Companies Act, 1956 vis-à-vis Companies Bill, 2012

Transcription

1 Companies Act, 1956 vis-à-vis Companies Bill, 2012 A Small analysis

2 Contents Background New Concepts Analysis of Companies Act 1956 vis-à-vis Companies Bill, 2012 Glossary

3 Background

4 Background Companies Bill, 2008 was introduced on 23 October 2008 in the Lower House (Lok Sabha) to replace existing Companies Act 1956 Companies Bill, 2009 (Bill) was reintroduced on 3 August 2009 in the Lok Sabha to replace existing CompaniesAct 1956 (with minor modifications to the Companies Bill, 2008) Report of the SCF on Companies Bill, 2009 was introduced in the Lok Sabha on 31 August 2010 Was shelved for taking up the same in winter session of Parliament on December 22, 2011 Passed by Rajya Sabha on August 8, Due to the dissolution of the 14th Lok Sabha, the Companies Bill, 2008 had lapsed Bill was referredto the Standing Committee on Finance of the Parliament (the SCF) for examination and report on 9 September 2009 Companies Bill 2012 introduced in the Lok Sabha on 14 December 2011 Passed by Lok Sabha on December 18, 2012 as the Companies Bill 2012

5 The Act of 1956 & the Act proposed to be Particulars Companies Act 1956 Parts / Chapter 13 Companies Bill Sections Schedules No. of Clauses in Section 2 (Definitions)

6 A brisk précis Financial Year 1st April to 31st March No. of members Pvt. Co. (from 50 to 200) Concept of One Person Company Concept of Dormant Company Ambit of officer in default widened Merger of Indian co. with foreign CO. & vice versa At least one woman director on board of prescribed class of companies Postal Ballot provision applicable on all companies Introduction to CSR All securities now governed by the bill Compulsory rotation of individual auditors every 5 years and of firms every 10 years in listed companies and other prescribed classes of companies Directorship in up to 20 companies, of which maximum 10 can be public. Permission of Central Government not required to give loan to director.

7 Analysis Companies Act 1956 vis-à-vis Companies Bill 2012

8 Analysis Companies Act 1956 vis-à-vis Companies Bill 2012 New Concepts 09 Transfer Of Shares 24 Buy-Back of shares 26 Acceptance of Deposits 28 Dividend 30 Holding - Subsidiary Company 33 Consolidation of Financial Statements 35 Registered Valuer 37 Inter-corporate loan, guarantee, security and investment 39 Related Party Transactions 41 Loan to Directors 45 Compromise, Arrangement and Amalgamation 47 Winding-up & Strike off 52 Advantage / Disadvantage from the new bill 55 Glossary 60

9 New Concepts

10 New Concepts Particulars Companies Bill 2012 One Person Company (OPC) Cl. 2(62) Small Company Cl. 2(85) One Person Company means a company which has only one person as a member; small company means a company, other than a public company, (i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or (ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees: 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;

11 New Concepts Particulars Companies Bill 2012 Promoter Cl. 2(69) promoter means a person (a) who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92; or (b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or (c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act: Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity;

12 New Concepts Particulars Companies Bill 2012 Directors Cl. 166 Cl. 149(1) Cl. 149(3) Cl. 203 Duties of the directors towards a company prescribed (not provided in the Companies Act, 1956) Maximum there can be15 directors. This number can go up on the passing of special resolution. In certain prescribed conditions 1 woman director should be appointed. Every company to have one resident director, i.e. a director who has stayed in India for minimum 182 days in the previous calendar year. Every company belonging to such class or description of companies as may be prescribed shall have Managing Director (MD) or Chief Executive Officer (CEO) or Manager and in their absence, a Whole time Director (WTD) TD and a Company Secretary Individual not to be the Chairman of the company as well as the MD or CEO of the company at the same time (AoA can provide for this);

13 New Concepts Particulars Companies Bill 2012 Directors Cl. 203 (1) Provisions relating to separation of office of Chairman and Managing Director (MD) modified to allow, in certain cases, a class of companies having multiple business and separate divisional MDs to appoint same person as Chairman as well as MD. Cl. 203 (2) Every whole time KMP to be appointed by a resolution at BOD meeting; Cl. 203 (3) Cl. 203 (4) A Whole Time KMP not to hold office in more than one company except in its subsidiary at the same time. Any vacancy in the office of any KMP to be filled up by the BOD within 6 months.

