Companies Act 2013 vs Companies Act 1956

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Slide 1 Companies Act 2013 - A comparison with the Companies Act, 1956 Presentation by- Manoj Kumar E: manoj@indiacp.com M: +919910688433 Corporate Professionals D-28, South Ex., Part-I New Delhi 110049 (India) History The Companies Act, 1956 is an act of Parliament that was enacted in 1956 The Companies Act, 2013 was recently passed by Rajya Sabha on 8th August 2013 and has received Presidential assent on 29th August 2013. An Overview Companies Act, 1956 Companies Act, 2013 The Act is separated into 13 parts having 658 Sections along with 15 Schedules The Act is separated into 29 Chapters having 470 Sections along with 7 Schedules The Companies Act has a substantial part of the law prescribed within itself The Companies Act gives substantial powers to the Government & hence major prescriptions would be in the form of Rules to be notified separately Companies Act 1956 vs. Companies Act 2013 The Preliminary Provisions THE COMPANIES Act, 2013: The Government has been vested with powers to enforce different provisions of the Act at different points of time. The Companies Act, 1956 was however enacted on 1st April, 1956 in its entirety The Preliminary Provisions Introduction of new definitions in the Act which were not existing under the Companies Act 1956 Key Managerial Personnel Associate Company Auditing Standards CEO & CFO Independent Director Promoter Global Depository Receipt Related Party Small Company The Preliminary Provisions Some of the existing definitions in the Act have been modified substantially Earlier excluded, Corporation sole has now been covered in the definition of body Corporate The term “Listed Company” now includes all companies listed on a Stock Exchange Subsidiary of a Public Co. shall be deemed to be a Public Co. even if it is a Private Co. by its Articles The definition of Employee stock Option now covers Directors, officers & employees of Holding & subsidiaries also The scope of “Officer in default” has been widened to include Registrars, Merchant Bankers related to the issue Only “Apr-Mar” to be a Financial Year(exceptions: Foreign Holding/ Subsidiary subject to tribunal’s approval) The Preliminary Provisions Incorporation and Matters Incidental Introduction of concept of One Person Company No approval required for conversion of Private Company to One Person Company or vice versa No approval required for conversion of Private Company into Public Company Changes - Incorporation Changes towards Incorporation of Entity MOA to carry the main objects only. Bifurcation of the Objects clause into main, ancillary & other objects has been done away with. Even the Private Companies have to file the declarations for Commencement of Business Subsidiary can hold shares in Holding Company as trustee, which is not allowed under the Companies Act 1956 Changes - Incorporation Provisions regarding matters incidental to Incorporation Changes - Incorporation Penalizing Provisions ROC empowered to strike off the name of a Company incorporated with wrong/incorrect information Person deliberately furnishing any false/incorrect information at the time of incorporation shall be responsible for fraud under section 447 & stringent punishment Any person can challenge the validity of incorporation before the tribunal in case of such a Company Prospectus & Allotment of Securities Provisions towards Prospectus & Allotment of Securities Now Company after varying the terms of contract or objects mentioned in the prospectus cannot use amount raised by it through Prospectus for buying/ trading/ otherwise dealing in Equity shares of other Company Changes - Prospectus & Allotment of Securities Scope widened to include all type of securities than just shares Specification for raising of funds by Public Company through: IPO/FPO Private Placement Rights/ Bonus Shares PRIVATE PLACEMENT OFFER CONDITIONS Offer to section of public other than QIBs Not more than 50 number of people In compliance of prescribed terms & conditions Made through Private Placement offer letter and not Prospectus Conditions fulfilled? YES NO PUBLIC OFFER Comply with provisions of Act, Securities Contract Regulation Act, 1956 and SEBI Act, 1992 The Act defines the term Private Placement: Changes - Prospectus & Allotment of Securities Now Any person affected by misleading statement, any inclusion/omission of a matter in the prospectus can file suit/ take an action : Person responsible for fraudulently inducing others to invest money now liable for stringent punishment for fraud under section 447 which shall be non-compoundable For civil liability for misstatement in Prospectus For punishment for fraudulently inducing persons to invest money Changes - Prospectus & Allotment