CORPORATE ADMINISTRATION UNIT 1: INTRODUCTION TO COMPANY Introduction The word "Company “is derived from the Latin word( Com means with or together; panis means bread),and originally referred to an association of persons who took their meals together. When sole proprietorship and partnership were the most preferable form of the business where in the persons use to invest and earn profits out of the business for themselves. Though these form of business still exist but are not the common form of business today as now the taste of consumers has changed, technology has advanced manifold etc., which requires funds, huge funds and because of involvement of few persons in sole proprietorship or partnership this need. of huge investment, production at large scale etc, was not possible. So to fulfill these needs company form of business came into existence, as also with the time demand shifted from traditional goods to the capital goods and technological products, which require huge amount of labour and capital, supply of which was not the possible for a handful of persons, Company Law in India ‘The English Common Law is the source of origin of the Company legislations in India. Various Companies Acts passed in India from time to time were based on the English Companies Act. In 1850, the first law on “registration of joint stock companies’ was enacted in India which was based on the English Companies Act of 1844 known as the Joint Stock Companies Act, 1844. This Act of 1850 recognized the company as a distinct legal entity but the privilege of limited liability was not granted to the company under the Act, The principle of limited liability was recognized in India by virtue of the Joint Stock Companies Act, 1857 which was passed following the English law, the Joint Stock Companies Act, 1856. The next law relating to Company in India was the Companies Act of 1866 legislated (based on English Companies Act of 1862) ‘for consolidating and amending the law relating to the incorporation, regulation and winding up of trading companies and other associations.’ This Act was amended and remodeled in 1882 and it remained effective till 1913. In 1913, the Indian Companies Act of 1913 was legislated following the English Companies (Consolidation) Act, 1908. This Act of 1913 was found to be highly inadequate in the course of its operation and thus it went through numerous: amendments till the enactment of the Companies Act, 1956. The Companies Act, 1956 was enacted in compliance of the recommendations of the Bhabha Committee. The major amendments in this Act were brought in 2002 which provided for the constitution of the National Company Law Tribunal in place of the Company Law Board DEFINITION ‘A company is “an association of many persons who contribute money or money's worth to a common stock and employ it in some trade or business, and who share the profit and loss (as the case may be) arising there from.” —James Stephenson Another comprehensive definition of a company by Lord Justice Lindley, “A company is meant an association of many persons who contribute money or money's worth to a common stock and employ it in some trade or business, and who share the profit and loss (as the case may be) ‘New Horizon College, Kasturinagar. Page 1arising there from. The common stock contributed is denoted in money and is the capital of the company. The persons who contribute it, or to whom it belongs, are members. The proportion of capital to which each member is entitled is his share. Shares are always transferable although the right to transfer them is often more or less restricted” Section 3 (1) (i) of the Companies Act, 1956 defines a company as “a company formed and registered under this Act or an existing company”. Section 3(1) (ii) Of the act states that “an existing company means a company formed and registered under any of the previous companies, laws” From the above definitions, it can be concluded that a company is registered association which is an artificial legal person, having an independent legal, entity with a perpetual succession, a common seal for its signatures, a common capital comprised of transferable shares and carrying, limited liability, Characteristics / Features of a Company The main characteristics of a company are 1. Registration / Incorporated association. A company is created when it is registered under the Companies Act. It comes into being from the date mentioned in the certificate of incorporation. It may be noted in this connection that Section 11 provides that an association of more than ten persons carrying on business in banking or an association or more than twenty persons carrying on any other type of business must be registered under the ‘Companies Act and is deemed to be an illegal association, if it is not so registered. For forming a public company at least seven persons and for a private company at least two persons are persons are required. These persons will subscribe their names to the Memorandum, of association and also comply with other legal requirements of the Act in respect of registration to form and incorporate a company, with or without limited liability [See 12 (1)] 2.Legal Entity a, Artificial legal person. A company is an artificial person, it is not a natural person. It exists in the eyes of the law and cannot act on its own, It has to act through a board of directors, elected by shareholders. It was rightly pointed out in Bates V Standard Land Co. that : “The board of directors are the brains and the only brains of the company, which is the body and the company can and does act only through them”.But for many purposes, a company is a legal person like a natural person, It has the right to acquire and dispose of the property, to enter into contract with third parties in its own name, and can sue and be sued in its own name, However, it is not a citizen as it cannot enjoy the rights under the Constitution of India or Citizenship Act. In State Trading Corporation of India v C.T.O (1963 SCJ 705), it was held that neither the provisions of the Constitution nor the Citizenship Act apply to it. It should be noted that though a