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COMPANY ACT 2013

The Companies Act 2013 passed by the Parliament received the assent of the
President of India on 29th August 2013. The Act consolidates and amends the law
relating to companies. The Companies Act 2013 was notified in the Official Gazette
on 30th August 2013. Some of the provisions of the Act have been implemented by a
notification published on 12th September, 2013.

Parliament approved the long-awaited overhaul of legislation governing Indian


companies on 9 August 2013. The new law aimed at easing the process of doing
business in India and improving corporate governance by making companies more
accountable. The 2013 Act also introduced new concepts such as one – Person
Company, small company, dormant company and corporate social responsibility
(CSR) etc.

There are more than 450 + sections, 7 schedules and 29 chapters, but the key points
introduced are:

Introduction of One Person Company (OPC)

It's a Private Company having only one Member and at least One Director.. The one
basic pre-requisite to incorporate an OPC is that the only natural-born citizens of
India, including small businessmen, entrepreneurs, artisans, weavers or traders
among others can take advantage of the ‘One Person Company’ (OPC) concept
outlined in the new Companies Act. The OPC shall have minimum paid up capital of
INR 1 Lac and shall have no compulsion to hold AGM (Annual General meeting).

What is a small Company:

The 2013 Act provides exemptions to a company, other than a public company, 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 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.
Minimum members for private company

The new act has increased the limit of the number of members from 50 to 200.

Immediate changes in stationery

The letterhead, bills or invoices, quotations, emails, publications & notifications,


letters or other official communications, should bear the full name of contact person,
address of company’s registered office, Corporate Identity Number ( CIN No. which
is a 21 digit number allotted by Government), Telephone number, fax number, Email
id, contact website (if any).

Commencement of business

For all the companies (public/private company) registered under Companies Act
2013 needs to file the following with the Registrar of Companies (ROC):

1. A declaration by the director in prescribed form stating that the subscribers/


promoters to the memorandum have paid the value of shares agreed to be
taken by them.
2. A confirmation that the company has filed a verification of its registered office
with the Registrar of companies (ROC)

Financial Year

The 2013 Act provides that the financial year for all companies should end on 31
March, with certain exceptions approved by the National Company Law Tribunal.
Companies should align the financial year to 31 March within two years from 01 April
2014.

Eligibility age to become Managing Director or whole time Director

The eligibility criteria for the age limit has been revised to 21 years as against the
existing requirement of 25 years.

Number of directorships held by an individual

Section 165 provides that a person cannot have directorships (including alternate
directorships) in more than 20 (twenty)companies, including ten (ten) public
companies.

Board of Directors and Disqualifications for appointment of director


The 2013 Act requires that the company shall have a maximum of 15 (fifteen)
directors (earlier it was 12) and appointing more than 15 (fifteen) directors will
require special resolution by shareholders.

Further, it requires appointment of at least one woman director and at least 1 (one)
resident director.

Independent Directors:

In case of listed companies, one third of the board of directors should be


independent directors.The 2013 Act also provides additional qualifications/
restrictions for independent directors as compared to the 1956 Act.

Loans to director:

The Company cannot advance any kind of loan / guarantee / security to any director,
Director of holding company, his / her partner/s, his/ her relative/s, Firm in which he
or his relative is partner, private limited in which he is director or member or any
bodies corporate whose 25% or more of total voting power or Board of Directors is
controlled by him.

Appointment of managing director, whole time director or manager [section


196 of 2013 Act]

The re-appointment of a managerial person cannot be made earlier than one year
before the expiry of the term instead of two years as per the existing provision of
section 317 of the 1956 Act. Further, the 2013 Act lifts the upper bar for age limit and
thus an individual above the age of 70 years can be appointed as key managerial
personnel by passing a special resolution.

Attending Board Meetings

As per section 167 of the Act, a Director shall vacate his/her office if he/she absents
himself from all the meetings of the Board of Directors held during a period of 12
(twelve months) with or without seeking leave of absence of the Board.

Appointment of Statutory Auditors

Every Listed company can appoint an individual auditor for 5 years and a firm of
auditors for 10 years. This period of 5 / 10 years commences from the date of their
appointment.

Corporate Social Responsibility (CSR)


the company has to constitute a CSR committee of the Board and 2% of the average
net profits of the last three financial years are to be mandatorily spent on CSR
activities by an Indian company if any of the following criteria is met:

 Net worth of Rs.500 crores or


 Turnover of Rs. 1000 crores or more or
 Net profit of Rs. 5 crores or more

Example of Section 185 and Section 186 of Companies Act 2013:

1) Company A has two Directors Mr. X and Mr. Y. Both holds 50% share each of
Company. Company A wish to give loan to following and have asked for your views
on same.
A) Loan to Director X.
B) Loan to a relative of Director Y.
C) Director of company D which is the holding company of A.
D) A partner of Director of Holding Company.
E) A partner of Director of company A.
F) To a firm in which Mr. X is a partner.
G) To a firm in which relative of Mr. Y is a Partner.

SOLUTION 1

S No Loan To Whether Reason


Co Can

1 Loan to Director X. NO Included in definition

2 Loan to a relative of Director Y. NO Do

3 Director of company D which is NO Do


the holding company of A.

4 A partner of Director of Holding YES A partner of Director of


Company. Holding co is not
included.

5 A partner of Director of company NO Included in definition


A.
6 To a firm in which Mr. X is a NO Included in definition
partner.

7 To a firm in which relative of Mr. Y NO Included in definition


is a Partner.

EXAMPLE 2 (PRIVATE LTD CO WITH COMMON DIRECTOR)

Particulars Company A (Pvt Ltd or Ltd) Company B (Pvt Ltd)

Directors A (shareholding B (Shareholding 75.% )D


Cum share 60.0%)B (shareholding (Shareholding 25% )
holder 40.0%)

Only Share Nil Nil


Holder

A and B are Husband and wife. D is their Son.


Company B wish to avail loan from Company A, Whether Possible?
SOLUTION 2
Company A cannot give loan to company B as it would be in contravention of Section
185 and would attract penalty.
Planning
1) Mr B should resign from the post of Director of Company A and gift his shares to
Mr A (gift of shares is tax free). They shall appoint another Director in the company.
As B resigns and transfer the shares then the provisions of section 185 wont apply
and company A would be able give loan to company B.
OR
2) Converting Company, A into an LLP.
OR

3) Converting Company B into a Public Limited Company and Mr B reducing his


shareholding in Company B to less than 25%.

Let us know more about the significant addition in the Act i.e. One Person Companies
(OPC)