Modifying the existing

provisions

Introducing some

NEW Concepts

The Companies Act 2013

Aims at

Some New Concepts Introduced

Independent

Director

Treasury Stock

Registered

Valuer

Associate

One Person

Company

Woman

Director

Corporate Social

Responsibility

Private Placement

2

1

5

8

3

6

9

Class Action4

Secretarial Audit7

Holding Subsidiary

Merger10

Dormant Company1311

Rotation

of Auditors 12

ONE PERSON COMPANY

Formed for lawful purpose by only one person as its member

Characterized as a Private Company

The Single Member to subscribe to the Memorandum of Association and

ensure all compliances

A nominee member indicated with his prior consent to act in case of the

only member’s incapacity to contract or death

No Compulsion to hold an Annual General Meeting

Filing of a copy of Financial Statements mandatory

Contd. ..

ONE PERSON COMPANY

Required to conduct at least one Board Meeting in each half year with

a gap of not less than 90 days between 2 consecutive meetings

Non Applicability of the provision of Quorum of a Board Meeting in

case of only one director on the Board

Business considered transacted if simply recorded in the minutes book,

especially where:

-A company is otherwise required to pass an ordinary or a special

resolution at a General Meeting

-The Board of Directors of the One-Person Company has only one

Director

INDEPENDENT DIRECTOR

1/3rd of the Total Directorship

of a listed Company to be

Independent

Number of Independent Directors

for other Public Limited

Companies to be prescribed

byCentral Government

A tenure of up to 5 years

allowed but reappointment may

be considered

3-year gap required for more

than 2 terms of Consecutive 5

years, as an Independent Director

in the same Company

Appointment of Independent

Director in General Meeting only

All such Directors to meet

separately atleast once a year

Liability only in respect of

omission or commission by the

Company occurred with the

knowledge, consent and non-

diligence of such Director

INDEPENDENT DIRECTOR

Specified role and duties of

Independent Director under the

Companies Act

No remuneration except for sitting

fee, reimbursement of expenses

related to meeting and profit

related commission

Transitional Phase of 1 year allowed

to any company existing at the time

of enactment of the Act for

compliance with this requirement

Possess other prescribed qualification

INDEPENDENT DIRECTOR

Eligibility to be an Independent Director

Be a Director other than Managing/ Whole Time/ Nominee Director

Be a person of integrity & possess relevant expertise & experience

Not be a promoter/relative of promoter of the Company, its holding,

subsidiary or associate Company

Not have a pecuniary relationship with the Company, its holding,

subsidiary or associate company and its promoters and directors during

2 immediately preceding financial years

Should not hold together 2% or

more voting power in the Company

Should not be a Chief Executive of

any NPO which receives 25% or

more of its receipts from the

Company

INDEPENDENT DIRECTOR

Not have any RELATIVES who have had any pecuniary

relationship with the Company, it’s holding, subsidiary and

associate Companies, their directors or promoters,

2 or more percent of its gross turnover or total income

Rs. 50 Lakh or a higher amount as may be prescribed

Amounting To:

Himself or the relatives:

Should not have been a KMP of the

Company, its holding/subsidiary or

associate Company in any of the 3

previous financial years

Should not have been an employee/

partner/ proprietor of the auditor

firm/ legal firm or a consulting

firm of the Company

WOMAN DIRECTOR

The Companies Act, 1956 has no specifications or

compulsions which specifically calls for appointing female

directors.

Once the Companies Act 2013 is enacted, the Central

Government will prescribe a class of Companies which will

have to mandatorily appoint at least 1 Woman Director.

The Companies existing at the time of enactment of the Act

will have 1 year to comply with the provisions

CLASS ACTION

Class Action is the right to members, deposit holders or representatives of these

persons to file an application before the Tribunal for restraining the Company

from some specified acts

Eligible

member or

class of

member(s)

May file application before the

Tribunal seeking some specified

orders

Management/ Conduct of the Company is prejudicial to

interests of the Company or its members/depositors

IF

Eligible

depositor or

class of

depositor (s)

CLASS ACTION

ORDERS THAT CAN BE SOUGHT

Declaration of a resolution altering

MOA/AOA as void if passed with

suppression of material information/

misstatement

Restrain the Company from breaching

any provision of AOA or MOA

Restrain the Company from an act

ultra vires to the AOA or MOA

Restrain the Company from an act

contrary to the provisions of the

Companies Act

To declare a resolution altering the

MOA/AOA as void if the resolution

was passed by suppression of material

facts

Claim any damages/ compensation or

demand any other suitable action in

cases of wrongful/ fraudulent/ unlawful

act by Directors/ Auditors/Experts

TREASURY STOCK

Till now Cross holdings in case of mergers/ acquisitions among

holding/subsidiary or Group Companies are transferred to a trust created for

the benefit of the transferee company and are sold later as treasury stock to raise

money if required

THE COMPANIES BILL NOW ABOLISHES THE

CREATION OF TREASURY STOCK

ADVANTAGES:

