CPEStudyCircleMeetingon CompaniesBill,2012Anoverview

y y y y y y y STRUCTUREOFTHEBILL ExistingActhadsome658sectionsand14Schedules. NewBillhas470Clausesand7Schedules. HugeamountoferstwhileLawhasbeenmovedintotheRules. Thereare416occurrencesofthewordasmaybeprescribed Govt.retainsenormousrulemakingpowerandconstantchangesinthenext2/3years. Sectionshavebeenconsolidatedintosinglesection.Infact,therearelotsofnewprovisions, newrestrictionsandapprovalstobesought. TypesofcompaniesOPC,PvtLtd,PublicLimitedwithsubdivisions

March27,2013

OnePersonCompany2(62) IntroductionofOnePersoncompanyakintoUKCompaniesAct AprivateCompanysubscribedbyonecompany NameshallaffixOPCoronepersonCompany DormantCompany455 IntroductionofDormantStatus:Formedforfutureproject,holdingasassetorintellectual propertyetc Companiesnotcarryingsignificantaccountingtransaction&inactivecompanies ROCmaysuomotoissuetreatnoticefordormantstatus SmallCompany2(85) PrivateCompanyhaving

INR50lacsofpaidupcapital(orhigherlimittobeprescribednotexceedingINR5Cr; and TurnovernotexceedingINR2Crores(orhigherlimittobeprescribednotexceedingINR 20Cr) Acompanyinwhichtheholdingcompany: | controlsthecompositionoftheboardofdirectors;or | Exercisesorcontrolsmorethanonehalfofthetotalsharecapitaleitheratits ownortogetherwithoneormoreofitssubsidiarycompanies

ProvidedprescribedCompaniesshallnothavelayersofsubsidiariesbeyondsuchnumbersasmaybe prescribed AspertheprovisionsoftheAct,itismorethanonehalfofthetotalequityshare capital,howeverthetermusedbytheBillissharecapitalwhichmayincludeallkinds ofsharecapitalincludingequity,preferenceoranyotherconvertiblesecurities Minimumpaidupsharecapitalof1lacs;and Restrictstherighttotransferitsshares;and Limitsthenumberofitsmembersto200 Easeofcapitalraisingbyofferingsecuritiestomorethan50members ReferClause42(PrivatePlacement)whichrestrictsoffersofsharestonotmorethan50 peopleorsuchhighernumberasmaybeprescribed.ThisGAPneedstobeaddressed.

Thedefinitionofthetermhasbeenexpandedtoincludethefollowingclassofpersonsotherthan alreadyprovidedunderSection5oftheCosAct: Anypersonwho,undertheimmediateauthorityoftheBoardoranykeymanagerial personnel,ischargedwithanyresponsibilityincludingmaintenance,filingor distributionofaccountsorrecords,authorizes,activelyparticipatesin,knowingly permits,orknowinglyfailstotakeactivestepstoprevent,anydefault EveryDirector,whoisawareofanycontraventionbyvirtueofreceiptbyhimofany proceedingsoftheBoardorparticipationinsuchproceedingswithoutobjectingtothe sameGuiltyofEstoppelwhenresolutionispassed? Inrespectoftheissueortransferofanysharesofacompany,thesharetransfer agents,registrarsandmerchantbankerstotheissueortransfer 2

Personnamedinaprospectusorisidentifiedassuchintheannualreturn;or Whohascontrolovertheaffairsofthecompany,otherthaninprofessionalcapacity,as ashareholderoradirectororotherwise;or InaccordancewithwhoseadviceordirectionstheBoardisaccustomedtoact Impact: ControlofFraud,noncomplianceetcattractswiththiswideneddefinitionof Promoters

Acompanyinwhichthatothercompanyhasasignificantinfluence,butwhichisnota subsidiarycompanyofthecompanyhavingsuchinfluenceandincludesajointventure company

Significantinfluence: y y Controlofatleast20%oftotalsharecapital;or businessdecisionsunderanagreement;

