COMPANY ACT 2013 MEANING
The company refers to the concept where a group of persons associates together for the achievement of common objects such as business, charity, research, etc.
A Company may be defined as an “incorporated association which is an artificial person with a separate legal entity, perpetual succession, a common seal and capital of transferable shares and limited liability.
INTRODUCTION TO COMPANY ACT 2013:
The main aim behind the formulation of companies act is to provide legal ambit to the companies to work within. It provides a legal framework for the functioning of the company. It refers to an Act to consolidate and amend the laws relating to companies. It acknowledges the changes required in accordance with the change in society, in which the company exists.
The 2013 Act has introduced several new concepts and also streamlined many requirements by introducing new definitions. But as per the requirements of the growing society, some new amendments were required to be introduced in the Company Act, 2013. It broadly emphasizes strengthening corporate governance standards, to take-up strict actions against defaulting companies and helps in improving ease of doing business in the country.
Thereafter the Companies Act (Amendment Bill), 2017 was passed by
Lok Sabah on July 27, 2017,
Rajya Sabah on December 19, 2017
Received assent of President of India on the January 3rd, 2018 and it was published in the “Official Gazette of India” on the same date i.e, WEDNESDAY, JANUARY, 3, 2018, and the Bill becomes the Companies (Amendment) Act, 2017 from this date and is applicable from the same date.
KEY AMENDMENTS TO THE COMPANIES ACT, 2017
1. SECTION 2(6):- DEFINITION OF ASSOCIATE COMPANY
An associate company in context to the other companies as defined under the 2013 act, as a company in which that other company has a significant influence and included a joint venture company.
The proposed amendment has broadened the concept of the term significant influence, by
a) Referencing
b) Active participation in business decision
c) Providing control over 20% of total share capital with voting power.
Further, the concept of the joint venture has also been altered, resulting in the new arrangement will also have the rights to the net assets of the arrangements.
2. SECTION 4:- MEMORANDUM OF ASSOCIATION
The proposed amendment states that, in the cases related to the incorporation of the company, the names registered with the ROC will be valid for 20 days from the date, when approved or any other period as suggested instead of 60 days from the date of application.
3. SECTION 7:- INCORPORATION OF THE COMPANY
At the time the company is incorporated, each subscriber of the company are required to attach the letter of declaration instead of the affidavit, as currently provided.
The amendment proposed is done with the motive to simplify the process by introducing declaration in place of affidavits by the subscribers.
4. SECTION 21:- AUTHENTICATION OF DOCUMENTS, PROCEEDINGS, AND CONTRACTS
Company Act 2013 does not empower the members of the company to sign the documents.
The signing of the document is the most important part of the authentication of any document related to the company. Henceforth, the new amendment proposed states that, any employee of the company can sign the documents for its authentication on behalf of the company as authorized by the board of directors.
5. SECTION 26:- MATTERS TO BE STATED IN PROSPECTUS
The proposed amendments to the provision state, that the list of content mentioned in the prospectus is to be replaced by the Mandatory information. The prospectus shall contain information and set out such reports on financial information in accordance with the guidelines specified by the SEBI in confabulation with the central government.
The purpose of the amendment is to reduce the complexity in drafting the prospectus of the company and to dissuade the company from any kind of miss-conduct or miss-representation.
6. SECTION 35:- LIABILITY FOR MISS-STATEMENT IN PROSPECTUS
Any kind of miss-representation in the prospectus of the company imposes civil liability on the directors, promoters, etc. of the company, started by Company Act 2013.
The proposed amendment discharges the directors or promoters of the company from the civil liability of the same offense. It provides safeguard against the civil liability to the persons if they have believed in such misleading statements made by an expert. Provided, that the director can prove that he has reasonable grounds to believe upon the false statement made by an expert was authorized to make it. It has to prove that the prospectus was issued with the consent of such an expert and he has not withdrawn his consent before the registration of the prospectus.
7. SECTION 42:- PRIVATE PLACEMENT
The issuance of share has been significantly revised through a private placement of shares by the new amendment proposed in the provision. The important changes made are
The time duration to file the return of allotment has been reduced to 15 days from 30 days.
Money received by private placement not to be used until registered with the ROC.
Right of renunciation not to be mentioned in the letter of a private placement.
The purpose of the amendment proposed was to abolish the complexity in raising funds by allowing companies to offer more than one issue to the same class of identified persons, subject to the maximum of 50 identified persons.