14 New Concepts Particulars Companies Bill 2012 Independent Directors Cl. 149 (4) Cl. 149 (6) Cl. 149 (7) Cl. 149 (8) Cl. 149 (9) All listed companies shall have at least one-third of the Board as independent directors Such other class or classes of public companies as may be prescribed by the Central Government shall also be required to appoint independent directors. The independent director has been clearly defined in the Bill. 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 An independent director shall not be entitled to any remuneration other than sitting fee, reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members. An Independent director shall not be entitled to any stock option Cl. 161(2) Only an independent director can be appointed as alternate director to an independent director.

15 New Concepts Particulars Companies Bill 2012 Duties of Directors Cl. 166 To act in accordance with the articles of the company. To act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment. To exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment. Not to involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. Not to achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company. Not to assign his office and any assignment so made shall be void.

16 New Concepts Particulars Companies Bill 2012 Resignation of Directors Cl. 168 A Director may resign from his office by giving a notice in writing and the Board shall, on receipt of such notice take note of the same and the company shall intimate the Registrar and place such resignation in the subsequent general meeting of the company. The director shall also forward copy of resignation with reasons to Registrar. The clause further provides for the date on which the notice of resignation shall take effect. The director shall be liable for the offences occurred during his tenure. Cross Border Mergers Cl. 234 The Bill provides for Cross Border Mergers which means that a foreign Company may with due prior approval of the Reserve Bank of India, merge or amalgamate in to a Company registered under this Act or vice-versa. Payment of consideration to the shareholders of the merged Company in cash, or in Depository Receipts (DRs) or partly by cash and DRs.

17 New Concepts Particulars Companies Bill 2012 Account Books / Audit / Auditors Cl. 128 Cl. 138 Cl. 139 Company can maintain Books of Account in electronic mode The Bill provides for conduct of internal audit of prescribed class or classes of companies. 5 Year Tenure for Auditors: - Audit firm or an individual including an LLP to be appointed for 5 yrs, i.e. to hold office upto the date of the sixth AGM. - Appointment of auditors for five years shall be subject to ratification by members at every Annual General Meeting. Uniform Financial Year - Cl. 2(41) Company or body corporate to adopt uniform financial year i.e. 1st April to 31st March every year except in certain exceptional cases. Existing Companies not adopting 1st April to 31st March as financial year for the purposes of Companies Act to align themselves with this within two years of commencement of the Companies Act, 2012.

18 New Concepts Particulars Companies Bill 2012 Serious Fraud Investigation Office (SFIO) Cl. 211 Corporate Social Responsibility Cl. 135 This is a new clause and seeks to provide that the Central Government shall constitute Serious Fraud Investigation Office (SFIO). The SFIO will be headed by a director and will consist of experts from various disciplines. The Central Government shall also appoint a Director in the SFIO not below the rank of Joint Secretary and may also appoint such experts and other officers as it considers necessary for efficient discharge of functions. Every company having specified net worth or turnover or net profit during any FY shall constitute the Corporate Social Responsibility Committee of the Board. The composition of the committee shall be included in the Board's Report. The Board shall disclose the content of policy in its report and place on website, if any of the Company. The Board shall endeavour to ensure that at least two per cent of average net profits of the Company made during three immediately preceding financial years shall be spent on such policy every year. If the company fails to spend such amount the Board shall give in its report the reasons for not spending.

