Companies Act 2013

Highlights and Key Features

Contents
Introduction
Major Changes
New types of companies
Incorporation
Management of company
Board Meetings
Committees of the Board
Accounts
Dividend
Audit & Auditors
Share Capital and Debentures
Related Party Transaction
Loans and Investment
Deposits
Way Forward
Timeline
Companies
Bill 2011
Lok Sabha
18
th
Dec 12
Rajya Sabha
8
th
Aug 13
Companies
Act 2013
29 Aug 13
98 Sections
12
th
Sep 13
183 sections
26
th
Mar 14*
Rules corresponding to the above sections notified
E-forms available for filing from 28
th
April, 2014
(Effective 1
st
Apr 14)
Outline of the Act
Companies
Act 2013
Companies
Act 1956
Companies Act 2013:
Concise
Forward looking
Subordination to Rules
Uniformity
Easy navigation
Less number of sections and more number of rules to enable
adaptation of changing economic technological environments
New types of companies defined
E forms numbered with reference to chapter
Meetings through video conferencing allowed
Penalties for non compliance increased manifold
Increased compliances for Private Limited Companies
(Deposits, Loans, Meetings, etc.)
Key Highlights
Entity Structure in new Act
Entity Structure in the new Act
Access to
capital
Listed
Unlisted
Members
One
Person
Company
Private
Company
Public
Company
Control
Holding
company
Subsidiary
company
Associate
company
Liability
Limited
Shares
Guarantee
Unlimited
Size
Small
Company
Activity
Dormant
Company
Others
Foreign
company
Nidhi
Producer
company
Government
company
Not for Profit
Sec 8
Major changes
Private Company: Maximum no. of members = 200
Public Company: Subsidiary of public company deemed to be
public company
Associate Company: Company in which significant influence is
held (except subsidiary, includes joint venture)
Holding Subsidiary relationship: Control of > of total share
capital
Subsidiary Company: Not permissible to have more than 2 layers
of investment subsidiaries. Following are the exceptions:
Acquisition of company incorporated outside India (having more than 2 layers)
Investment made to meet requirements of any law in force
Types of companies
Books of Account: Allows maintenance of books of account in
electronic form
Financial Statements: Defined as a compilation of following:
Balance Sheet
Profit and loss account
Cash Flow statement
Statement of changes in equity
Explanatory statement
Financial Year: 1
st
April to 31
st
March (Companies with holding /
subsidiary company outside India can make an application for change)
[Transitional Period: 2 years i.e. by 1
st
April 2016]
Accounts
Promoter:
Shareholder / director having direct / indirect control
Company is accustomed to act on instructions (except prof. advise)
Person named as promoter in prospectus
First subscribers to memorandum
Related Party: Scope of definition expanded (discussed later)
ESOP:
Option to purchase shares at future date at predetermined price.
Can be given to directors / employees / officers of company / holding co. /
subsidiary co.
Management
Maintenance of books of account
Maintenance of documents / registers
Meeting of the Board through video-conferencing
Mandatory digital signature for all directors
Recognition of electronic mode
New types of companies
One Person Company (OPC)
Only one member / shareholder
Minimum of one director
Only one person as member (except minors)
Requires nominee (except minors)
Only a natural person can form / nominate
Can be incorporated only with 1 Director but can have upto 15 directors
Member / nominee to be citizen & resident
One Person can incorporate a single One Person Company and a Nominee can act as
such only in 1 OPC
Compulsory conversion to Pvt. / Public company on meeting certain criteria
Cannot be formed / converted into Section 8 Company
Cannot carry out NBFC activities
One Person Company (under Pvt. Co.)
No requirement of holding AGM / EGM
Ordinary / special resolution need only be communicated by
member to company and entered in minutes book
Where there is only one director, the resolution of Board means
communication by the director to the company and such
resolution shall be entered in the minutes book
Need not annex cash flow statement to its financials
Annual return can be signed by only one person i.e. Company
secretary, and in absence of company secretary, by the director
of the company
Benefits / Relaxations
Only one director needs to sign the financial statements
Boards report will only include the statement of director(s)
on every qualification, reservation, adverse remark or
disclaimer by auditor(s)
Financial statements to be filed with the Registrar within
180 days of closure of financial year
Board meetings: Only one in each half year and gap between
two meetings not to be less than 90 days. (Not applicable in
case of one director)
Benefits / Relaxations (contd.)
Small Company
Private company
Paid up share capital 50 lakhs, or
Turnover 2 crores
Meaning:
Paid up share capital 50 lakhs or
Turnover as per last P&L 2 crores
Exclusions:
Holding company / subsidiary company
Section 8 company (not for profit)
Company / corporate governed by special Acts
Small Company (only for private company)
Need not annex cash flow statement to its financials
Annual return can be signed by only one person i.e.