of Securities Power of SEBI to administer provisions related to listed Company or Company going to be listed widened to include: Kind of Share Capital to be issued Nature of Shares/Debentures Voting Right Variation of Shareholders’ Rights Further Issue of Capital In Companies Act, 1956, only Public Financial Institutions, Public sector Banks or Scheduled Banks with main object as “financing” were allowed to issue Shelf Prospectus The government shall now prescribe the type of Companies that can issue Shelf Prospectus Changes - Prospectus & Allotment of Securities Penalizing Provisions Persons authorizing the issue of the prospectus having misleading information shall also be criminally liable besides holding the civil liability Civil liability for misstatement in prospectus has been extended to experts also Changes - Prospectus & Allotment of Securities Share Capital & Debentures General Changes - Share Capital & Debentures Various changes in respect to Shares & Securities Changes with respect to VOTING RIGHTS Changes with respect to ISSUE OF SHARES Various changes in respect to Shares & Securities GENERAL CHANGES General Changes - Share Capital & Debentures Various changes in respect to Shares & Securities COVERAGE OF ALL TYPES OF SECURITIES Act seeks to regulate all type of Securities as opposed to Equity and Debentures only General Changes - Share Capital & Debentures NEW VARIATIONS IN SHAREHOLDERS’ RIGHTS Company can issue shares with differential rights as to other things also in addition to voting or dividend rights Voting Right Changes Equitable Voting rights for Equity and Preference share holders with respect to their paid up capital For vote on resolutions affecting rights of both categories Preference shareholders allowed to vote on every resolution placed before shareholders’ meeting If dividend payable to any class of preference shareholders in arrear for more than 2 years No classification between cumulative and non-cumulative preference shares For identification of voting rights General Changes - Share Capital & Debentures Various changes in respect to Shares & Securities Various changes in respect to Shares & Securities GENERAL CHANGES Changes with respect to VOTING RIGHTS Changes with respect to ISSUE OF SHARES Issue of Shares Private Companies also to comply with the provisions of further issue of shares, which were applicable to Public Companies only New provision for allotment of ESOP, rules will be provided soon Changes - Share Capital & Debentures Issue of Shares on Discount No other shares except Sweat Equity Shares to be issued at discount No provision has been made for issue of shares on discount with the approval of Central Government General Changes - Share Capital & Debentures PROHIBITION ON BONUS ISSUE Prohibition on Bonus Issue if the Company has defaulted in payment of: Interest/ Principal in respect of Fixed Deposits or Debt Securities issued by it Statutory dues of employees such as contribution to provident fund, gratuity , Bonus Changes - Share Capital & Debentures Other Changes No reduction in Capital allowed if the Company is in arrears for payments of deposits, accepted either before or after the Commencement of Act Acceptance of Deposits Acceptance of Deposits NBFCs will be governed only by the rules issued by the Reserve Bank of India Deposits from persons other than members not allowed Shareholders’ approval required for accepting deposits from members The concept of Small Depositors done away with Charges Changes – Registration of Charges All types of Charges to be registered as per the Act: Whether created within or outside India On property, or On assets, or On any undertaking whether tangible/otherwise Whether situated within/outside India Under The Companies Act, 1956, specific events are provided when the charge has to be registered Management & Meetings The new law brings about changes in respect of some very important components of a Company DIRECTORS & KEY MANAGERIAL PERSONS SHAREHOLDERS’ MEEETING BOARD MEEETING Requirement for appointment Maximum number Condition for Removal Extended Duties Quorum Postal Ballot Notice Participation of Directors Number & Timing Changes - Management & Meetings Changes - Management & Meetings A prescribed class of Companies will be required to have: Managing Director/ CEO/ Manager Whole Time Director in the absence of MD/CEO/Manager Company Secretary A mandatory requirement to appoint such persons will ensure proper Governance of the Company DIRECTOR’S APPOINTMENT A Company can have maximum 15 Directors at Board instead of earlier 12 directors Central Government’s approval for increase in number of directors has been dispensed with MAXIMUM NUMBER OF DIRECTORS Any increase beyond 15 will require an approval of shareholders by way of Special