19 New Concepts Particulars Companies Bill 2012 Auditor s Accountability Cl. 143, 144 National Financial Reporting Authority (NFRA) Cl. 1 Rotation of auditors and audit firms being provided for. Stricter and more accountable role for auditor being retained. Provisions relating to prohibiting auditor from performing non-audit services revised to ensure independence and accountability of auditor. Subject to the maximum prescribed number of companies, the members of a company may resolve that the auditor or audit firm of such company shall not become auditor in companies beyond the number as may be specified in such resolution. National Advisory Committee on Accounting and Auditing Standards (NACAAS) proposed to be renamed as National Financial Reporting Authority (NFRA) with a mandate to ensure monitoring and compliance of accounting and auditing standards and to oversee quality of service of professionals associated with compliance. Authority to consider the International Financial Reporting Standards and other internationally accepted accounting and auditing policies and standards. The Authority is also proposed to be empowered with quasi judicial powers to ensure independent oversight over professionals.

20 New Concepts Particulars Companies Bill 2012 Cost Audit: Cost records to be mandated for companies engaged in production of such goods or rendering of such services as may be prescribed. The concept of "cost auditing standards" being mandated. Secretarial Audit: Prescribed class of companies would need to attach with the Board's Report, a Secretarial Audit Report given by a company secretary in practice. Mediation & Conciliation Panel Cl. 442 It is proposed to create and maintain as "Mediation and Conciliation Panel" for facilitating mediation and conciliation between parties during any proceeding under the proposed Legislation before the Central Government or Tribunal.

21 New Concepts Particulars Companies Bill 2012 Managerial Remuneration Cl. 197 Provisions relating to limits on remuneration provided in the existing Act (11% of net profits) included. For companies with no profits or inadequate profits remuneration shall be payable in accordance with new Schedule of Remuneration annexed to the Bill (Schedule V) and in case a company is not able to comply with such Schedule, approval of Central Government would be necessary. Individual limits for remuneration enhanced in the Bill vis-a-vis the existing limits. Concept of payment of periodic fees which shall include sitting fees to directors being included in the Bill. Independent Directors (IDs) not to get stock option but may get payment of fees and profit linked commission subject to limits specified in the Bill/rules. Central Government may prescribe amount of fees under the rules.

22 New Concepts Particulars Companies Bill 2012 Protection For Minority Shareholders Exit option to shareholders in case of dissent to change in object for which public issue was made. Cl. 27(2) Specific disclosure regarding effect of merger on creditors, key managerial personnel, promoters and non-promoter shareholders is being provided. The Tribunal is being empowered to provide for exit offer to dissenting shareholders in case of compromise or arrangement. Cl. 230(7)(e) The Board may have a director representing small shareholders who may be elected in such manner as may be prescribed by rules. Cl Investor Protection Acceptance of deposits from public subject to a more stringent regime. Cl Central Government to have power to prescribe class or classes of companies which shall not be permitted to allow use of proxies. The Bill also to have provisions to provide that a person shall have proxies for such number of members /such shares as may be prescribed. Cl. 105 Provisions for Class Action Suits revised to provide minimum number of persons who may apply for such suits. Safeguards against misuse of these provisions also being included. Cl. 245

23 New Concepts Particulars Companies Bill 2012 Insider Trading Cl. 195 Restrictions in regard to subsidiary This is a new clause and seeks to prohibit directors or key managerial person of the company to deal in securities of a company, or counsel, procure or communicate, directly or indirectly, about any non-public price-sensitive information to any person. This clause further provided for penal provision in case of contravention. Companies Act, 1956 has provided no restriction on the number of subsidiaries. Companies Bill, 2012 lays down restrictions on the layers of subsidiaries. Clause 2(87) subsidiary company or subsidiary, in relation to any other company (that is to say the holding company), means a company in which the holding company (i) controls the composition of the Board of Directors; or (ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies: Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.

24 Transfer of Shares

25 Transfer of Shares Particulars Companies Act 1956 Sec. 111(1) & (2) Companies Bill 2012 Cl. 58 Transfer of shares of Public Company Securities or other interest of public company are freely transferable Shares of public company are freely transferable. However, Contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract.