Company secretary, and in absence of company
secretary, by the director of the company
Board meetings: Only one in each half year and gap
between two meetings not less than 90 days
Benefits / Relaxations
Dormant Company
Companies meeting eligibility criteria can
make application for dormant status
Inactive companies not filing financials and
annual return for 2 years
Eligibility:
formed for a future project, or
to hold an asset / intellectual property
and has no significant accounting transaction
Companies fulfilling the above criteria can make application
for change in status from active to dormant
Change of status by ROC: Where a company does not file annual
return / financial statements for 2 consecutive financial years,
ROC can enter its name in Dormant Companies Register
Dormant company
Need not annex cash flow statement to its financials
Board meetings: Only one in each half year and gap
between two meetings not less than 90 days
Annual return for dormant companies carry less
disclosure requirements
Provisions related to rotation of auditors shall not apply
Benefits / Relaxations
Incorporation
Forms of memorandum and articles for all types of
companies given as Schedules
Objects: (i) Main objects (ii) objects necessary for furtherance
of main objects
Entrenchment: Articles may provide for additional restrictions
to make changes in Articles than that given by the Act
Memorandum & Articles
ROC will carry out the following verification:
Trademark database
Existing similar name
Proposed name includes prohibited name (except where CG approval is
taken)
If proposed name conforms with above disqualifications, name
will be rejected
No automatic approval
Approval valid for only 60 days; no extension possible
No resubmission possible
Application for name
In case place of registered office is not yet decided, facility
to provide for temporary address for communication (valid
for 15 days from incorporation)
Payment of amount subscribed to be made upon registration
List of companies having same registered address to be
provided to ROC
Interest of directors in other entities to be filed with ROC
Additional procedural compliances required such as filing of
affidavit etc
Changes in Incorporation Process
No company with share capital can commence business
or borrow money unless:
A declaration has been filed with the Registrar that the
subscribers to memorandum have paid the necessary amount
Registered office has been verified
If no declaration is filed within 180 days of
incorporation, Registrar will initiate process for removal
of name
Commencement of business
Every company shall:
Paint / affix its name and address of registered office at
each office / branch / business location in local language
Name / address of Reg. Office /CIN / tel. no. / fax / email /
website on all business letters, billheads, letter papers,
notices, official publication
In case name has been changed, former name to appear in
all the above documents
Display of name, co. documents, etc.
Management of company
[Sec 149, Sec 152, Sec 196 to Sec 205]
Appointment of Directors
General Provisions
Condition OPC Private Public
Min. 1 2 3
Max 15 for all cos.
Can be increased by Special Resolution
Key Points
Appoint resident director if all
directors are NR
If directors travel frequently, assess
residential status
Appoint additional / woman /
independent director, if applicable
1 resident director must for all cos.
Appointment of woman director &
independent director
Absence of director > 3 months =>
Alternate director by Board
Transitional Period: 1 year i.e. 1
st
April,
2015
Max. no. of directorships = 20 (not more than 10 public cos.)
Register of directors to include details of KMP
Every change in director / KMP to be notified to ROC in DIR-12
Absence from meetings for 12 months with / without leave of
absence will vacate office
Resigning director to intimate ROC within 30 days of
resignation along with reasons for resignation
Other provisions
Independent Director
Applicable to public companies
Better governance
Rotation after max. 2 terms of 5 years
Cooling period of 3 years
Type of company Number of independent directors
Listed public company 1/3
rd
of total number of directors
Public companies meeting any of the
following criteria:
Paid up share capital 10 crores
Turnover 100 crores
Outstanding loans + deposits +
debentures 50 crores
2 (two)
Independent Director
Transitional Provision:
Every company meeting the above criteria shall appoint such number of independent directors
within one year of commencement. i.e. by 1
st
April 2015.
Director other than MD / WTD / nominee director,
person of integrity and posseses relevant expertise and experience
is / was not a promoter of the company / holding / subsidiary
company
not related to promoter / directors of company / holding /
subsidiary company
no pecuniary relationship with company / holding / subsidiary
company, or promoters / directors of above during immediately
preceding 2 financial years
no relative has pecuniary relationship with abovementioned parties
in excess of 2% of gross turnover or 50 lakhs rupees (lower of the
two) during immediately preceding 2 financial years
Eligibility Criteria of Independent director
who / whose relative, during immediately preceding 3 financial
years:
has not been KMP / employee of company / holding / subsidiary company for
immediately preceding 3 financial years
is not / has not been employee / proprietor / partner of
firm of auditors / company secretary / cost auditor of company / holding /
subsidiary company
legal / consulting firm with which company / holding / subsidiary company has
had transaction amounting to more than 10% of gross turnover of such firm
Does not hold (together with relatives) 2% of voting power of the
company
is not CEO / director of non-profit company which receives 25% of
its receipts from company / promoter / directors of company /
holding / subsidiary company
Eligibility Criteria of Independent director
Possessing skills / expertise / knowledge in any or more
of the below mentioned fields:
management, law, finance, sales, marketing, administration,
research, corporate governance
technical operations / other disciplines related to companys
business
Qualification requirement
Clause 49 of Listing Agreement prescribes requirement
of appointment of independent director(s)
Different eligibility criteria in Listing Agreement and Act
Till such time as SEBI / MCA comes out with
clarification, companies will have to follow stricter
eligibility criteria
Companies will have to reconsider their appointments in
light of new provisions of Companies Act 2013
Requirement of Listing Agreement
Woman Directors
Mandatory appointment by companies
meeting specified criteria
Following companies are required to have at least one woman
director on its Board:
Every listed company
Every other public company having:
Paid up share capital 100 crores
Turnover 300 crores
Appointment of woman director
Transitional Provision:
Existing companies meeting above criteria shall fulfil requirement
within 1 year i.e. by 1st April 2015
Key Managerial Personnel
Holds specified designations
Stricter liabilities & responsibilities prescribed
Key Managerial Personnel
Meaning / Inclusions
Defined to include CEO, MD,
manager, CS, WTD, CFO
Designations of CEO and CFO
given recognition
KMP included in the definition
of officer, officer who is in
default and related party
Key Points
Disclosure of interest by KMP in
the same way as directors
Cannot enter into forward
contracts / carry on insider
trading
Liabilities of officer / officer in
default to be applicable to KMP
KMP not to hold office in more
than one company. However, with
Boards permission, can hold
position of director in another
company.