Impact: y y y DisclosureofassociatecompaniesinfinancialreportandconsolidationforAssociateCos Widensscopeofrelatedpartiescoveringassociatepartiesunderitsambit AssociateCompanyincludedtoputrestrictionsonfollowing: y y y y y y y y y QualificationofDirectors QualificationofAuditors VacationofofficerofDirector Restrictiononnoncashtransactionsinvolvingdirectors Adirectororhisrelative; AKeyManagerialPersonnel(KMP)orhisrelative; Afirminwhichadirector,managerorhisrelativeisapartner; Aprivatecompanyinwhichadirectorormanagerisamemberordirector; Apubliccompany:inwhichadirectorormanagerisadirectororholdsalongwithhis relatives,morethantwopercentofitspaidupsharecapital

Impact: 3

 AllRelatedPartiesTransactions(RPT)tobeatarmslengthprice,similartoALPunder IncometaxAct AllspecifiedRPTtobeapprovedbyBoardofDirectorsandspecialresolutioningeneral meeting(exceptcertaintransactionswithprescribedvalueandCoswithprescribedpaid upcapital) y y Includestherighttoappointmajorityofthedirectors;or controlthemanagementorpolicydecisionsbyapersonorpersonsactinginconcert,directlyor indirectly,includingbyvirtueoftheirshareholding;or orManagementrightsorShareholdersagreementsorVotingagreementsorinanyother manner;

Impact: DefinitioninlinewithSEBIsdefinitionofcontrol y y Meanstheperiodendingonthe31stdayofMarcheveryyear TheNationalCompanyLawTribunal(NCLT)shallhavethepowertoallowadifferentfinancial yearforcompanieswhichareeitherholdingcompaniesorsubsidiariesofacompany incorporatedoutsideIndiasoastoenableconsolidationofaccountsofsuchcompanies Windowof2yeargiventoalignthefinancialsaspernewCosBill

ForeignCompany: y AnycompanyorbodycorporateincorporatedoutsideIndiawhich(a)hasaplaceofbusinessin Indiawhetherbyitselforthroughanagent,physicallyorthroughelectronicmode;and conductsanybusinessactivityinIndiainanyothermanner

Impact: y Currentlythereisnospecificprovisionformandatoryregistrationofforeigncompaniesengaged inonlinebusinesspractices,ecommerceactivitiesetc Enableeffectiveregulationofsuchentities

Listedcompany: y Meansacompanywhichhasanyofitssecuritieslistedonanyrecognizedstockexchange

Impact: 4

Withthenewdefinitionoflistedcompany,AnyCohavingsecuritieslikedebentureslistedon anystockexchangewouldbetermedaslistedCompany RecognitionofkeepingBooksofaccountsinelectronicform; LayingofConsolidatedAccountsbesidessubsidiaryshallalsoincludeassociatecompany&joint venture; Noprovisionforextensionoffinancialyear; UniformFinancialYr,i.e.periodending31stMarch Provisionofreopening/recastingofBooksofA/c Provisionofrevisionoffinancialstatements; AuthoritytoprescribeAccountingStandardsnowvestedwithCentralGovt. Alimitof20auditsperpartnerwithoutanydistinctionbetweenpublicandprivatecompanies, asagainstthecurrentICAIimposedlimitof30audits Ratificationofappointmentofauditors,bythemembersateveryannualgeneralmeetingof thecompany,hasbeenmademandatory Shareholdersatlibertytodecidebypassingresolutionthatauditpartnerandtheauditteam,be rotatedeveryyear Companyboundtoreopenandrecastitsfinancialstatementsifapplicationhavingbeenmade byfollowingandanorderhasbeenmadebytheNCLToraotherCourt y y CentralGovernment,SEBI,Incometaxauthority AnyStatutorybodyorauthorityoranypersonconcerned

y y

y y y y y y

Consolidatedfinancialstatementsofcompaniesarerequiredtoalsoincludefinancial statementsofassociatecompaniesandjointventures Classactionsuits,canbefiledagainstauditorstoclaimdamagesorcompensationforimproper ormisleadingstatementofparticularsintheauditreportorforfraudulent,unlawfulorwrongful actions ThewordfirmshallincludeaincorporatedLLP; LLPcanbeappointedasanAuditorbutonlyCharteredAccountantcanactasanAuditorunder Clause141(2);

y y

Impact: 5

y y

FormationofMultidisciplinary/HybridLLPspermitted CorrespondingamendmentstobebroughtinActsgoverningprofessionalslikeCA,CS,CWAs etc.