company does not possess fundamental rights, yet it is person in the eyes of law. It can enter into contracts with its Directors, its members, and outsiders. b, Separate Legal Entity : A company has a legal distinct entity and is independent of its members. The creditors of the company can recover their money only from the company and the property of the company. They cannot sue individual members. Similarly, the company is not in any way liable for the individual debts of its members. The property of the ‘New Horizon College, Kasturinagar. Page 2company is to be used for the benefit of the company and nor for the personal benefit of the shareholders. On the same grounds, a member cannot claim any ownership rights in the assets of the company either individually or jointly during the existence of the company or in its winding, up. At the same time the members of the company can enter into contracts with the company in the same manner as any other individual can, Separate legal entity of the company is also recognized by the Income Tax Act. Where a company is required to pay Income-tax on its profits and when these profits are distributed to shareholders in the form of dividend, the shareholders have to pay income-tax on their dividend of income. This proves that a company and its shareholders are two separate entities 3. Perpetual Existence. A company is a stable form of business organization. Its life does not depend upon the death, insolvency or retirement of any or all shareholder (s) or director (s). Law creates it and law alone can dissolve it. Members may come and go but the company can go on forever. The company may be compared with a flowing river where the water keeps on changing continuously, still the identity of the river remains the same. Thus, a company has a perpetual existence, irrespective of changes in its membership. 4, Common Seal. A company being an artificial person has no body similar to natural person and as such it cannot sign documents for itself. It acts through natural person who are called its directors. But having a legal personality, it can be bound by only those documents which bear its signature, Therefore, the law has provided for the use of common seal, with the name of the company engraved on it, as a substitute for its signature. Any document bearing the common seal of the company will be legally binding on the company. A company may have its own. regulations in its Articles of Association for the manner of affixing the common seal to a document. If the Articles are silent, the provisions of Table-A (the model set of articles appended to the Companies Act) will apply. As per regulation 84 of Table-A the seal of the company shall not be affixed to any instrument except by the authority of a resolution of the Board or a Committee of the Board authorized by it in that behalf, and except in the presence of at least two directors and of the secretary or such other person as the Board may appoint for the purpose, and those two directors and the secretary or other person aforesaid shall sign every instrument to which the seal of the company is so affixed in their presence. 5, Limited Liability : A company may be company limited by shares or a company limited by guarantee. In company limited by shares, the liability of members is limited to the unpaid value of the shares, For example, if the face value of a share in a company is Rs. 10 and a member has already paid Rs. 7 per share, he can be called upon to pay not more than Rs. 3 per share during the lifetime of the company. In a company limited by guarantee the liability of members is limited to such amount as the member may undertake to contribute to the assets of the company in the event of its being wound up. 6.Transferable Shares. In a public company, the shares are freely transferable. The right to transfer shares is a statutory right and it cannot be taken away by a provision in the articles. However, the articles shall prescribe the manner in which such transfer of shares will be made and it may also contain bona fide and reasonable restrictions on the right of members to transfer their shares. But absolute restrictions on the rights of members to transfer their shares shall be ultra vires, However, in the case of a private company, the articles shall restrict the right of member to transfer their shares in companies with its statutory definition. In order to make ‘New Horizon College, Kasturinagar. Page 3the right to transfer shares more effective, the shareholder can apply to the Central Government in case of refusal by the company to register a transfer of shares. 7. Separate Property : As a company is a legal person distinct from its members, it is capable of owning, enjoying and disposing of property in its own name. Although its capital and assets, are contributed by its shareholders, they are not the private and joint owners of its property, The company is the real person in which all its property is vested and by which it is controlled, ‘managed and disposed of. 8. Delegated Management : A joint stock company is an autonomous, self governing and self- controlling organization. Since it has a large number of members, all of them cannot take part in the management of the affairs of the company. Actual control and management is, therefore, delegated by the shareholders to their elected representatives, know as directors. They look after the day-to-day working of the company. Moreover, since shareholders, by majority of votes, decide the general policy of the company, the management of the company is carried on democratic lines. Majority decision and centralized management compulsorily bring about unity of action. TYPES OF COMPANY Joint stock company can be of various types. The following are the important types of company: I. Classification of Companies by Mode of Incorporation Depending on the mode of incorporation, there are three classes of joint stock companies. a, Chartered companies. These are incorporated under a special charter by a monarch, The East India Company and The Bank of England are examples of chartered incorporated in England. The powers and