26 Buy-Back of Shares

27 Buy Back of shares Particulars Companies Act 1956 Sec. 77A Restriction of further offer of Buy-Back In case buy-back is made by BoD (10% of the total paid-up equity capital and free reserves), no further offer of buy-back is permissible within a period of 365 days reckoned from the date of the preceding offer of buyback Companies Bill 2012 Cl. 68 No buy-back up to period of 1 year from the date of preceding buy-back whether approved by BoD or shareholders

28 Acceptance of Deposits

29 Acceptance of Deposits Particulars Companies Act 1956 Sec. 58A Companies Bill 2012 Cl. 73 Eligibility for acceptance of deposit from public and shareholders Public companies are permitted to accept deposits from public and shareholders in accordance with Companies (Acceptance of Deposit) Rules. Only Banking Company, NBFC and such other company as the CG may specify, are permitted to accept deposits from public A company may accept deposit from its members by passing a resolution in general meeting and subject to compliance of rules and subject to conditions which includes: obtaining credit rating providing deposit insurance depositing at least 15% of the amount of deposits maturing during current and next financial year in a scheduled bank to be called as deposit repayment reserve account Public company having net worth or turnover as may be prescribed would be allowed to raise funds through public deposit Mandatory requirements for such companies to obtain rating from CRA Deposit accepted before the commencement of the new Act or any interest due thereon to be repaid within 1 year from such commencement or from the date on which such payments are due, whichever is earlier

30 Dividend

31 Dividend Particulars Companies Act 1956 Companies Bill 2012 Transfer to reserves Declaration of dividend in case of in-adequate profits No dividend can be declared for any F. Y out of the profits of the company for that F.Y, except after the transfer to the reserves such portion of profits of the company for that F.Y, not exceeding 10% of its profits In case of inadequacy or absence of profits in any F.Y, the company can declare dividend out of the reserves only after complying with the Companies (Declaration of Dividend out of Reserves) Rules, 1975, wherein the maximum rate of dividend is prescribed as 10% A company to transfer voluntarily a portion of its profits to the reserves as considered appropriate, before declaration of any dividend. Mandatory transfer to reserves done away In case of inadequacy or absence of profits in any F.Y, the company can declare dividend out of the accumulated profits transferred to reserves in accordance with the rules to be prescribed

32 Dividend Particulars Companies Act 1956 Companies Bill 2012 Restrictions on declaration of dividend/ interim dividend No restrictions are provided for declaring dividend Interim dividend may be declared out of the surplus in the Profit & Loss Account as well as profits of the financial year in which dividend is sought to be declared. In case company has incurred loss upto the preceding quarter of the current financial year then interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding 3 financial years Failure to comply with provisions relating to acceptance and repayment of deposits will bar the company to declare any dividend during the period of non-compliance

33 Holding-Subsidiary

34 Holding Subsidiary Company Particulars Companies Act 1956 Companies Bill 2012 Restriction on Step Down Subsidiary No restriction Class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed

35 Consolidation of Financial Statements

36 Consolidation of Financial Statements Particulars Consolidation of Financial Statement Companies Act 1956 No existing provisions Companies Bill 2012 In case a company has one or more subsidiaries, it shall in addition to stand alone financials, prepare a consolidated financial statement of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the AGM of the company Further, such companies shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiaries in such form as may be prescribed For the purpose of above, subsidiary shall include associate company and joint venture

37 Registered Valuer

38 Registered Valuer Particulars Companies Act 1956 Companies Bill 2012 Cl. 247 Exemptions No provisions provided for Registered Valuer. Where valuation is required to be made under the Act, in respect of any property, stocks, shares, debentures, securities or goodwill or other assets or networth of a company or its liabilities, such valuation shall be done by a registered valuer

39 Inter-Corporate loan, guarantee, security and investment

40 Inter-corporate loan, guarantee, security and investments Particulars Companies Act 1956 Sec. 372A Companies Bill 2012 Cl. 186 Exemptions Any loan made, guarantee given or any security provided or any investment made by: banking company; or insurance company; or housing finance company; or company established with the object of financing industrial enterprises or providing infrastructural facilities any company whose principal business was acquisition of shares, stock, debentures, or other securities; a private company, unless it is a subsidiary company; Holding company to its WOS Any investment made in shares allotted pursuant to further issue of capital Any loan, guarantee or security provided by: banking company; or insurance company; or housing finance company; in-ordinary course of their business ; company engaged in the business of financing of companies or of providing infrastructural facilities Investment and lending by NBFC whose principal business is acquisition of securities Acquisition by companies having principal business of acquisition of securities Acquisition of shares pursuant to further issue of capital

