APROJECT REPORT

ON
A CONCCEPTUAL FRAMEWORK OF COMPANIES ACT
2013 AND COMPARATIVE ANALYSIS OF CA 2013 VS CA
1956
(Submitted in partial fulfilment of degree of master of commerce)
Submitted by

SAKTI RANJAN DASH

Roll no.13mcom027
Session: 2013-2015
UNDER THE GUIDANCE OF

DR.PROBODH KUMAR HOTA

P.G DEPARTMENT OF COMMERCE

UTKAL UNIVERSITY, VANIVIHAR, BBSR

“Dedicated to my family for all the sacrifices they have
done for making me who I am”
 CERTIFICATE

This is to certify that the project entitled “A report on “A CONCCEPTUAL FRAMEWORK OF COMPANIES
ACT 2013 AND COMPARATIVE ANALYSIS OF CA 2013 VS CA 1956”is a record of bonfire research work
carried out by SHAKTI RANJAN DASH under my supervision and guidance. It embodies the result of him
original contribution. The project has reached the standard of fulfilling the requirements of regulation relating to the
master degree of commerce. No part of this project has been submitted to any institution for the award of any degree.
I wish him all the best and success in future endeavors.

Date: DR.PROBODH KUMAR HOTA

Place: P.G. DEPARTMENT OFCOMMERCE
UTKAL UNIVERSITY, BHUBANESWAR
 DECLARATION

I do hereby declare that the project entitled “A CONCCEPTUAL FRAMEWORK OF COMPANIES ACT
2013 AND COMPARATIVE ANALYSIS OF CA 2013 VS CA 1956”“submitted by me as a partial fulfillment of
the requirements for the degree of Master of commerce, Utkal University in the course curriculum. It is the original
piece of work done by me under the guidance of DR. PRABODH KUMAR HOTA as my faculty guide and has not
been submitted for the awards of any other degree elsewhere in full or in part.

Date: SAKTI RANJAN DASH

Place: Roll no.
 ACKNOWLEDGEMENT

The satisfaction that accompanies the successful completion of any task would be incomplete without mentioning
people who made it possible, whose encouragement and consistent guidance crowned my effort with success.

I express my deep sense of gratitude and indebtedness to my guide, DR.PRABODH KUMAR HOTA, P.G. Dept.
Of commerce, UtkalUniversity, Bhubaneswar for his suggestions, constant inspiration and prompt guidance to carry
out and complete this study.

Last but not the least I especially thank all those who have helped me directly or indirectly to complete this project. I
express my profound thanks to my teachers as well as my friends for their valuable suggestions and constant
encouragement.

Date: SAKTI RANJAN DASH

Place: Roll no.

CONTENTS
PARTICULARS PAGE NO.

Certificate I

Declaration II

Acknowledgement III

Abstract IV

List of Tables V

List of figure VI

List of charts VII

Chapter1: Introduction

1.1 INTRODUCTION

1.2 Importance of the topic

1.3 literature review

1.4 Research gap & statement of the problem

1.5 objectives of the study

1.6 Hypothesis

1.7 Research methodology

1.7.1 Sources of the data

1.7.2 Scope of the data

1.7.3 Period of the data

1.7.4 Tools and techniques

1.8 Relevance of the study

1.9 limitation of the study

1.10 chapter plan

Chapter 2: Regulatory framework of companies in India: pre and post independence era

2.1 Company: A bird view

2.1.1 Feature of a joint stock company

2.1.2 Types of companies

2.2Regulations of Companies before independence
2.3 Regulations of Companies after independence

Chapter -3 :companies act 2013

3.2 Back ground of new companies act

3.2 Rationale behind new companies act

3.3 Objectives of companies act

3.3Companies Act, 2013: A statistical snapshot

3.4 Silent feature of companies act 2013

3.5 List of chapters in companies act 2013

3.6. Key definitions and concept

3.5

3.5.1 specific provisions

Chapter 4:comparative analysis of companies act 2013 & 1956 and its impact study

4.1 major difference between companies act 1956 & 2013 with reference to accounting

Chapter 5: findings, suggestions and conclusion

Bibliography

webliography
CHAPTER 1
1.1CONTEXT

I
t has been a long time in waiting but India finally enacted its new Companies Act 2013 (the “Companies Act”)
at the end of August 2013. The Companies Bill was passed by the LokSabha (the Lower House of the
Parliament of India) on 18 December 2012 and in the RajyaSabha (the Upper House of the Parliament of India)
on 8 August 2013. It received Presidential Assent on 29th August2013 thereby creating the Companies Act
2013.