Applicability:
Listed Company
Public company: Paid up cap. > 10 crore
Cos. fulfilling above criteria to have:
MD / CEO / Manager / WTD
CS
CFO
Appointment of MD / CEO / chairperson to be authorized by articles (except in
case of multiple businesses where each business can have a CEO)
Authorization by articles required (except in case of multiple businesses where
each business can have a CEO)
Only Board resolution required except in case of a related party being appointed
as such.
Appointment of KMP
Functions:
Compliance with Act / Rules
Reporting to Board
Secretarial standard compliance
Facilitate and attend BM / CM / GM & maintain minutes
Obtain approval from Board / GM / Govt. to represent before
regulators, discharge duties on behalf of company
Assist board for conducting affairs, good corporate governance
Company Secretary
Provisions for appointment of MD/WTD are applicable to Private Companies
also.
MD and manager cannot be appointment at a time
One Term limited to 5 years, maximum such terms not specified
Reappointment possible only one year prior to end of term
Board resolution & Special Resolution for appointment (mentioning terms of
appointment, remuneration, etc.)
CG Approval where applicable
Disqualifications: Min. & Max. Age: 21 and 70 years; Undischarged insolvent; Suspended
payment to creditors / composition with them; Conviction of offence (sentence > 6m) at any
time
Appointment of MD / WTD
Remuneration
Remuneration to Other Directors
Where there is no MD / WTD = 3% Where there is a MD / WTD = 1%
Remuneration to a MD / WTD
Where there is only one MD / WTD = 5%
Where there are more than one MD / WTD =
10%
Remuneration Payable by Profit making public company
Total Remuneration = 11%
Inadequate profits: Profits which are not sufficient to pay the remuneration to the managerial persons as per
the employment contract with the managerial personnel and based on estimated profits.
Applicable to Private Companies also!!!
Higher of the two (A) or (B): (Requires ordinary resolution)
In the case of a managerial person who was not a shareholder (holding nominal value of Rs. 500,000),
employee or a Director or a relative of a director or promoter of the Company at any time during the 2 years
prior to his appointment as a managerial person, 2.5% of the current relevant profit.
Special resolution: Limits get doubled. For more than double, CG approval required
Remuneration in case of inadequate profits
Where the Effective Capital (EC) is Yearly remuneration (Rs.)
Negative or less than 5 Crores
30 Lakhs
5 Crores and above but less than 100 Crores
42 Lakhs
100 Crores ad above but less than 250 Crores
60 Lakhs
250 Crores and above 60 Lakhs plus 0.01% of the EC in excess of Rs. 250 Crore
A
B
Conditions:
Resolution in general meeting as required (notice to contain
details as per Rules)
Approval of Board / NRC
No default in repayment of debts / deposits / debentures for
continuous period of 30 days in previous FY
Special resolution for a period not exceeding 3 years has been
passed
Remuneration in case of inadequate profits
Unlisted public cos. and private cos. (above conditions to be fulfilled)
Remuneration paid by either foreign co. or Indian co. with shareholders
approval
Remuneration 2 times the amount stated:
Newly incorporated co. (7 years) : remuneration 2 times the amount stated
5 years from sanction of scheme of revival (BIFR / NCLT)
Limits sanctioned by BIFR / NCLT in excess of mentioned in table + co. is regular in
payment to creditors / depositors + Certified by CS / Auditor / PCS as applicable
In case of a company in a SEZ: An amount up to Rs. 2.40 Crores PA (should not have
raised money from public, no default in repayment of debts for continuous period of 30
days in previous FY)
No CG Approval for
Listed Companies:
Boards report: Ratio of remuneration of each director to median of employees
remuneration, other details as per Rules
Name of every employee
Employed throughout the whole FY
Employed for a part of year but drawing remuneration > Rs. 5 Lacs p.m.