41 Related Party Transactions

42 Related Party Transactions Particulars Companies Act 1956 Sec. 297 Companies Bill 2012 Cl. 188 Scope of Section Approval required A company cannot enter into the contracts relating to a. sale, purchase or supply of any goods or materials; b. sale, purchase or supply of any services; c. underwriting the subscription of any shares, debentures of a company Prior consent of the BoD by resolution passed at Board meeting Prior approval of Regional Director, in case the paid-up capital of company is exceeding Rs. 1 crore A company cannot enter into the contracts relating to a. sale, purchase or supply of any goods or materials; b. selling or otherwise disposing of, or buying, property of any kind; c. leasing of property of any kind; d. availing or rendering of any services; e. appointment of any agents for purchase or sale of goods, materials, services or property; f. appointment to any office or place of profit in the company, its subsidiary company or associate company; and g. underwriting the subscription of any securities or derivatives thereof, of the company Prior consent of the BoD passed by resolution at Board meeting Prior approval of the Shareholders, in case the paid-up capital of company or transaction amount exceeds prescribed limit

43 Related Party Transactions Particulars Companies Act 1956 Companies Bill 2012 Specified persons with whom contracts are covered Director of the Company Relative of such director A firm in which such director or relative is a partner Any other partner of such firm in which director or relative is a partner Private Company in which such director is a director or member Related Party : director or his relative; KMP or his relative; firm, in which a director, manager or his relative is a partner; private company in which a director or manager is a member or director ; public company in which a director or manager is a director or holds along with his relatives, more than 2% of its paid-up share capital; any body corporate whose BoD, managing director, or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager; any person under whose advice, directions or instructions a director or manager is accustomed to act; any company which is holding, subsidiary or an associate company of such company; or subsidiary of a holding company to which it is also a subsidiary such other persons as may be prescribed

44 Related Party Transactions Particulars Companies Act 1956 Companies Bill 2012 Exemptions Purchase/Sale of goods and materials for cash at prevailing market price. Purchase/Sale of goods and materials or services the cost of which does not exceed ` 5,000/- in any year during the period of contract Any transaction of banking / insurance company in the ordinary course of such company Any transaction entered by company in its ordinary course of business other than transactions which are not an arm s length basis

45 Loan to Director

46 Loan to Directors Particulars Companies Act 1956 Sec. 295 Companies Bill 2012 Cl. 185 Applicability of Section Scope of Section Exemptions Public companies No Public Company shall directly or indirectly make any loan or give any guarantee or provide any security to its directors and other certain specified persons, except with the approval of CG The said section does not apply to: Private Companies Holding to its subsidiary Banking Companies Public and Private companies No company shall directly or indirectly make any loan including book debt or give any guarantee or provide any security to its director or to any other persons in whom the director is interested The said section does not apply to: Loan to MD/WTD As a part of contract of services extended to all its employees; or Pursuant to scheme approved by members by special resolution A Company which in the ordinary course of its business provides loan, guarantee or security for due repayment of any loan and charges interest thereon being not less than bank rate declared by RBI

47 Compromise, Arrangement and Amalgamation

48 Compromise, Arrangement & Amalgamation Particulars Companies Act 1956 Companies Bill 2012 Sec. 391 Cl. 230 Approval required Valuation report Objection to compromise or arrangement Buy back of securities by scheme of compromise / arrangement Approval by majority in number representing 3/4 th in value of the creditors or members or class thereof present and voting in person or by proxy. Approval of High Court (NCLT) No need to give Valuation report to the shareholders / creditors along with notice convening meeting Objection to compromise or arrangement can be made by any shareholder or creditor, as the case may be, irrespective of their shareholding/outstanding debt. A Scheme of compromise or arrangement can include any buyback of securities Approval by majority representing 3/4 th in value of the creditors or members or class thereof present and voting in person or by proxy or by postal ballot Approval of High Court (NCLT) Valuation report to be given to shareholders / creditors along with notice convening meeting Objection to compromise or arrangement be made only by: persons holding >10% of the shareholding or having outstanding debt of >5% of total outstanding debt as per the latest audited balance sheet A Scheme of compromise or arrangement can include buyback of securities, provided it is in accordance for buy-back. provisions