nature of business of a chartered company are defined by the charter which incorporates it. A chartered company has wide powers. It can deal with its property and bind itself to any contracts that any ordinary person can. In case the company deviates from its business as prescribed by the charted, the Sovereign can annul the latter and close the company. Such companies do not exist in India. b, Statutory Companies. These companies are incorporated by a Special Act passed by the Central or State legislature. Reserve Bank of India, State Bank of India, Industrial Finance Corporation, Unit Trust of India, State Trading corporation and Life Insurance Corporation are some of the examples of statutory companies. Such companies do not have any memorandum or articles of association. They derive their powers from the Acts constituting them and enjoy certain powers that companies incorporated under the Companies Act have. Alternations in the powers of such companies can be brought about by legislative amendments. c. Registered or incorporated companies. These are formed under the Companies Act, 1956 or under the Companies Act passed earlier to this. Such companies come into existence only when they are registered under the Act and a certificate of incorporation has been issued by the Registrar of Companies. This is the most popular mode of incorporating a company. TI Classification on the basis of Liability: Companies limited by Shares : These types of companies have a share capital and the liability of each member or the company is limited by the Memorandum to the extent of face value of share subscribed by him. In other words, during the existence of the company or in the event of winding up, a member can be called upon to pay the amount remaining unpaid on the shares subscribed by him. Such a company is called company limited by shares. A company limited by shares may be a public company or a private company. These are the most popular types of companies. ‘New Horizon College, Kasturinagar. Page 4ii) Companies Limited by Guarantee : These types of companies may or may not have a share capital. Each member promises to pay a fixed sum of money specified in the Memorandum in the event of liquidation of the company for payment of the debts and liabilities of the company [Sec 13(3)] This amount promised by him is called ‘Guarantee’, The Articles of Association of the company state the number of member with which the company is to be registered [Sec 27 (2)]. Such a company is called a company limited by guarantee. Such companies depend for their existence on entrance and subscription fees. They may or may not have a share capital. The liability of the member is limited to the extent of the guarantee and the face value of the shares subscribed by them, if the company has a share capital. If it has a share capital, it maybe a public company or a private company. ‘The amount of guarantee of each member is in the nature of reserve capital. This amount cannot be called upon except in the event of winding up of a company. Non trading or non-profit companies formed to promote culture, art, science, religion, commerce, charity, sports etc. are generally formed as companies limited by guarantee. Unlimited Companies : Section 12 gives choice to the promoters to form a company with or without limited liability. A company not having any limit on the liability of its members is called an ‘unlimited company’ [Sec 12(c)]. An unlimited company may or may not have a share capital If it has a share capital it may be a public company or a private company. If the company has a share capital, the article shall state the amount of share capital with which the company is to be registered [Sec 27 (1)] The articles of an unlimited company shall state the number of member with which the company is to be registered. II On the Basis of Number of Members On the basis of number of members, a company may be (J) Private Company, and (2) Public Company. 1) Private Company Section 2(68) of Companies Act, 2013 defines private companies. According to that, private companies are those companies whose articles of association restrict the transferability of shares and prevent the public at large from subscribing to them. Features of Private Companies These are some features that distinguish private companies from other types of companies: 1.No minimum capital required: There was a minimum paid-up share capital requirement of Rs. 1 lakh previously, but that is omitted now. 2.Minimum 2 and maximum 200 members: A private company can have @ minimum of just two members (but just one is enough if it a One Person Company), and a maximum of up to 200 ‘members. 3:Transferability of shares restricted: Private companies cannot freely transfer their shares to the public like public companies. This is why stock exchanges never list private companies 4.“Private Limited”: All private companies must include the words “Private Limited” or “Pvt Ltd.” in their names, S.Privileges and exemptions: Since private companies do not freely transfer their shares and involve limited interest by members, the law has granted them several exemptions that public companies do not enjoy. 2) Public Company: Sec 2(71) “public company” means a company which— (a) is not a private company; (b) has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed. A public limited company (PLC) is the legal designation of a limited liability company (LLC) that has offered shares to the general public and ‘New Horizon College, Kasturinagar. Page 5has limited liability. A PLC's stock anyone, either privately, during an i Features of Public Company L.The public limited company is preferred as it has a separate legal entity under the Companies Act, 2013. Such form of business has a wide legal capacity to own property and incur debts. This is because the member of the company, both shareholders and the directors, have no liability to the creditors of the company. 2.Shares offered by a public limited company are easily transferable to any other person, such that it merely requires filing and signing of share transfer form to transfer the shares. 