Employed throughout or for a part of year but was drawing remuneration at a > MD / WTD
/ manager and holds > 2% shares (himself / spouse / dependent children)
Employees deputed outside India (not directors / relatives) and drawing a
remuneration of Rs. 60 Lacs p a or Rs. 5 Lacs p m: Circulated to members in the
Boards report and filed with the ROC along with the financials and Boards Report
All appointments of KMP to be intimated to ROC within 30 days
Disclosure for remuneration
Board Meetings
[Sec. 110, Sec. 173 to Sec. 175 & Sec. 179 to
Sec. 184]
First Board Meeting within 30 days of incorporation
Min. 4 BM in a year (gap < 120 days)
Notice of 7 days. (Shorter notice requires presence of
independent director at the meeting)
Quorum: 1/3
rd
of total directors or 2, whichever is higher
In case of circular resolution: Notice to be sent to all
directors with draft resolution, approval of majority
required
Circular resolution to be noted in general meeting
Board Meetings
Board meetings through video conferencing allowed
Record & storage must, for recognition of participation
Chairperson / CS to ensure proper security / availability of equipment for
recording & identification
Director willing to attend by video conferencing during the year to intimate
Board in beginning of each calendar year
No video conferencing for following:
Approval of Financial Statement & Boards Report
Approval of prospectus
Audit committee for consideration of accounts
Approval for amalgamation / merger / demerger / acquisition / takeovers
Video conferencing
Securities
Make calls on amount unpaid on shares, authorize buy-back, issue securities within / outside
India
Funds:
Borrow money, grant loans / guarantee / security, invest funds, political contributions
Buy / sell investments (other than trade investments) > 5% of paid up cap. & free reserves
Invite / accept / renew public deposits, change of terms
Re-organization: Diversify business, amalgamation, merger, reconstruction, takeover
KMP & their team, Directors:
Appointment, note of changes in level below KMP,
Note disclosure of directors interest / shareholding
Appoint internal & secretarial auditors
Approve quarterly, half yearly, annual financial statements / reports
Matters to be considered at BM
Matters requiring special resolution in GM
Sell / dispose off whole / substantially whole undertaking
Invest compensation of amalgamation / merger (except trust
securities)
Borrow money, after which total borrowings will exceed paid
up cap. & free reserves (excludes temporary loans)
Remit / give time for repayment of loans due by director
All matters applicable to private company also
Matters not to be considered at BM
Matters to be considered only through postal ballot (only public companies)
alteration of Object clause,
alteration of AOA specifically relating to registered office,
change in registered office outside local limits,
issue of shares with differential rights,
change in objects for which company has raised money but it is still unutilized,
variation in rights of class of shares or debentures,
buy-back of shares,
election of director u/s 151,
sale of an undertaking,
giving loans / guarantee / security in excess of limits specified u/s 186 or
Where any businesses in respect of which Directors or Auditors have a right to be
heard at the meeting.
Matters requiring Postal Ballot
Directors interest and register
Contracts > Rs. 500,000 to be entered in Register
Director / KMP to disclose interest in Form MBP-1 within 30 days of appointment /
relinquishment
Director to give notice of interest in his first BM as director and every first BM of financial
year and notify change in BM after every change
Entity Type of interest to be disclosed by director / KMP (not to
participate in Board Meeting)
Body Corporate Director either:
holds > 2% shareholding (incl. in association with any person)
Is a promoter
Is manager / CEO
Other than body corporate Director is a partner / owner / member
Committees of Board
[Sec. 177 and Sec. 178]
Applicability:
Listed Company;
Public Company: Paid up cap 10 crores, turnover 100 crores, o/s borrowings 50 crores
Composition and Conduct:
At least 3 directors (majority independent directors)
Almost all directors should be capable to understand financials
Auditor to be present when financials are being considered
Scope includes: review of auditors independence, performance, remuneration, matters
concerning financials
Deleted from CA 1956: Compulsory half yearly review of financials; Compulsory
attendance of chairman to general meeting
Transit period : 1 year
Composition & Recommendations to be part of Boards report along with
reasons
Audit Committee
Applicability:
Listed Company;
Public Company: Paid up cap 10 crores, turnover 100 crores, o/s
borrowings 50 crores
Composition & Conduct:
Min. 3 non-exec. Directors (majority independent directors)
Chairperson of company can be member but not chairperson of
committee
Role: Policy for qualification & appointment of Board & independent
directors, remuneration of directors/ KMP / employees
Policy to be disclosed in Boards report
Nomination & Remuneration Committee
Applicability:
All Companies having more than 1000 shareholders
Composition & Conduct:
Non-executive Chairperson
Members to be decided by Board
Role: Solve grievance of stakeholders / members
Chairperson (or member authorized) to attend general
meeting
Stakeholders Relationship Committee
Accounts
[Sec. 123 to Sec. 148]
Maintenance of records
Provisions
Books to be kept at registered office
including for branch office
May keep books at other place after
resolution in Board Meeting
Accrual basis
Electronic mode of book-keeping
recognized
Open for inspection
Maintenance for 8 financial years
(excluding current FY) including
vouchers unless investigation is
ordered
Key Points
Can maintain electronic records
Retain books for 8 years
Pass Board resolution if books are
kept at a place other than
Registered Office
Books of branch office
Provisions
To be kept at registered office
May be kept at other place if
resolution passed at Board
Meeting
In case of branch outside India,
periodic returns to be sent to
India and kept at Registered
office or other place as
mentioned above
Key Points
Instead of sending returns at
every 3 months, periodic
returns should be sent.
(reasonable judgment to be
applied)
Open for inspection.
Financial Statements
Provisions
Comply with prescribed accounting
standards
Shall be laid before AGM
Consolidated financials must for every
company (Subsidiary includes associate and
joint venture)
Salient features (notes) for each subsidiary
also to be attached
Deviation from accounting standards to be
given in notes along with explanations
To be signed by chairperson of the company
or by 2 directors (MD and CEO, if director),
CFO and CS
Key Points
Increased costs and compliances
Multiple compliances: consolidated
financials, notes
Conflicting definitions of associate,
joint venture, etc. in Companies Act and
Accounting standards to pose dual
compliances until NFRA prescribes
accounting standards / comes out with
clarification.