49 Compromise, Arrangement & Amalgamation Particulars Companies Act 1956 Companies Bill 2012 Takeover Offer Transfer of Listed Company with Unlisted Company Notice of meeting A scheme of compromise and arrangement cannot include a takeover offer No specific provisions for compromise / arrangement between a listed transferor company and an unlisted transferee company No specific provisions for serving of notice to Income Tax and other regulators A scheme of compromise and arrangement may include takeover offer in a prescribed manner. In case of listed companies such takeover offer shall be as per SEBI Regulations In case of compromise / arrangement between a listed transferor company and an unlisted transferee company, NCLT to provide that transferee company shall remain unlisted company until it becomes listed and exit option be given to the shareholders of the transferor company wherein the exit price to be not less than the price under any SEBI Regulations Notice to be served to CG, income-tax authorities, RBI, SEBI, Stock exchanges, CCI, sectoral regulators / authority

50 Compromise, Arrangement & Amalgamation Particulars Companies Act 1956 Companies Bill 2012 Fast Track merger Merger of Indian Company with Foreign Company No specific provisions for Fast track merger Indian company cannot be merged with Foreign Company Fast track provisions made to facilitate merger between two or more small companies or between holding company and its wholly owned subsidiary company or such other class of companies as may be prescribed Approval required of : OC; fficial Liquidator.; embers or class of members holding at least 90% of total no. of shares; ajority of creditors or class of creditors representing 9/10 th in value Foreign company, may with the prior approval of RBI, merge into Indian company or vice versa. The consideration for merger can be in the form of Cash and / or Depository Receipts. This would apply to foreign companies in jurisdictions as notified by CG Offer to sell by Minority shareholders to Majority shareholder No specific provisions for offer to sell by the minority shareholder to the majority shareholders The minority shareholders of the company may also offer to sell their shares to the majority shareholders at a price determined in accordance with the rules as may be prescribed

51 Compromise, Arrangement & Amalgamation Particulars Companies Act 1956 Companies Bill 2012 Purchase of Minority shareholding by Majority shareholder No specific provisions for acquisition of minority shareholders by majority shareholders Acquirer and/or PAC or person/group of persons holding 90% or more of the issued equity capital of the company by virtue of amalgamation, share exchange, conversion of securities or for any other reasons, can purchase the remaining equity shares of the company from minority shareholders at a price determined by registered valuer Minority shareholders may also offer to the majority shareholders to purchase their equity shareholding in the company at the price determined by registered valuer

52 Winding-Up & Strike Off

53 Winding-up/Strike Off Particulars Companies Act 1956 Sec. 433 & 434 Companies Bill 2012 Cl.271 Grounds for windingup reduced Several criteria provided for winding-up of Company by NCLT such as If the company has, by special resolution, resolved that the company be wound up If the company is unable to pay its debt If a company does not commence its business within 1 year from its incorporation or suspends its business for a whole year,. If the minimum number of members is reduced below 2 in case of private and 7 in case of public company Certain criteria for winding-up by NCLT deleted like minimum number of members falling below prescribed limit, non-commencement of business for 1 year etc. Additional ground provided for winding-up: NCLT is of the opinion that the affairs of the company have been conducted in a fraudulent manner company was formed for fraudulent and unlawful purpose the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith

54 Winding-up/Strike Off Particulars Companies Act 1956 Sec. 560 Companies Bill 2012 Cl. 248 Grounds for strike off A Company may be struck off by ROC if it has reasonable cause to believe that a company is not carrying on business or operations A Company may be struck off by ROC for below reasons - subscribers to the memorandum have not paid the subscription money within 180 days from the date of incorporation; company has failed to commence its business within 1 year of its incorporation; company is not carrying on any business or operation for 2 immediately preceding financial year and has within such period applied for status of a dormant company