8. SECTION 53:- PROHIBITION ON ISSUE OF SHARES AT DISCOUNT
The issue of shares at a discount to face value has been prohibited by the 2013 Act.
The amendment proposed in the provision replaces the word discounted price with the word discount. It states that in accordance with the guidelines laid by the RESERVE BANK OF INDIA the company can offer shares at a discount to its creditors when the debts of the companies are converted into shares under a statutory plan.
9. SECTION 54:- ISSUE OF SWEAT EQUITY SHARES
The issue of sweat equity share within one year of commencement was prohibited by the 2013 Act.
The purpose of the amendment introduced was to remove the restriction from issuing the sweat equity shares within one year of the commencement.
The impact of this amendment will be basically helpful for the new start-ups' companies for issuing equity shares immediately after the commencement of the business.
10. SECTION 96:- ANNUAL GENERAL MEETING
The proposed amendment to the provision states that the unlisted companies can hold their meetings at any place within the boundaries of India, with the consent of all the members either in writing or through the electronic mode. The notice must be given in advance.
The purpose of the provision amended is to lessen the complexity faced by the newly incorporated companies and to provide a simplified way to carry on with their business activities.
11. SECTION 101:- NOTICE OF MEETING
2013 act states, that the minimum 21 days prior notice has to be given to call for a general meeting of the company, either in writing or through electronic mode in such manner as may be prescribed.
The proposed amendment to the provision states that a meeting can be called upon in case of Annual General Meeting at short notice if consent is given by not less than 95% of the total members, who are entitled to vote, either in writing or through electronic mode.
The purpose of the amendment is to reduce the hassle of 21 days prior to notice over the matters requiring immediate action.
12. SECTION 110:- POSTAL BALLOT
The amendment is proposed with the motive to permit companies that are compulsorily required to provide an electronic voting facility, with the purpose to transact items in general, which are bounded to be transacted through postal ballot.
13. SECTION123:- DECLARATION OF DIVIDEND
In accordance with the proposed amendments made in the provision states the following
Any amounts showing an unrealized gain, notional profit, revaluation of assets shall be excluded in the calculation of profit.
The accumulated profits earned by the company in the previous year and transferred to free reserves could be used for the payment of dividends, in case of the inadequate or absence of profit in the current year.
14. SECTION 129:- FINANCIAL STATEMENT
The amendments made into the provision states that, Associate Company as part of Subsidiary company abolishing the term of Joint venture. The purpose of the amendment is the unification of the accounts of Associate companies with the Subsidiaries, in the same manner as applicable in accordance with the Accounting Standards.
A separate statement accommodating the notable features of the Associate and Subsidiary companies must be attached along with the financial statement of the company.
15. SECTION 135:- CORPORATE SOCIAL RESPONSIBILITY
The insertion of this provision is one of the most important and crucial amendments introduced in the Companies Act, which states that Every company whose net worth is of Rupees Five Hundred Corer or beyond, or the Annual turnover is of Rupees One Thousand Core or beyond, or the Net Profit is of rupees five corners or beyond during the preceding financial year, is obligated for constituting Corporate Social Responsibility Committee, which should be headed by 3 or more Directors out of which one director shall be an Independent Director.
The purpose of the amendment was to bind the companies towards the social responsibility of the society in which the companies exist. Companies recruit resources from the society, therefore, the expansion & enlargement of the same is the cardinal responsibility of the companies for which the company is made bound to fulfill the social obligation of the society.
16. SECTION 137:- COPY OF FINANCIAL STATEMENT TO BE FILLED WITH REGISTRAR
Company Act 2013 does not provide the provision for the filling of unaudited financial statements.
The amendment to the provision states that, A copy of the financial statement, including consolidated financial statement, if any, along with all the documents which are required to be attached to such financial statements under this act, Duly adopted at the annual general meeting of the company, shall be filed with the registrar within 30 days of the date of annual general meeting in such manner with such fees or additional fees as may be required.
The purpose of the amendment was to permit the filling of the Unaudited Documents related to the financial statement of the Foreign Subsidiary Company. It is not bounded to get its financial statement audited under any law of the country of its incorporation.
17. SECTION 139:- APPOINTMENT OF AUDITORS
Company Act 2013 does not bound the companies for the appointment of an Auditor.
