Rupee
denominated shares to a person resident outside
India being a depository for the purpose of issuing
GDRs.
Agencies Involved in the GDR Issue?
• Lead Manager -The firm should be registered with the appropriate
regulatory authority in Europe/ Singapore or Japan.
• Depository – Is an Overseas Bank authorised by the Issuing Company
to Issue the GDRs.
• Listing Agent - Is a person who is responsible for the listing of the
GDRs at any of the recognized Overseas Stock Exchanges. Generally
the Depository also acts as the Listing Agent.
• Custodian - It is the domestic Bank who holds the underlying shares/
Bonds Issued against the GDRs.
• Escrow Agent - An Overseas Bank where an Escrow Account has to be
opened for deposit of the monies received from Investors against the
GDR Issue till the Final Listing Approval is obtained
• Indian Legal Counsel - a firm that undertakes the Legal and Financial
Due Diligence of the Issuing Companies on behalf of the Lead
Manager and assists in preparation of offer document for the
Overseas Stock Exchange.
 Companies (Amendment) Act, 2019
• The amendments implemented through the ordinances have
already been in effect since 02 November 2018

• Other than the above, certain amendments under CAA 2019

have been notified on 14 August 2019, while certain others are
yet to be notified

Key Objective 1 Key Objective 2 Key Objective 3 Key Objective 4

• De-criminalization of • Institution of • De-clogging the NCLT • Controlled

non-serious or transparent and by shifting certain governance to curb
procedural offences technology driven powers to the Shell Companies
adjudication Regional Director
mechanism

PwC 30
 Thank You
February 2019
PwC Amendments to Companies Act, 2013 31