Protection to shareholders by

barring creation of freely issuable

trust shares

Low capital base & hence

increased EPS and return on

equity

Transparency in transactions as

further issue only with approval of

shareholders

DISADVANTAGES:

Reduced flexibility to the Board in

raising money from the open

market

Restrictive provision as the

practice doesn’t lead to any big

misuse

Tax implications if Company

decides to transfer the holding to

another entity

CORPORATE SOCIAL RESPONSIBILITY

EVERY COMPANY

Net Worth of

Rs. 500 Crores

or more

Turnover of Rs.

1000 Crores or

more

Net Profit of Rs.

5 Crores or

more

Shall constitute a Corporate Social Responsibility

Committee of the Board consisting of a minimum of 3

directors with at least 1 independent director

With

/ /

During any Financial Year

DUTY OF THE CORPORATE SOCIAL

RESPONSIBILITY COMMITTEE

Formulate and recommend a CSR Policy

to the Board indicating the activities to be

undertaken by the Company

Recommend the amount of expenditure to

be incurred on CSR related activities

Monitor the Company’s CSR policy from

time to time

DUTY OF THE BOARD

Disclose the composition of the CSR

Committee in its report

Approve the Company’s CSR policy after

considering the recommendations of the

committee

Disclose the CSR policy in its report and

on Company Website

Ensure the implementation of the policy

To spend at least 2% of the Company’s

average profit for the last 3 financial years

for this purpose

Give preference to spending in local areas

where it operates

Specify reasons in report in case of failure

CORPORATE SOCIAL RESPONSIBILITY

PENALTY in case of contravention: The company, every officer of the Company or the Company Secretary in Practice, who is in default shall be

punishable with fine of not less than Rs. 1 lakh, extendable up to Rs. 5 lakh

SECRETARIAL AUDIT

The Secretarial Audit

Report

Shall be given by a Practicing

Company Secretary in a prescribed

form

Shall be annexed with the Board

Report

A Requirement For

Every Listed

Company

Company

belonging to other

prescribed class Assist and facilitate the CompanySecretary in Practice for auditing

the secretarial and related records

of the Company

Explain in the Board report any

qualification / observation or other

remark made in the secretarial

audit report

DUTY OF THE BOARD

REGISTERED VALUER

• Property

• Stock

• Shares

• Debentures

• Securities

• Goodwill

• Net Worth

• Other Assets

• Liabilities

To be valued by

A person having

prescribed

qualifications &

experience

& who is

Registered as a

VALUER as per the

provisions of the

Law

A Registered Valuer Will

Make an impartial, true and fair

valuation of any asset required to be

valued

Exercise Due Diligence while

performing the functions

as a Valuer

REGISTERED VALUER

ROLE OF THE REGISTERED VALUER

Determine price for

further issue of shares

Value assets in an

arrangement calling

for restriction on Non

Cash transactions

involving directors

Value shares, property

and all assets in a

scheme of compromise/

arrangement

1 2 3

Value shares of the

Minority Shareholders

during their purchase

by the Company

4

Determine value of

assets as it will be

shown in the report of

Company Liquidator

5Declaration of Solvency

to be accompanied with

a report on the assets

prepared by a

Registered Valuer

6

A PECUNIARY PENALTY is prescribed for a Valuer who commits default under the

concerned section. Imprisonment along with pecuniary penalty is prescribed if it is

established that the contravention on part of the Valuer is to defraud the Company or its

members

IMPORTANT CHANGE: Earlier the term ‘shares’ was used whereby the mode of raising

funds through Private Placement can be shares

only.

Now, the term ‘Securities’ has been used thus

removing the earlier limitation.

PRIVATE PLACEMENT

“Private placement” means any offer of securities or invitation to subscribe

securities to a select group of persons, not being Qualified Institutional

Buyers or employees under the ESOP Scheme by a company (other than by

way of public offer) through issue of a private placement offer letter

A letter to selected group of persons

inviting/ offering them subscription

of securities

The procedural requirements will be

notified separately in the rules but the

law will have various stipulations with

regards to Private Placement.

