Companies Act 2013

Companies Act 2013

Background of Companies Act 2013

First of all Companies Bill 2008 was introduced in Lok Sabha on 23^rd Oct 2008 to replace Companies Act 1956 but due to dissolution of the 14^th Lok Sabha, the Companies bill 2008 was lapsed. In 2009 this was reintroduced as on 3^rd August 2009 as Companies Bill 2009 in Lok Sabha but this was referred to Standing Committee on Finance (SCF) on 9^th Sept 2009. SCF gave report on Companies Bill 2009 in Lok Sabha on 31^st Aug 2010. After this on 14^th Dec 2011 a new bill Companies Bill 2011 was introduced in Lok Sabha and again transferred to SCF on 5^th Jan 2012. And Finally Companies Bill 2012 has introduced in Lok Sabha on 14^th Dec 2012. Most popular, talked and awaited Companies Bill 2013 has been finally passed by Lok Sabha on 18^th Dec 2012 and more than 7 months after by Rajya Sabha on 8^th Aug 2013.Now this is approved by President of India Mr. Pranab Mukharjee on 29^th August 2013. Thereafter this new legislation will replace 57 year old Companies Act 1956.

Introduction of Companies Act 2013

This bill contains 29 chapters, 470 clauses with 7 schedules as against 658 sections with 14 schedules in Old Act. In this bill, the word “prescribed” is used more than 410 times and “special resolution” is used more than 70 times.  

Highlights of Companies Act 2013

Members in Private Company

Maximum No of Members is increased from 50 to 200, except one Person Company.

This will be beneficial for joint shareholding already allows 100 members.

Board and Directors

Minimum and Maximum numbers of Directors:

Minimum: Public Company 3, Private Company 2, One Person Company (OPC) 1

Maximum: 15(increased from 12) (Company can appoint more than 15 Directors after passing special Resolution.)

Women Directors:

Minimum one woman Director should be appointed in the Board of such class or classes as may be prescribed.

Resident Director:

Every company shall have to appoint at least one director who has stayed in India for a total period of not less than one hundred and eighty two days in previous calendar year.

Independent Director:

Every listed Public company shall have at least one third of the total number of directors as independent Directors.

Central Govt. may prescribe the minimum number of independent directors in such other class or classes of public company.

Nominee director nominated by any financial institution, or in pursuance of any agreement, or appointed by any government to represent its shareholding shall not be deemed to be an independent director.

Maximum period for Independent Director will be five years term but he shall be eligible for reappointment on passing of a special resolution by the company and disclosure of such appointment in the Board's report. .

Resignation of Directors (Section 168):

A director may resign from his office by giving a notice in writing to the company and the Board. After receipt of this notice, the Board have to intimate the Registrar and also place such resignation in next general meeting. Such Director may also forward a copy of resignation with detailed reasons for the resignation to the Registrar.

The notice shall become effective from the date of receipt of notice by company or notice mentioned by director in the notice which is later.  If all the directors resign their directorship of the company, the promoter or the Central Govt. (in the absence of promoter) shall appoint the directors, which is required for that company. Such directors shall hold the office till the directors are appointed by the company in General Meeting.

Key Managerial Personnel (Clause 203):

Every company belonging to such class or classes of companies as may be prescribed shall have whole-time key managerial personnel.

Whole time Key managerial personnel means, Managing director, or Chief Executive Officer or manager and in their absence, a whole-time director, company secretary and Chief Financial Officer.

A Whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time.

Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration.

DORMANT COMPANY (Sec 455):

Where a company is formed and registered under this Act for future projects or to hold assets or intellectual property and has no significant accounting transaction such type of company or inactive company may make an application to registrar for obtaining the status of a Dormant Company.

In case of a company which has not filed financial statements or annual returns for two financial years consecutively, the Registrar shall issue a notice to company and take name of such as Dormant Company.

The Registrar shall strike off the name of a dormant company from the register of dormant companies, which has failed to comply with the requirements of this section.

ONE PERSON COMPANY:

OPC means, a company which has only one person as member. This Company shall be registered as Private Company. Memorandum of OPC shall indicate the name of the one other person, with is prior written consent in prescribed form, who shall, in the event of the subscriber’s death, disability or his incapacity to contract become member.