Clause144 Accountingandbookkeepingservices Internalaudit Designandimplementationofanyfinancialinformationsystem Actuarialservices Investmentadvisoryservices Investmentbankingservices Renderingofoutsourcedfinancialservices Managementservices Directly/Indirectlynotallowed y y y y y y y y y y y y ExpectedtoactasWhistleBlower; MandatoryAttendeeoftheAGM; ConductofInternalAuditbyCA/CWA/authorizedprofessional; Writtenconsent&CertificaterequiredincaseofAppointment; ExtraneousdutytoreporttoCentralGovt.incaseoffraud; ImpositionofCriminalLiabilityonAuditors PENALPROVISONCOMPANIESACT1956 ReplacementofNACASbyNFRA; AutonomygiventoICAIundertheC.A.Actcurtailed; HarshProvisionsofClause140&147canberestrictedtolarge&listedCos; ProhibitionofrenderingconsultancyservicestohampergrowthofCAProfession; DifficultyinSurvivalofsmallandmediumsizeauditfirms. 6

Impact: y y y y y Privatelimitedincludedundernewclause Definitionwidenedasloansgiventoanypersonincluded Clarityboughtoninclusionofsecuritiespremiumforuppercap RateofloaninlinewithyieldofGSec NewDefinitionsare. y y AssociateCompany SmallCompany EmployeeStockOption Promoter RelatedParty Turnover CEO/CFO/KMP GlobalDepositoryReceipt

KMP???? RecognitionofhighestlevelofManagementPersonnelWithLiabilitiescommensuratewith theirposition CoveredunderOfficerinDefault&RelatedParties KMPcannotbeaKMPofanyothercompanyotherthanthesubsidiary CEO/MD/Manager CoSecy WholeTimeDirector CFO NoprovisionofIndependentDirectorunderActbuttermnowdefinedintheBill PrescribedCosincludingListedCos,tohaveminimum1/3rdDirectorsasIndependent Directors 7

y y y y y y y y

y y y

LimitedTenure:Maximumof2consecutivetenuresof5consecutiveyears Notentitledtoanyremunerationinformofstockoption Insulatedfromliabilityunlessthefraudulentactisdonewiththeirconsent,knowledge& connivance Maximumlimitof11%profitsretained InsurancePremiumnotbetreatedaspartofremuneration(CTC) PublicCosrequiredtoseekpriorapprovalofCentralGovt;iflimitsexceeded AdditionalexemptionsincaseofCoshavingno/inadequateprofits EnhancedIndividuallimitsvisvisexistinglimits CSRSec135 ThisisthefirsttimewherealegalprovisionisintroducedforCorporateSocialResponsibility. Clause135(underChapterIXAccountsofCompanies) Clause135contains5subclauseswithoneExplanation. ScheduleVIIoftheCompaniesBill2012listsouttheCSRactivities. DETAILS NWofRs.500crorabove(OR) TurnoverofRs.1000/crorabove(OR) NPofRs.5croraboveduringprevfinancialyear BoardappointsCSRcommittee3orMoredirectors OneCSRcommitteemembershallbeindependentdirector PolicytobeannouncedasperScheduleVII Recommend,Monitor&Ensureamountstobespent Atleast2%ofitsaveragenetprofitmadeduringthe3immediatelyprecedingfinancialyears Explainwhytheamountwerenotspent CSRActivities(asaproject) 8