PRIVATE PLACEMENT

Offer to not more than 50

persons

Terms & Conditions to be

specified by way of rules

No fresh offer unless the

allotment in respect to previous

offer has been completed

Payment not to be made by

Cash but by any other means

involving Bank Channel

Allotment to be completed

within 60 days of receipt of fund

Funds received to be kept in

separate bank account and not

be utilized for other purpose

Various Stipulations regarding Private Placement Offer

SMALL COMPANY

The new law defines a Small Company as a Company other than a Public

Company having:

• Paid up Share Capital not exceeding Rs. 50 Lakh

• Turnover not exceeding Rs. 2 Crore

HOLDING-SUBSIDIARY MERGER

The new law provides for simplified and a fast track procedure for mergers

of Holding-Subsidiary Companies or Companies where the 3rd party interest

is not involved

Applicability of the Fast-track Merger

Amalgamation of

Holding Company with a

wholly owned Subsidiary

Amalgamation of

SMALL Companies

Amalgamation of other

Companies as may be

prescribed

HOLDING-SUBSIDIARY MERGER

Transferor & Transferee companies ISSUE NOTICE OF PROPOSED SCHEME

inviting objections from Registrar and Official Liquidators where registered

offices are situated and also from persons being affected by the scheme

The objections and suggestions to be considered in the respective General

Meeting. Scheme to be approved by members holding at least 90% of the total

number of shares .Both Companies file a DECLARATION OF SOLVENCY with

the concerned Registrar’s Office

The Transferee Company FILES COPY OF THE APPROVED SCHEME WITH

THE CENTRAL GOVERNMENT, Registrar and the Official Liquidator

The Skeletal Process of the Fast Track Merger

The CENTRAL GOVERNMENT REGISTERS THE SCHEME and issues a

confirmation in case the Registrar and the Official Liquidator have no objections

Contd. ..

IN CASE THE CENTRAL

GOVERNMENT DOES NOT SUPPORT

THE OBJECTIONS of the Registrar

and Official Liquidator, it may go ahead

with registering the scheme

HOLDING-SUBSIDIARY MERGER

Copy of the order confirming the scheme IS COMMUNICATED TO

REGISTRAR having jurisdiction of the Transferee Company

REGISTRAR REGISTERS THE SCHEME and issues a confirmation to

the Registrar having jurisdiction over the Transferor

IF THE REGISTRAR OR OFFICIAL LIQUIDATOR HAVE ANY

OBJECTIONS, they shall be communicated to the Central government within

30 days.

IF THE CENTRAL GOVERNMENT

SECONDS THE OBJECTIONS, it may

file an application before the Tribunal

within 60 days of the receipt of the

scheme which may then give directions

as it may deem fit.

ASSOCIATE

An Associate Company in relation to a Company means a Company in

which the other Company has a significant influence but which is not a

subsidiary of the Company having such influence

Control of at least 20% of the total share capital or of

business decisions under an agreementSignificant Influence

Related Party for

ascertaining related

party transactions

Ascertaining

independence of

Independent Director

and Auditor

The Concept of

associate has been

added in various

places in the new law

Cancellation of Associate

Shareholding during

Merger and

Amalgamation

Disclosure with its

respect in financial

statements

ROTATION OF AUDITORS

Listed Companies or Companies belonging to a prescribed class

Shall NOT appoint OR re-appoint

INDIVIDUAL

AUDITOR:

For more than 1

term of 5

consecutive years

AUDITOR

FIRM:

For more than 2

terms of 5

consecutive years

RE-APPOINTMENT: A gap of at least 5 years should elapse after completion of the aforesaid term before the same auditor (individual/ firm) can

be re-appointed

ROTATION OF AUDITORS

A period of 3 years will be given to Companies existing on the enactment of this law

to comply with these provisions

TRANSITION PERIOD

Decision regarding intervals at which the auditing partner and his team be

rotated

SOME FREEDOM GIVEN TO COMPANIES APPOINTING A FIRM

DORMANT COMPANY

An Inactive Company -Defined for the first time

O

R

A Company which

has not carried any

business/ operation

Has not made any

significant accounts

transaction

Has not filed financial

statements or annual

returns

O

R

During last 2 years

I II III

CASE III (Non Filing of financial statements and Annual Return):

The Registrar may issue a notice and enter the name of such a

Company in the Register of Dormant Companies

DORMANT COMPANY

CASE I & II (No business operations or significant accounting transactions):The Company may make application to the Registrar for obtaining the

status of a Dormant Company.

The Registrar will consider the application and grant the status of

Dormant Company, issuing a certificate to that effect.

• Future Project

• Holding an Asset

• Holding Intellectual Property