companies act 2013 vs companies act 1956
TRANSCRIPT
Companies Act 2013- A comparison with the Companies Act, 1956
Presentation by-
Manoj Kumar
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 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 COMPANIES Act, 2013:
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
DirectorPromoter
Global
Depository
Receipt
Related Party
Small
Company
The Preliminary Provisions
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
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
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
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:
1. IPO/FPO
2. Private Placement
3. 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:1. Kind of Share Capital to be issued
2. Nature of Shares/Debentures
3. Voting Right
4. Variation of Shareholders’ Rights
5. 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
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
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 & SecuritiesCOVERAGE OF
Act seeks to regulate all
type of Securities as
opposed to Equity and
Debentures only
General Changes - Share Capital & Debentures
NEW VARIATIONS IN
Company can issue shares
with
as to other
things also
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 & SecuritiesVarious 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
No other shares except
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
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
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
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
Changes – Registration of Charges
Whether created within or outside India
1. On property, or
2. On assets, or
3. On any undertaking whether tangible/otherwise
4. Whether situated within/outside India
Under The Companies Act, 1956, specific events are provided when the
charge has to be registered
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
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
DIRECTORS
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
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
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
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 systemAccounting & book Keeping Services
Internal Audit Actuarial Services
Investment Banking & Advisory Management Services
Changes - Payment of Dividend
No dividend shall be declared or paid by a
Company from its reserves other than free
reserves.
Changes - Restructuring & Revival
Sick Company
Fast Track
Merger
Compromise or
Arrangement
Reduction of
Capital
Changes - Restructuring & Revival
Reduction of Capital
accounting treatment
proposed by the Company for
such reduction is in conformity
with the accounting standards
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
for merger between 2 small Companies or
a holding and its wholly owned subsidiary and some other class of
Companies
to approve & effect the scheme if
no objections by Official Liquidator and the Registrar to the scheme
Changes - Restructuring & Revival
Fast Track Merger
between Indian Companies and Foreign
Companies incorporated in prescribed jurisdictions
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
: Any Company can be declared as a Sick Company and not
necessarily an Industrial Unit
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
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