Signatures as per Act, annex auditors
report to financial statements
Additional responsibilities for directors
In case of listed companies
internal financial controls followed by the company are adequate and
were operating efficiently
Devising proper systems ensuring compliance with all
applicable laws
Systems shall be adequate and operating efficiently
Directors Responsibility Statement
Internal financial controls shall mean
Policies and procedures adopted by company for ensuring
the orderly and efficient conduct of business
Adherence to companys policies
Safeguarding of its assets
Prevention and detection of frauds and errors
Accuracy and completeness of accounting records
Timely preparation of reliable financial information
Directors Responsibility Statement (Contd)
Additional disclosures in the Boards report with respect to
Financials
Extract of Annual Return
Financial highlights
Adequacy of internal financial controls with respect to financials
Particulars of loans and investments u/s 186, contracts with related parties u/s
188
CSR policy and responsibilities taken
Board
Number of meetings of the Board
Independent directors declaration
Boards Report
Companys policy on appointment and remuneration in case it has NRC
Annual evaluation of the performance of the Board, its committees and
individual directors
Details of directors and KMPs appointed or resigned during the year
Others
Explanation and comments on qualification, reservation of CS
Risk management policy of the company
Change in nature of business
Companies ceased to be subsidiaries, associates or JVs with reasons thereof
Deposits accepted, remained unpaid and the reason for default
Orders if any passed by the regulators
Boards Report (contd)
Re-opening & revision of accounts
Re-opening & Recasting
Conditions:
Fraudulent accounts
Mismanaged affairs
Application by:
Central Govt.
Income Tax Authorities
SEBI, etc
Implication:
Tribunal may order re-opening of
accounts
Revision
Conditions: Financial statements or
Boards report do not comply with
provisions of governing sections
Application by: Director(s)
Period: Any of the three (3) preceding
financial years (only once in financial
year)
Implication:
Tribunal may order re-casting of
accounts
Detailed reasons for revisions to be
given in Boards report
Applicability
Any Company with net worth of 500 Crores or more, T/O of 1000 Crores or more, or Net Profit
of 5 Crores or more.
Composition and Conduct of committee
It shall consist of at least three or more directors of which at least one shall be an
independent director
The Committee shall formulate and recommend to the Board, a Corporate Social Responsibility
Policy containing the details of activities to be undertaken and should also recommend the
amount of expenditure to be incurred.
The company shall spend 2% of its avg. net profits of the immediate preceding 3 FYs on CSR
activities during the year.
Preference to be given to local area and areas around which it operates for
spending towards CSR
Company can also undertake such activities through a registered Trust or society or
Sec 8 company etc.
Reasons for not spending amount to be mentioned in Boards Report
Corporate Social Responsibility
Violation of Responsibility Minimum fine Maximum Fine
Preparation of books or
financial statements
Company and KMP
charged with
responsibility of
this compliance
For both:
Rs. 50,000
For company:
Rs. 500,000
For KMP:
Rs. 500,000
Imprisonment of 1 year
Or both
Approval of financial
statement by Board
and Boards Report
Company and
officer
For both:
Rs. 50,000
For company:
Rs. 25,00,000
For officer:
Rs. 500,000
Imprisonment of 3 years or both
Annual filing Company and
officer
For Company:
Rs. 1000 per day
For officer:
Rs.100,000
For company:
Rs. 10,00,000
For officer:
Rs. 5,00,000
Imprisonment of 6 months or both
Penalties
Schedules relating to
accounts
Applicable from FY 2014-15
Useful life and rates of depreciation prescribed for different assets
Residual value not to be > 5%
No different rates for shift working. 2 shift: add 50%, 3 shift: add 100% of
depreciation
Depreciation on intangibles to be governed by Accounting Standards
If any part of asset significant to total cost has a different useful life, useful life of
such part shall be determined separately
Disclosure depreciation methods used and useful lives considered if they are
different from those specified
Depreciation
Transitional Provision:
Carrying amount to be depreciated as per Schedule II
If remaining useful life is NIL, carrying amount to be transferred to retained earnings
NATURE OF ASSETS
Schedule XIV Schedule II
W.D.V
(%)
S.L.M
(%)
Useful Life Useful Life
Buildings (other than factory buildings) 5.00 1.63 58 30/60
Factory Building 10.00 3.34 28 30
Motor-cars 25.89 9.5 10 6
Furniture & Fitting 18.10 6.33 15 10
Data Processing Machines including computers 40.00 16.21 6 3
Plant and Machinery; other than continuous process
plant for which no special rate has been prescribed
13.91 4.75 20 15
Plant and Machinery; continuous process plant, other
than those for which no special rate has been
prescribed
15.33 5.28 18 8
Depreciation current rates
Accounting Standards (AS) to be followed
Disclosure requirements in Act in addition to AS
Rounding off as follows:
Format similar to Schedule VI of CA 1956 (revised)
Additional information in case of consolidation prescribed
Instructions to prepare BS / PL
Turnover Rounding off
Less than 100 crores Nearest hundreds, thousands, lakhs or millions
100 crores or more Nearest lakhs, millions or crores
Dividends
Sources of dividends:
Profit for the year (after dep.)
Undistributed profits (after dep.)