The proposed amendment in the Act states for the same, by making it mandatory for every company to appoint an individual or a firm as an auditor who shall hold the office.
18. SECTION 147:- PUNISHMENT FOR CONTRAVENTION
The proposed amendment introduces a provision which states that an auditor if found guilty for any offense, shall be liable for the same. The maximum amount of fine to be paid by the auditor has been revised from rupees five lakh to rupees five lakh or four times the remuneration of the auditor whichever is lesser.
If found that the auditor has willingly infringed the provisions to harm the company, the minimum amount fine has been decreased to fifty thousand rupees but could be increased to twenty-five lakh rupees or eight times the remuneration of the auditor, whichever is less.
It is also proposed to impose the criminal liability instead of liability on to the auditors or firms of auditing who involve themselves in a fraudulent manner or abetted, or the case may be.
19. SECTION 153:- APPLICATION FOR ALLOTMENT OF DIN
The proposed amendment to the provision states that the central government is authorized to acknowledge any other identification number in place of the Director Identification Number i.e. DINS. Either Aadhar card or PAN card could be notified by the government as DIN.
20. SECTION 173:- MEETINGS OF BOARD
The participation of directors in a board meeting is mandatory under the Company Act 2013.
The proposed amendment in the provision granted the liberty of attaining those meetings over and through video conferencing or other audio-visual means, as may be prescribed, which are capable of being recorded and recognized the participation of the directors and the proceedings could be stored of such meetings along with date and time.
The purpose of the amendment was to liberalize the conduction of board meetings over certain matters requiring urgent discussion which was being restricted earlier to be discussed over video conferencing facility. If the quorum is being fulfilled, the director can deliberate on any matter including the restricted matter.
21. SECTION 177:- AUDIT COMMITTEE
The insertion of this provision, in the amendment introduced states the following
Every listed Public Company shall constitute the Audit Committee.
Any of the related party transactions, excluding the transaction falling u/s 188, will be requiring the approval of the board of directors if not approved by the Audit Committee.
The assent of the Audit Committee will be required in context to the transactions held between the Holding Co. and its wholly-owned Subsidiary Co. if the nature of the transactions falls within the ambit of section 188.
22. SECTION 178:- NOMINATION AND REMUNERATION COMMITTEE
The proposed amendment in the provision introduces that
Rather every Listed Company, every Public Listed Company shall form a Nomination And Remuneration Committee i.e. NRC.
The purpose of the committee is to specify the blueprint for the evaluation of the performances of the Individual directors, Boards, and Committees either by the NRC, or Individual Director.
The policy should exhibit on the Company’s website instead of imparting it in the Board’s Report if and only the mandatory changes and salient features required to be disclosed in the Board’s Report.
The purpose of this amendment is to assist the performance of the members of the company.
23. SECTION 185:- LOAN TO DIRECTORS ETC.
The proposed amendment has inserted a completely new section. The provision restricts onto providing security loan or guarantee in the context of any loan to the director.
The loan could be granted to some parties under the Special Resolution of shareholders and under certain prescribed conditions.
24. SECTION 188:- RELATED PARTY TRANSACTION
The amendment to the provision states the Restriction over the voting power of the members, which was not imposed in the Company Act 2013.
If Ninety percent or more members in numbers are relatives to the promoter or related parties then the voting by relatives in the general meeting shall not be applicable to the company, of same.
The amendment also proposes that the transactions will be nullified at the option of the Board or shareholder due to non-ratification, of the same transaction.
25. SECTION 195:- PROHIBITION ON INSIDER TRADING
The section has been omitted by the amendment proposed in the year 2017.
26. SECTION 435:- ESTABLISHMENTS OF SPECIAL COURTS
There is no such provision in the Company Act 2013
The proposed amendment inserted the provision for the establishment of a Special Courts by the Central Government with the view to conducting speedy trials in the cases related to the offense under the company act. The offenses, under the same, will be punishable with the imprisonment of two years or more.
27. SECTION 447:- PUNISHMENT FOR FRAUD
The proposed amendment states that:
Any person if found guilty for the offense of fraud, or any, with an amount of rupees ten lakh or one percent of company turnover, whichever is lower, shall be punishable. The punishment for such offenses shall be imprisonment amounting not less than 6 months, which could be extended to 10 years. The accused will also be liable to pay the fine which shall not be less than the amount involved in the fraud, which could be increased up to three times the amount involved in the fraud.
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