The new Companies Act replaced the old Companies Act 1956, which although amended approximately 25 times
was still considered to be out of date and inadequate compared to the legislation regulating companies in many other
jurisdictions. It took four years to implement the Companies Act since it was first introduced as a Companies Bill in
2009 but not all of its provisions will come into force immediately as a number of them require the Indian
Government to draft rules and regulations for their implementation.

Some of the provisions of the Companies Act 2013 that did not require any additional rules or regulations for their
implementation were brought into force on 12 September 2013, following a notification by the Ministry of Corporate
Affairs. However, these provisions only represented 98 out of the 470 sections of the Companies Act and it has
caused confusion because businesses still have to look at both the old Companies Act and the new Companies Act to
interpret the current law. Many have argued that the whole of the Companies Act should have been brought into
force at onetime; whilst other believes that a step by step approach provides businesses with time to get to grips with
the new provisions. The draft Companies Act Rules (“Rules”) which are required for the implementation of some of
the provisions have been issued for public comment. These have been issued in two phases, with feedback on the 1st
Phase Rules to be submitted by 10 October and feedback on the 2nd Phase Rules to be provided by 23 October. We
have set out below a brief summary of some of the key changes that are coming into force, mainly we focus on
provisions relating to accounting and made a comparison with previous act and its impact study.

1.2 IMPORTANCE OF THE TOPIC:

With the ever-changing business environment the way in which business firms are supposed to work also changes.
No nation can avoid the change in the corporate culture that comes as an external force due to the rapid linkage of
various economies & their corporate entities & that not only provide ample of opportunities but poses a lot of
challenges on variousfront.

In the past 57 years during which the Companies Act, 1956 (“1956 Act”) has been in existence, the corporate and
business environment has evolved significantly and hence there was a need to revamp the legislation governing
companies. The Companies Act, 2013 (“Act of 2013”) was enacted on 29th August 2013 after President’s assent;
however.

The Act of 2013 is more of a rule-based legislation containing only 470 sections, which means that the substantial
part of the legislation will be in the form of rules. It is expected that the Act of 2013 will become applicable and the
corresponding portion of 1956 Act will be repealed in a phased manner.

The Act of 2013 intends to promote self-regulation and has also introduced some progressive concepts like One-
Person Company, Small Company, Dormant Company, E-governance, etc. The concept of Corporate Social
Responsibility has also been introduced to encourage a socially, environmentally and ethically responsible behavior
by companies.

Further, the Act of 2013 aims to fortify investor protection & transparency by introducing terms like Insider Trading,
Price Sensitive Information, Class Action Suits and other additional disclosures. It also intends to give greater
responsibility to the auditors and to widen their role. A National Company Law Tribunal will also be a reality now
and therefore the matters which used to linger in courts for years will be swiftly handled by this dedicated tribunal.
Taking cognizance of rapid globalization, provisions for cross-border mergers have been introduced. Merger between
small companies, holding – subsidiaries and specified entities can now be done on a fast-track route.

The Act of 2013 is aimed at building a smooth and easy corporate environment along with the new and improved
measures of strong investor protection norms and presents a model for other economies with similar characteristics
to emulate

“Obviously, the intent is towards simplification, which is critical for India to become more competitive on the ease of
doing business. Whether this objective is finally delivered will depend on two things – the rules that supplement the
Act and what they look like, and the change in attitude towards enforcement”

So this topic has huge importance not only for corporate professionals but also for different academician who are
keeping in touch with corporate world.