Money granted by CG / SG for declaration of dividend
Transfer to general reserve not mandatory as in CA 1956
Declaration only out of free reserves
Inadequacy of profits(out of accumulated reserves):
Rate of dividend not more than last 3 yrs avg. rate (no dividend in last 3 years, no limits
applicable)
Total amount drawn from reserves not more than 1/10
th
of paid up cap & free reserves
Amount drawn to be set off against losses in the current year before declaration
Balance of reserves not to fall below 15% of paid up capital
Dividends
Interim dividend:
Out of surplus profits of current year
In case of loss, the conditions of inadequacy of profits to apply
Amount declared to be transferred to separate account
within 5 days
Payment in electronic mode recognised
Companies with default in deposit acceptance / repayment
cannot declare dividend
Dividends (contd.)
Audit & Auditors
All listed cos. and public cos. with
paid up capital Rs. 50 Crores or more,
T/O Rs. 200 Crores or more,
O/s loans and borrowings Rs. 100 Crores or more, or
O/s deposits of Rs. 25 Crores or more
Shall appoint an Internal Auditor
Who can be a CA, CWA, or such professional decided by the Board who
may or may not be an employee of the company
Transit period for existing companies is 6 months from the
commencement of Sec. 138 of the Act. i.e., by 30
th
September, 2014
Appointment of Auditors - Internal
First appointment for 5 years at the first AGM
Rotation Applicability (other than listed):
Rotation period:
No audit firm having a common partner to other audit firm shall be appointed as an
auditor during the cooling period of the company
Transit Period: 3 years
Appointment of Auditors - Statutory
Company Paid up capital Borrowings
Public 10 Crore 50 crore
Private 20 crore 50 crore
Auditor type No. of Years Cooling Period
Individual 1 term of 5 years 5 years
Firm 2 terms of 5 years (10 years) 5 years
Applicable to all companies (including foreign companies)
Engaged in strategic sector
Industry regulated by a Sectoral regulator or ministry or department of CG
Other specified companies (railways, base metals, minerals, fuels (organic / inorganic)
Providers of health care and educational (including philantrophy) services
Net worth > Rs. 5 Crores
T/O > Rs. 20 Crores
Cost Auditor (CWA) & statutory auditor cannot be same, all qualifications / disqualifications
apply mutatis mutandis
Cost Auditor to be appointed by Board and Report to be submitted to the Board only
Copy of report to be furnished to CG within 30 days with explanation on every reservation /
qualification
Provisions of punishment for contravention apply to cost audit / auditor also
Cost Audit
List of disqualifications now include criteria based on
relatives also
Following non-audit services attract disqualifications:
Accounting and book keeping services
Internal audit
Design and implementation of financial information system
Actuarial services
Investment advisory services
Outsourced financial services
Management services
Eligibility, qualifications, disqualifications
Details of issues where company has failed to provide information and explanations
Observation on financial transactions / matters having adverse effect on
functioning of company
Qualification, reservation or adverse remark relating to maintenance of accounts
Comment on adequacy of internal financial controls and its effectiveness
Impact of pending litigations on financial statements
Provision on material foreseeable losses on long term contracts
Fraud reporting to Central government
Transfer to IEPF
Additional reporting responsibility
Violation of Responsibility Minimum fine Maximum Fine
Duties of auditors CA / CS / CWA,
as applicable
Rs. 1 lakh Rs. 25 lakhs
Appointment,
eligibility,
remuneration,
duties, etc. with
respect to statutory
auditors or cost
auditors
Company,
officer and
auditor
For company:
Rs. 25,000
For officer:
Rs. 10,000
For auditor:
Rs. 25,000
For company:
Rs. 5 lakh
For officer:
Rs. 1 lakh or 1 yr.
imprisonment or both
For auditor:
Rs. 1 lakh
Penalties
Applicability
All listed cos. and public cos. with capital more than Rs. 50 Cr., T/O
more than Rs. 250 Cr. shall have a secretarial audit conducted
Compliance
The audit shall be conducted by a PCS
The report of the same shall be annexed to the Boards Report
The Board of Directors, in their Report, shall explain in full, any
qualification or observation or other remarks made by the PCS in its
Audit Report
Secretarial Audit
Share capital & Debentures
[Sec. 42, Sec. 43, Sec. 47, Sec. 48 and Sec. 62]
Raising capital
New company cannot commence business until confirmation
has been given regarding receipt of subscription money
Share certificates to be issued within 2 months of
incorporation, within 1 month of transfer / transmission
Certificate to be issued within 3 months of allotment of
debentures
Shares, other than sweat equity, cannot be issued at a
discount.
Shares with differential rights will not exceed 26% of the
total Post issue Paid up capital of the company.
All offer to subscribe / allotment of shares otherwise than by
public offer means private placement
Applicable to both private & public companies & for all securities
Offer to not more than 50 persons at one point in time 200
persons in one year (excl. ESOP / QII)
Should be within Rs. 20,000 per person (face value)
Approval by special resolution for making offer
Person to whom the offer is made shall make the payment (only
bank account of offeree) (No cash payment allowed)
No further offer of shares unless allotment for previous offers
have been completed
Allotment within 60 days of receipt of application money (details
to be filed with ROC)
Private Placement
Includes equity shares, fully / partly convertible debentures, other convertible
securities
To be approved by Articles & Special Resolution
Detailed notice of meeting giving particulars of persons to whom offered, pre
& post issue holding of promoter group, value, etc.