Such other person may withdraw his consent in such manner as may be prescribed:

The member of One Person Company may at any time change the name of such other person by giving notice in such manner as may be prescribed.

ASSOCIATE COMPANY (Sec 2):

A Company, which has a significant influence in other company.

Significant influence means control of at least 20% of total share capital or of business decisions under an agreement.

This type of company includes Joint Venture Company and excludes subsidiary company.

SMALL COMPANY (Sec 2(85)):

Small Company means a company which is other than public company.

Requirements for Small Company:

1)      Paid-up share capital of which does not exceed fifty lakh rupees or amount prescribed which must not be more than five crore rupees.

2)      turnover of which as per its last profit and loss account does not exceed two crore rupees or amount prescribed which must not be more than twenty crore rupees.

This clause shall not apply to a holding company or a subsidiary company, a company which is registered under section 8 and a company or body corporate governed by any special Act.

CORPOARTE SOCIAL RESPONSIBILTY (Clause 135):

Every company having net worth of rupees 500 crore or more, or turnover of rupees 1000 crore or more or a net profit of rupees 5 crore or more during any financial year, shall constitute a Corporate Social Responsibility Committee.

There will be three or more directors, out of which at least one director to be an Independent Director.

The CSR Committee shall formulate and recommend Corporate Social Responsibility Policy which shall indicate the activity or activities to be undertaken by the company as specified in schedule VII and shall also recommend the amount of expenditure to be incurred on the CSR activities.

In every financial year, Company have to spend at least two percent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

The Company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.

Where the company fails to spend such amount, the Board shall in its report specify the reasons for not spending the amount.

NATIONAL FIANANCIAL REPORTING AUTHORITY (NFRA) (CLAUSE 132):

The Central Government may be notification constitute a National Financial Reporting Authority to provide for matters related to accounting and auditing standards.

This body replaces National Advisory Committee on Accounting Standards (NACAS).

Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall—

(1)   make recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by companies or class of companies or their auditors, as the case may be;

(2)   monitor and enforce the compliance with accounting standards and auditing standards in such manner as may be prescribed;

(3)   oversee the quality of service of the professions associated with ensuring compliance with such standards, and suggest measures required for improvement in quality of service and such other related matters as may be prescribed; and

(4)   perform such other functions relating to clauses (1), (2) and (3) as may be prescribed.

The NFRA shall consist with maximum 15 members. Chairperson shall be a person of eminence and having expertise in accountancy, auditing, finance or law. The chairperson shall to be appointed by Central Government. The Chairperson and members shall make a declaration to the Central Government in the prescribed form regarding independence in respect of his or their appointment.

The chairperson and members, who are in full-time employment with NFRA, shall not be associated with any CA Firm (Audit Firm) or its related consultancy firm during his appointment and two years after his appointment.

Powers of NFRA shall:-

-          to investigate on its own or based on a reference be the Central Government.

            This investigation will be related to professional misconduct committed.

Once NFRA initiates proceedings, no other body including ICAI can investigate.

-          have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908.

-          where professional or other misconduct is proved, have the power to make order for-

(A)   imposing penalty of

(I)                 not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals.

(II)               not less than ten lakh rupees, but which may extend to ten times of the fees received, in case of firms.

(B)   Debarring the member or the firm from engaging himself or itself from practice as member of the ICAI for a minimum period of six months or for such higherperiod not exceeding ten years as may be decided by the National Financial Reporting Authority.

Auditors (Clause 139):

A company shall appoint an individual or a firm as an auditor at annual general meeting who shall hold office till the conclusion of sixth annual general meeting.

No listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or re-appoint-

(a) an individual as auditor for more than one term of five consecutive years, and

(b) an audit firm as auditor for more than two terms of five consecutive years

Provision for reappointment

(i) an individual auditor who has completed his term under clause (a) shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term;

(ii) an audit firm which has completed its term under clause (b), shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term.

Maximum number of companies which an auditor can audit has been kept at 20.

Auditors cannot render other services like book keeping etc. to the company which they are auditing.