y y y y y y y y y y y y y y y

1. Eradicatinghungerandpoverty 2. Promotionofeducation 3. Promotinggenderequalityandempoweringwomen 4. Healthreducingchildmortality,improvingmaternalhealth,combatingHIV,AIDS, malaria 5. Employmentenhancingvocationalskills 6. ContributiontoPM'sfundoranyotherfundsetupbytheCentralGovernmentorthe StateGovernmentsforsocioeconomicdevelopmentandreliefandfundsforthe welfareoftheScheduledCastes,theScheduledTribes,otherbackwardclasses, minoritiesandwomen 7. Ensuringenvironmentalsustainability 8. Socialbusinessprojects 9. Suchothermattersasmaybeprescribed Constitution y y y CentralGovt.toconstituteandnotifyNFRA AQuasijudicialauthority&PowersthatofaCivilCourt NFRAOrdercanbeappealedagainstwithAppellateAuthority

Composition y Scope y y y y Advisoryrole,monitoringcompliances&InvestigationofprofessionalmisconductbyCAs; OverseethequalityofserviceoftheAuditors; MarginalizationofICAI; IntrusionintoExclusivedomainofICAIlikeInvestigation,Penalization,recommendationof Accounting&AuditingPolicies; RestrictionICAIsroletoactingasacertifyingbody; SeizureofpowertoinstituteproceedingsifalreadyinitiatedbyNFRA 9 1chairperson&members(Maximum15)

y y

Impact/Issues: MattersofmisconducthandledbyICAIinpast Validityofverdictbypeers

Nationalcompanylawtribunal(NCLT) Constitution:CGbynotificationtoconstituteNCLT&itsappellatebody,NCLAT(Proposedtoreplace CLB,BIFR&AIFR) Role y y Speedydisposalofcases;likelywithin3months AllproceedingsrelatingtoArbitration,Compromise&Arrangementshallbetransferredto NCLT SpecialCourtsforspeedytrialifrequiredbyGovt.

Means: ConsolidationofalllegalbodiesofCorporatelaw Practicalissuesregardingfunctioning,resourceandtrainingtoAuthorities

ObjectofSFIOunderNewCosBill y y y y y y Role y y y InvestigationofReportofSFIOequivalenttoPoliceReportforframingcharges Powertoarrestincaseofcertaincognizableoffences Stringentpenaltyprovidedforfraudrelatedoffences Specificenunciationofgoodgovernancepractices EasierprosecutionofDelinquentDirectors ActiveinvolvementofDirectors Enhancementofobjectivity/independencebynonexecutive&IndependentDirectors Liabilitiesspecifiedwithdefinedlimits StatusofSFIOestablishedunderBill

Impact/Issues 10

 y y y y y y

Strengtheningofinvestigationproceedings Effectiveprocessbyinclusionofexpertsofvariousfields MaintenanceofelectronicformofBooksofAccountRecognized Reopening/recastingofbooksofaccountsProvided RevisionoffinancialstatementsProvided AuthoritytoprescribeAccountingStandardsnowvestedwithCentralGovt. REGISTEREDVALUER Mandatoryappointments&Valuationofshares,networth,assets,liabilities,asrequiredunder law Specificduties&RoleofRegisterValuerhasbeenprescribed Qualification&experienceasprescribedbywayofRules AppointmenttobeeffectivebyauditcommitteeorBoardofDirectors REGISTEREDVALUER

y y y y

Mandatoryvaluation y y y Allotmentof forconsiderationotherthancash Acquisitionofminorityshareholdingbyan ofissuedequitysharecapitalofacompany

Exitopportunitytothedissentingshareholdersoftransferorcompany/listedcompanybeing mergedwithanunlistedcompany Submissionofvaluationreportbyliquidatorwheretribunalhasmadeawindinguporder Declarationofsolvencybytheboardofdirectorsincaseofvoluntarywindingup ProfessionalOpportunities AugmentedRoleinAdvisoryServices RegisteredValuerFunctionalRole AppointmentbytheNCLTasadministrators,CompanyLiquidators&Technicalmembers AppearancesbeforeNCLT,NCLATetc. RoleofIndependentDirector 11

y y y y y y y y