It may / may not include existing shareholders or employees
Consideration in cash / other than cash (fully paid at allotment)
Valuation to be done by registered valuer (except listed co.)
Conditions of private placement to apply
To be completed within 12 months of passing special resolution
Preferential Allotment
Special Resolution for issue
Further issue in case the company is not in a position to
pay dividend / redeem earlier shares to be consented by
3/4
th
preference capital holders and Tribunal
No subsisting default in dividend payment / redemption
at the time of issue of further issue
Redemption to be done within 20 years
Preference shares
Preference shareholders can vote on reduction /
repayment of equity / pref. capital; matters affecting
pref. capital
In case of unpaid preference dividend for 2 years,
holders can vote on all resolutions placed before the
meeting
Proportion of voting rights in ratio of paid up capital
Voting rights
Only sweat equity shares can be issued at discount
Sweat equity can be issued to employees of subsidiary / holding company
Approval by special resolution in case of unlisted companies issuing shares to
directors / employees for providing intellectual property / knowhow
Sweat equity capital not to exceed 25% of paid up cap.
Value at which shares shall be issued to be carried out by Registered Valuer
Valuation of intellectual property / knowhow to be carried out by Registered
Valuer
Disclosure in boards report in the year of issue of sweat equity shares
Sweat Equity Shares
Bonus shares can be issued out of:
Free reserves
Securities premium account
Capital redemption reserve
Conditions:
Authorised by articles & approval in general meeting
No default in repayment of deposits / debt securities
No default in payment of PF / gratuity / bonus for employees
Outstanding partly paid up shares to be made fully paid up
No bonus in lieu of dividend
Bonus Shares
ESOP (for unlisted & pvt. co.)
Can be issued to
Permanent employee in India /
outside India
Director (excl. Independent director)
Employee / director of holding /
subsidiary / associate (excl.
independent director), does not
include
Promoter group
Director (along with relatives)
holding > 10% of existing equity
capital
Conditions
Approved by special resolution
Separate resolution in case of grant of
option to employee of holding /
subsidiary / associate; or in case grant
of option to identified employees > 1%
of existing paid up cap
Minimum 1 year between grant and
vesting of option
No voting / dividend rights until option
exercised
Non transferable (except legal heirs)
Disclosure in Boards Report
Related Party Transaction
[Sec. 2(76) and Sec. 188]
Related Party
Holding
company
Director / KMP / relative
Co-subsidiary Company
Subsidiary Associate
Director /
Manager /
relatives
Firm
Pvt. Co.
Public
company
Person
Other KMP /
relatives
Body
Corporate
Accustomed to act
Director /
manager /
relatives are
partner(s)
Director /
manager is
director /
member
Director /
manager is
director / 2%
holder of eq.
shares
Sale / purchase / supply of goods/material
selling / disposing / buying of property of any kind
leasing of property
availing / rendering of services
appointment of any agent for purchase or sale of goods, material,
services or property
appointment to any office or place of profit in the company, subsidiary
or associate
underwriting the subscription of any securities or derivatives thereof
Related Party Transaction
The transaction should be entered in normal course of business and at arms length
In case of transactions not at arms length, Boards approval will be required
In following cases, special resolution in members meeting is required:
Paid up cap. > 10 crores
Sale / purchase (incl. through agents) > 25% of annual turnover
Selling / disposing / buying property (incl. through agents) > 10% of net worth
Leasing of property > 10% of net worth
Availing / rendering services (incl. through agents) > 10% of net worth
Appointment at place of profit in co. / subsidiary / associate > 2.5 lakhs remuneration
Underwriting remuneration > 1% of net worth
Interested member not to vote at such meeting
For all the transactions, the approval of Audit Committee is a must
All related party transaction to appear in Boards meeting
Conditions
Full disclosure along with justification to be given in
Boards report
Ratification by Board in case previous approval not
taken (ratification by shareholders after 3 m)
Heavy penalties including disqualification to be
appointed elsewhere if convicted for offence for related
party transaction
Compliances
In case of violation of the provisions of this section:
In case of a listed Company : punishable with
imprisonment upto 1 year or with fine < Rs. 25,000/- >
Rs. 5,00,000 or both.
In case of any other Company : fine < 25,000/- >
5,00,000/-
Penalties
Loans & Investment
[Sec. 185 & Sec. 186]
No loan (including loan represented by book debt) / guarantee /
security to directors (or person in whom director is interested)
except:
MD / WTD as a part of service condition
Pursuant to scheme approved by members
Cos. in business of granting loans (ROI RBI rate)
Loan / guarantee / security to subsidiary against own loan / bank loan / FI
loan (amounts to be utilized for principal business activity)
Applicable to directors of private companies also
Loans to Directors
Person in whom director is interested
Director Fellow Director(s)
Director of holding
company (incl. Partner /
Relative)
Relative
Partner of firm
Firm in which
partner
Pvt. Co. in which
director / member
Body
Corporate
BOD / MD / manager
accustomed to Act on
instruction of Board /
Director
Individually / together,
controls 25% voting
power
Back
In case of violation of the provisions of this section:
Company shall be punishable with a fine < Rs.
5,00,000/- > Rs. 25,00,000 .