3.A company by law is a juristic person such that it can acquire or own, enjoy or alienate, property in its own name. this makes sure that the shareholders cannot claim the property as Jong as the company is running operations. 4.Minimum seven shareholders of the company are required to form a company. 5 Minimum 3 directors are required to form this business entity. At least one director must be a resident of India. It is important to note here that shareholders and directors can be the same, 6.Although no minimum authorized share capital requirement prescribed is INR 5 lakhs. It is one of the basic requirement to start any business. 7.Name of the company must be a unique one. Before going ahead with the process, the company needs to check company name availability to ensure that the proposed name selected does not contain any word as prohibited under the Companies Act, 2013. 8.Director Identification Number (DIN)for all the directors and Digital Signature Certificate for two directors is essential IV. On the basis of Control On the basis of control, a company may be classified into : 1, Holding companies, and 2. Subsidiary Company Holding Company Section 2(46) of the Companies Act, 2013 defines Holding Company. The company is said to be the holding company if that particular company holds/owns at least 50% of the other companies and has the authority to make management decisions, influences and controls the company’s board of directors. A holding company may exist for the sole purpose of controlling and managing subsidiary companies. Subsidiary Company Section 2(87) of the Companies Act, 2013 defines the Subsidiary Company. The subsidiary company is the company that is controlled by the holding or parent company. It is defined as @ company/body corporate where the holding company controls the composition of the Board of Directors. As per the Companies Amendment Act, 2017, Section 2(87)(ii), if the holding company have control over more than one-half of the voting power of another company, that particular company will be identified as the subsidiary company. V. On the basis of Ownership of companies a) Government Companies. A Company of which not less than $1% of the paid up capital is, held by the Central Government of by State Government or Government singly or jointly known as a Government Company. It includes a company subsidiary to a government company. The share capital of a government company may be wholly or partly owned by the government, but it would not make it the agent of the government . The auditors of the government company are appointed by the government on the advice of the Comptroller and Auditor General of India. offered to the general public and can be acquired by al public offering or through trades on the stock market, ‘New Horizon College, Kasturinagar. Page 6‘The Annual Report along with the auditor's report are placed before both the House of the parliament, Some of the examples of government companies are - Mahanagar Telephone Corporation Ltd., National Thermal Power Corporation Ltd., State Trading Corporation Ltd. Hydroelectric Power Corporation Ltd. Bharat Heavy Electricals Ltd. Hindustan Machine Tools Ltd. ete. b) Non-Government Companies. All other companies, except the Government Companies, are called non-government companies. They do not satisfy the characteristics of a government company ie if paid capital held by the Central Government of by State Government or Government singly or jointly is less than 51% than it is known as a Non-Government Company. VI. On the basis of Nationality of the Company a) Indian Companies ; These companies are registered in India under the Companies Act. 1956 and have their registered office in India. Nationality of the members in their case is immaterial. b) Foreign Companies : The term “foreign company’ is clearly laid down under Section 2 sub- section 42 of the Companies Act, 2013. A foreign company is any company or body corporate incorporated outside India which, has a place of business in India whether by itself or through an agent, physically or through electronic mode; and conducts any business activity in India in any other manner. {IV. Other companies ‘Small Companies” Under Companies Act, 2013 ‘The concept of “Small Company” has been introduced for the first time by the Companies Act, 2013, The Act identifies some companies as small companies based on their capital and turnover for the purpose of providing certain relief/exemptions to these companies. Most of the exemptions provided to a small company are same as that provided to a One Person ‘Company. Definition: Section 2(85) defines a Small Company as other than a public company,— “small company”” means a company, 1. 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 2. 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. Provided that nothing in this clause shall apply to— (A) aholding company or a subsidiary compan; (B) a company registered under section 8; or (C) a company or body corporate governed by any special Act; Associate Company : As per Section 2(6) of the Companies Act, 2013, an Associate Company is defined as follows:---“Associate Company”, in relation to another Company, means a company in which another company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company. For the purpose of Section 2(6) of the Companies Act, 2013, explanation provided is as below: The expression “significant influence” means control of at Least twenty percent of total voting power, or control of or participation in business decisions under an Agreement, > The expression “joint venture” means a joint Agreement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. ‘New Horizon College, Kasturinagar. Page7‘Therefore, for a Company to be considered as an Associate Company of another company either the company should have significant influence over the other Company or it should be a joint venture company Definition of One Person Company Section 2(62) of Companies Act defines a one-person company as a company that has only one Person as to its member. Furthermore, members of a company are nothing but subscribers to its ‘memorandum of