Resolution Changes - Management & Meetings Only prescribed number of members can pass a resolution for removal of a Director in the following cases A great relief to Company from frivolous application for removal of directors by small shareholders holding 1 share only REMOVAL OF DIRECTORS Company with Share Capital Other Company Members holding 1/10th of the voting power Members holding shares valued at an aggregate of Rs. 5 lakh or more OR ONLY Changes - Management & Meetings DUTIES OF A DIRECTOR To not assign his office (any such assignment will be void) To act in accordance to the Articles of Association To act in good faith in order to promote the objects of the Company in the best interests of its members, shareholders, employees, community and environment To exercise duties with due and reasonable care, skill and diligence To not involve in a situation in which he may have a direct/ indirect interest that conflicts or may conflict with the interest of the Company To not achieve or attempt to achieve any undue gain or advantage to himself or his relatives/ partners or associates Changes - Management & Meetings Bring accountability in the functioning of Director Ease of finding the case of negligence by directors EXPRESS DUTIES OF DIRECTORS Changes - Management & Meetings Shareholders Meeting Changes - Management & Meetings Management & Meetings QUORUM shall now be considered as: QUORUM (No. of Members personally Present) NUMBER OF MEMBERS AS ON THE DATE OF MEETING 5 ≤ 1000 15 1000 < number ≤ 5000 30 ≥ 5000 Fixing of a higher quorum as compared to the earlier requirement will ensure greater participation by shareholders Board Meeting Changes - Management & Meetings Changes - Management & Meetings SOME NEW PROVISIONS Notice of the Meeting Minimum 7 days Notice To be given to all directors whether or not in India Can be sent through any means; hand delivery, post or e-form Participation of Directors In person, or By video conferencing, or Any other audio-visual means capable of recording, recognizing and storing the participation of director with date & time Number & Timing of Meetings At least 4 meetings in a year Not necessary to be held in every quarter Time gap of not more than 120 days between 2 meetings 1 2 3 Meeting at shorter notice allowed subject to attendance by at least 1 Independent director or subsequent ratification of decision by all directors Audit & Auditors Changes - Audit & Auditors 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 Changes - Audit & Auditors 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 Payment of Dividend Changes - Payment of Dividend 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 (Also, Such a transfer is not mandatory now) Restructuring & Revival Changes - Restructuring & Revival Sick Company Fast Track Merger Compromise or Arrangement Reduction of Capital Changes - Restructuring & Revival Reduction of Capital No application to be sanctioned unless accounting treatment proposed by the Company for such reduction is in conformity with the accounting standards No Reduction Allowed if the Company is in arrears for payment of deposits Changes - Restructuring & Revival Compromise or Arrangement Notice of any meeting in this matter also to be given to Central Government, Income Tax Authorities, Reserve Bank of India, SEBI and CCI Calling of meeting of members or creditors now mandatory (after consent received by postal ballot) for approval of compromise by persons representing at least 3/4th of the value of members of creditors Changes - Restructuring & Revival Compromise or Arrangement Abolition of Treasury Stocks Any shares arising out of arrangement or compromise to be cancelled and extinguished and not to be held by the Transferee Company in its own or a Trust’s name whether on its behalf or on behalf of a subsidiary/associate Company Changes - Restructuring & Revival Fast Track Merger Shorter route prescribed for merger between 2 small Companies or a holding and its wholly owned subsidiary and some other class of Companies Power to Central Government to approve & effect the scheme if no objections by Official Liquidator and the Registrar to the scheme Changes - Restructuring & Revival Fast Track Merger Cross 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 Changes - Restructuring & Revival Sick Company Applicability: Any Company can be declared as a Sick Company and not necessarily an Industrial Unit Criteria for application: Criteria of 50% Net Worth erosion dispensed with A 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 Changes - Restructuring & Revival “ It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. ” Charles Darwin 011-40622214/+91- 981027551 arun@indiacp.com Thank You 33. Manoj Kumar
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