55 Advantages / Disadvantages

56 Advantages / Disadvantages Particulars Advantages Disadvantages (If any) (If any) Financial Year Members of Pvt. Co. One Person Company Dormant Company Woman Director In line with other statutes, hence the obligation of preparing multiple financials is done away. Increased membership will allow more fund inflow for the entity. One person company concept will now provide wider and easier access to individuals with lesser hassles and limited liability. Also scope of fraud will decrease significantly as ownership is sole. Companies not carrying on any business for medium term for any reason whatsoever is now not liable for having its name struck off from the register of companies. Women directors will soon be a mandate, which might bring in a new thought process for improving the current business model. Will dilute the holding Sense of responsibility will be hampered as liability will be limited. Compulsory provision may jeopardise the routine working of the entity.

57 Advantages / Disadvantages Particulars Advantages Disadvantages (If any) (If any) Merger Postal Ballot CSR Auditors Directorship Chairman & MD Merger and Acquisition rules have been relaxed, and also provisions of fast track mergers introduced. Share holders can now vote on their own accord, material presence not being a factor anymore. Mandatory measures for societal welfare Compulsory rotation will avoid any collusion and may also bring about new working methodologies by the incoming auditor Increased directorship will allow eminent persons to provide their skill and know how in more companies Scope of manipulation may arise. New CSR initiative being mandatory will lead to a fixed outflow for companies, falling within its scope. Client will have to once again through the process of training the auditor about the working of the entity. Focus will get distributed among more companies Simultaneous holding of both the positions is now not possible

58 Advantages / Disadvantages Particulars Advantages Disadvantages (If any) (If any) Loan to directors Small Company KMP Managerial remuneration / Auditors accountability Related Party Transactions Requirement of permission to be obtained from Central Government is now waived off By defining small company, such companies falling within its meaning will have lesser norms to comply with Greater transparency in matters such as executive salaries and role of auditors. Exemption to transactions have been widened to include those done in ordinary course of business, thereby reducing the requirement of requisite approvals. The same may lead to rampant advances being taken by the directors, causing fund crunch to the entity. Scope of manipulation may arise. Can be appointed by a resolution at board meeting only, and cannot hold office in more than one group at a time. Any vacancy must be filled within 6 months

59 Advantages / Disadvantages Particulars Advantages Disadvantages (If any) (If any) Books of accounts Can now be maintained in electronic mode Public Deposits Dividend Interim Dividend Mandatory transfer to reserve is done away, thereby providing liquidity to the company. Provision for dividend declaration in case of inadequate profits have been relaxed. Only specified companies are now eligible/allowed to accept public deposits Certain restrictions have been imposed in declaring interim dividend Consolidation of financial statements Subsidiaries Will provide a more correct outlook and better transparency in the final accounts Consolidating will be a cumber some process and will not be able to highlight the profit/loss making entities of the organisation Prescribed companies cannot have layers of subsidiaries beyond such numbers as may be stipulated.

60 Glossary

61 Glossary AGM BOD CCI CG CRA F.Y. KMP MD NBFC NCLT PAC RBI ROC SEBI WOS WTD - Annual General Meeting - Board of Directors - Competition Commission of India - Central Government - Credit rating Agency - Financial Year - Key Managerial Personnel - Managing Director - Non-Banking Financial Companies - National Company Law Tribunal - Person Acting in Concert - Reserve Bank of India - Registrar of Companies - Securities and Exchange Board of India - Wholly Owned Subsidiary - Whole-time Director

62 The analysis in this booklet is solely for information purposes. We are not offering it as a legal advice. While best efforts have been made in its preparation, we assume no liabilities of any kind with respect to the accuracy or completeness of the contents, and specifically disclaim from any loss caused, is alleged to have been caused directly or indirectly, by the information contained herein. Readers are advised to take expert opinion prior to acting upon any contents in this booklet. For client service & internal use only.