association, or its shareholders. So, an OPC is effe one shareholder as its member. Listed Company Section 2(52) defines a listed company as a company which has any of its securities listed on any recognized stock exchange. Difference Between Public Company And Private Company ly a company that has only Basis for Public Company Private Company Comparison I. Definition | A public company is a company that has | The private corporation definition is a issued securities through an initial public | type of corporation in which stock shares offering (IPO) and trades its stock on at | are only offered to specific individuals such least one stock exchange or over-the- | as employees or investors. The private counter market. Although a small | corporation definition is. type percentage of shares are initially floated to | of corporation in which stock shares are the public, daily trading in the market | only offered to specific individuals such as determines the value of the entire company | employees or investors. 2. Minimum | Minimum members is 7 Minimum members is 2 members 3. Maximum | Maximum members is 200 Maximum members is Unlimited members 4. Minimum | Minimum Directors is 3 Minimum Directors is 2 Directors 5. Suffix End Word to be used @ in the name of the [End Word to be used @ in the name of the company is Limited company is Private Limited 6. Start of ‘After receiving certificate of incorporation and | After receiving certificate of incorporation business certificate of commencement of business they | only the can commence business ‘can commence the business TAssue of ‘Can issue Prospectus to invite the public to | Not required the issue Prospectus to invite prospectus subscribe the shares and debentures of the | the public to subscribe the shares and / Statement in liew company debentures of the company because the raise the funds through private source. of prospectus 8.Public Public subscription is allowed in public | Public subscription is not allowed in subscription | compar private company ‘9.Quorum at Five members personally present if the [2 members must present in person AGM number of members as on the date of meeting is not more than one thousand: fifteen members personally present if the number of members as on the date of meeting is more than one thousand but up. New Horizon College,Kasturinagar. Page 8to five thousand; thirty _ members personally present if the number of members as on the date of the meeting exceeds five thousand: 10.Transfer of | No restriction on transfer of Shares Transfer of shares is restricted shares 11Formation of | Public company as to follow four stage | Private company as to follow two stage company such Promotion, Incorporation,Capital | such Promotion, Incorporation, Capital subscription stage, Commence of business. | subscription stage, Commence of business, 12-Restriction _ | In the case of a public company, the directors | The directors of a private company need not ‘on appointment | must file with the Register a consent to act as | follow the rules as in public company of directors. | directors or sign an undertaking for their tation shares 1B. Sp company enjoys no such ‘A private company enjoys some special Privileges privileges. privileges. 14.Managerial _| Total managerial remuneration in a public _| No such restriction applies to a private remuneration | company cannot exceed 11 per cent of the | company net profits 15, Statutory ‘A public company need to hold the ‘A private company need not hold the Meetingand | Statutory Meeting or file the Statutory Statutory Meeting or file the Statutory Statutory Report Report Report Special privileges of a Private Company 1. A private company is simpler to form than a public company. It needs two directors while public company needs three. 2. It can start business immediately after incorporation, no certificate to commence is required but in a public company it is necessary to have a certificate to. commence business. 3. Since a private company collects the requisite capital by private arrangement and does not invite the general public to buy its shares by the issue of a prospectus, it may allot shares without following the formalities of a public company. 4, As no outsiders are its shareholders itis not required, unlike a public company, to hold a statutory meeting, 5. A private company, unlike a public company, may pay remuneration to directors and ‘managerial staff or appoint any one to an office of profit 6. Itmay grant loans to directors without the consent or approval of the central govt. ‘New Horizon College, Kasturinagar. Page 97. A private company cannot invite the public to purchase its shares or debentures. A public company can do it. 8, A private company need not file a prospectus or a statement in lieu of prospectus. 9. Ina private company there must be regulations restricting the transfer of shares. In a public company there need not be any. By restricting transfer a private company can prevent the membership of persons considered undesirable. 10. When a public company proposes to increase its subscribed capital by the issue of new shares, it must be offered first to the existing shareholders pro rata unless the members in a general meeting decide otherwise. This provision does not apply to private company. 11. A private company need not hold the Statutory Meeting or file the Statutory Report. 12. A private company must add the words, “Private Limited” at the end of its name. 13, The control and management is generally in the hands of the owners of capital which is not so in a public company, HIGHLIGHTS OF COMPANIES ACT 2013 There are 450 Sections, 7 schedules and 29 chapters. 