Director or other person to whom loan is advanced:
Imprisonment which may extend to 6 months or with
fine < 5,00,000/- > 25,00,000/- or with both.
Penalties
Total Loans / guarantees / security and Investments should not be more than
higher of:
60% of its paid up capital, free reserves and securities premium account or
one hundred percent of its free reserves and securities premium account
For loans / guarantee / security / investment more than above limits: (Except
Holding to Wholly owned Subsidiary)
Special Resolution mentioning total amount that can be granted (incl. current
levels)
Approval from PFI from whom loans are taken
Restrictions on investments:
Max. 2 layers of subsidiaries, except:
Acquisition of a company outside India (which has more than 2 layers of
investment subsidiaries), or
required to keep an investment subsidiary by any other law
Other loans & investments
Restrictions on loans / guarantees / security and investments:
Companies registered under SEBI Act to adhere to limits of loans prescribed by
SEBI
Default in payment of interest / principal for deposits: Cannot give loans /
guarantee / security / takeover until default is made good
The provisions of this section are made applicable to a private company also.
Other conditions:
Rate of Interest not to be lower than govt. security close to loan tenor
Disclosure of all loans & investments & their purpose in financial statements
If securities are not in name of company, maintain a special register
Other loans and investments
Provisions not applicable to:
Allotment of shares in pursuance of further issue of capital
Banking / Insurance / housing co. in business of loans / investments
Cos. in business of financing / infrastructural facilities
NBFC (for inv. / lending) or co. in business of acquisition of securities
Other loans and investments
In case of contravention of these provisions:
Company shall be punishable with a fine < Rs. 25,000/-
> Rs. 5,00,000
Officer in default : Imprisonment which may extend to 2
years or with fine < 25,000/- > 1,00,000/-
Penalties
Deposits
[Sec. 73 to Sec. 76]
Meaning - Includes receipt of money by way of deposit / loan
/ any other form but excludes receipts from:
Banks and govt. authorities
Foreign parties (incl. banks and govt. authorities)
Other companies
For issue of securities
Directors [Declaration to be obtained that deposits are not placed
out of borrowings]
Non-interest security deposit from employee
Business purpose
Deposits
Sr. No Particulars Eligible Companies Other Companies
1 Coverage
Public Co. with NW> 100 Crores or
T/O > 500 Crores
Companies other than Eligible
Companies
2
Can Accept
deposits from
Public and Members Members Only
3
Limits
Applicable*
10% for Members, 25% for Public &
35% in special cases**
25%
4
Repayment of
existing
deposits
Not Necessary to repay subject to
certain conditions
Compulsory repayment within one year
from the commencement of this Act.
5
Conditions for
accepting
deposits
Same for both the cases
Eligible Companies and Others
*Limits are applicable to the aggregate of paid up capital and free reserves of the company
**35% is applicable in case the company is a government company, the other limits are
applicable for all eligible companies other than government companies
Conditions for accepting deposits
Issue Circular to members / public and file such circular with ROC where circular:
To disclose financial details, credit rating, details of depositors and existing due
deposits of the company
Can be circulated by way of advertisement in newspapers also
A copy signed by majority of directors to be filed with the ROC 30 days before such
advertisement
To be valid only for 6 months from the close of FY or until the presentation of
financials in the AGM
Deposit Repayment Reserve:
Minimum sum of 15% of amt. of deposits maturing during FY and next FY in a separate
bank account
Deposit Insurance:
Cos. to acquire deposit insurance 30 days before issue of advt. / date of renewal
(insurance on principal + interest)
Charge on assets:
In case of secured deposits, charge to be created on assets other than intangibles
Security by way of insurance / charge / both deposit + interest
Register of deposits to be maintain as per Rules
Rate of interest / brokerage:
Rate of interest / brokerage <= max. rate prescribed by RBI for acceptance of
deposits by NBFC
Currently, max. int. rate = 12.5%,
max. brokerage rate = 0.5%
Period of deposits repayable on demand:
6 m to 36 m (except if < 10% of paid up capital + free reserves), and repayable not
before 3 m
Conditions for accepting deposits (contd.)
Existing Deposits unpaid on or becoming due after the
commencement of this Act
File their details with ROC within 3 months from the
commencement of the Act i.e., 30
th
June 2014 under Form DPT-4
Return of Deposits under Form DPT-3 to be filed on 30
th
June of
every year is different from this statement
Repay within 1 year of commencement (01/04/2015) or due date,
whichever is earlier
For Eligible Companies if the re-payments of deposits till
date are made on time and terms and conditions are in line
with CA 1956, no repayment under this Act is required
Deposits existing prior to this Act
Milin Mehta
Partner
Office: +91 265 3086 401
Mobile: +91 98240 00926
Email: milin.mehta@kcmehta.com
Darshana Mankad
Partner
Office: +91 265 3086 412
Mobile: +91 98244 53635
Email: darshana.mankad@kcmehta.com
Dayavanti Rana
Manager
Office: +91 265 3086 456
Mobile: +91 94262 10614
Email: dayavanti.rana@kcmehta.com
Stuti Trivedi
Assistant Manager
Office: +91 79 4032 6400
Mobile: +91 99982 40000
Email: stuti.trivedi@kcmehta.com
Vishal Doshi
Partner
Office: +91 265 3086 407
Mobile: +91 98240 59901
Email: vishal.doshi@kcmehta.com