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 Rupees 1 Lakh and shall have no compulsion tohold AGM (Annual General meeting) Small Company It means 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. The 2013 Act provides exemptions to Small Companies primarily from certain requirements relating to board meeting, presentation of cash flow statement and certain merger process 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, letiers 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). ‘New Horizon College,Kasturinagar. Page 10Articles of Association In the next General Meeting, it is desirable to adopt Table F as standard set of Articles of Association of the Company with relevant changes to suite the requirements of the company. Further, every copy of Memorandum and Articles (MOA) issued to members should contain a copy of all resolutions / agreements that are required to be filed with the Registrar of companies (ROC). ‘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) in order to commence their business — 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) In the case of a company requiring registration from any sectoral regulators such as RBI, SEBI etc., approval from such regulator shall be required prior to starting the business. Financial Year ‘The Companies Act 1956 Act provided companies to elect financial year. The Companies Act 2013 Act eliminates the existing flexibility in having a financial year different than 31 March. 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 have 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. It provides a transition period of one year from I April 2014 to comply with this requirement 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 on the board for prescribed class of companies. It also requires that company should have at least 1 (one) resident director i.e. who has stayed in India for a total period of not less than 182 (hundred and eighty two days) in the previous calendar year. All existing directors must have Directors Identification Number (DIN) allotted by central government. Directors who already have DIN need not take any action. However, Directors not having DIN should initiate the process of getting DIN allotted to him and inform the respective companies on which he is a director. The Company, in turn, has to inform the registrar of companies (ROC). Independent Directors ‘The 2013 Act defines the term "Independent Director”. In case of listed companies, one third of the board of directors should be independent directors. There is a transition period of 1 (one) year form 01 April 2014 to comply with this requirement. The 2013 Act also provides additional qualifications’ restrictions for independent directors as compared to the 1956 Act. ‘New Horizon College,Kasturinagar. Page 11Section 150 enables manner of selection of independent directors and maintenance of databank of independent directors and enables their selection out of data bank maintained by a prescribed body. Resident Director Every Company must have at least one director who has stayed in India for a total period of 182 days or more in previous calendar year. For existing companies, the compliance needs to be made before 31st March 2015. 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. However, the term for which managerial personnel can be appointed remains as five years. 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, Key Managerial Personnel (KMP) The Provisions relating to appointment of KMP includes (i) the Chief Executive Officer (CEO) or the managing director (MD) or the manager (ii) the company secretary (iii) the whole-time director; (iv) the Chief Financial Officer (CFO); and (v) such other officer as may be prescribed is applicable only for Public Limited Companies having paid up capital more than 10 crores and Private Limited Companies are exempted from appointment of KMPs. 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. Simply speaking, attending at least one Board Meeting by a director in a year is a must else he has to vacate his/her office. Board meetings At least 7 days notice to be given for Board Meeting. The Board need to meet at least 4 times within a year, There should not be a gap of more than 120 days between two consecutive meetings. 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. Therefore, those companies who have reappointed their statutory auditors for more than 5 / 10 years have to appoint another auditor in their Annual General Meeting for year 2014. Other specialized services which cannot be provided by Statutory Auditors The Statutory Auditor of the Company cannot give following specialized services directly or indirectly to the company — a. Accounting and book keeping services b. Internal audit c. Design and implementation of any financial information system 4, Actuarial services e. Investment advisory services ‘New Horizon College,Kasturinagar. Page 12,£ Investment banking services g. Rendering of outsourced financial services hh, Management and/or any other services as may be prescribed 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 Y_Net profit of Rs. 5 crores or more Contributing to Incubators, which has been notified by the Government of India, is eligible for spending under CSR. This is a prosperous time for incubators and entrepreneurs and can really change the entrepreneurial eco system in India, Financial statements Financial Statements are now defined under the Act as comprising of the following. All companies (except one person Company, small company and dormant company) are now ‘mandatorily required to maintain the following, which may not include the cash flow statement) YA balance sheet as at the end of the financial year YA profit and loss account / an income and expenditure account for the financial year, as the case may be Y Cash flow statement for the financial year YA statement of changes in equity (if applicable) SUMMARY Company may be defined as group of persons associated together to achieve some common objective. A company formed and registered under the Companies Act has certain special features, which reveal the nature of a company. These characteristics are also called he advantages of a company because as compared with other business organizations, these are in fact, beneficial for a company. Companies can be classified into six categories according to the mode of incorporation, on the basis of number of members, on the basis of control, on the basis of ownership , on the basis of nationality of the company and other types of company. ‘New Horizon College,Kasturinagar. Page 13,