1.3 LITERATURE REVIEW:

India practice group(2013)-focused on key changes being implemented in new companies act 2013 such as- financial
year, one person company(OPC), Dormant company, Entrenchment provisions, corporate social responsibility
(CSR), Auditor rotation, Directors, Independent Directors, Related party transactions, Loans to directors,
Investments, mergers and Amalgamations, Class actions, and opined that the new Indian Companies Act is a
positive step towards modernizing India’s company law andaligning it to global standards. It has given increased
decision making powers to the company, and introduced provisions giving minority shareholders additional rights
and protections. The Introduction of one person companies and small companies should alleviate some of
theadministrative burdens that small businesses have to bear, but larger companies should preparethemselves for
further administrative burdens as a result of changes in the appointment of auditorsand directors.

HemantGoyal&Jitender Jain gave an comprehensive features of the new companies act 2013. These are
-Rehabilitation and Liquidation Process, Financial Year, Auditors performing Non-Audit Services, Rotation of
Auditors, Liability on Directors and Officers, Duties of Director defined, Serving Notice of Board Meeting,
Independent Directors, Restriction on Composition, Electronic Mode, Entrenchment in Articles of Association, One
Person Company, Limit on Maximum Partners, Increase in number of Shareholders, Prohibition on forward dealings
and insider trading, Cross Border Mergers, Fast Track Mergers, National Company Law Tribunal, Corporate Social
Responsibility, Strengthening Women Contributions through Board Room, Supremacy of Shareholders, Democracy
of Shareholders

www.companiesact .in has made a comparison between the Companies Act 2013 and Companies Act 1956 on
various topics under
different chapters of the Act with a clear explanation of this chapter.

CA Chintan N. Patel, 7-Feb-14 had made a study on Chapter IX : Sec. 128 to Sec. 138 and chapter x: section 139 to
sec.148. Under chapter x he has focused on Sec. 128 : Books of account etc. to be kept by company,Sec. 129 :
Financial Statement, Sec. 130 : Re-opening of accounts on Court’s or Tribunal’s orders, Sec. 131 : Voluntary revision
of financial statements or Board’s
Report,Sec. 132 : Constitution of NFRA,Sec. 133 : CG to prescribe AS, Sec. 134 : FS, Board’s reports etc.Sec. 135:
Corporate Social Responsibility, Sec. 136: Right of members to copies of audited FS
, Sec. 137: Copy of FS to be filed with Registrar, Sec. 138: Internal Audit. Similarly under chapter x hehas focused
on Appointment/Eligibility, Removal/Resignation,Penal&Provisions, Others.
LEX port had made a study on Background of Companies Act, 2013, key changes and definition,
Incorporation of Companies and matters incidental thereto,Share Allotment and Capital,Directors, KMP ‟s and
Governance,Declaration and Payment of Dividend,Accounts of Companies,Loan and Investment by
Companies,Corporate Social Responsibility,Regulatory Bodies ,Mergers and Acquisitions

1.4 RESEARCH GAP & STATEMENT OF THE PROBLEM:

Companies act 2013 is a relatively new issue many research have been conducting but no study have conducted on
comparative study relating to its accounting provisions and its impacts on entities yet.so there is a scope for
research .
1.5 OBJECTIVES OF THE STUDY:
1. To study the regulatory framework of companies inIndia before independence &after independence.
2. To examine the provisions of new companies act for accounting.
3. To make a comparative analysis of companies act 1956& 2013for accounting &its impact study

1.6 HYPHOTHESIS:

1.7REARCH METHODOLOGY:
1.7.1Sources of the data:
My entire project work is based on secondary data. Mentioned below are the website links and names of the news
papers and magazines from where bulk of data has been collected.
1.7.2Scope of the study: Scope of study is a general outline of what the project will cover. In this project we shall
undertake to find out what is regulatory framework of companies before and after independence era. Who is the
regulatory authority of the companies act?
Mainly we focus on new companies act and its provision relating to accounting, how it is differ from companies’ act
1956 and its impact study.
1.7.3Period of the study:
I have taken around 3months to conduct this study and studied various magazines, articles, journals,. I also taken
suggestion from various professors and teachers and discussed among seniors and my friends for conducting this
study.
1.7.4 Tools and techniques

1.8 RELEVANCE OF THE STUDY:

This study will immensely help to many researchers, corporateentities, individuals, practitioners, and professional in
their respective fields.
1.9 LIMITATION OF THE STDY:
The prime limitation was the time constraint. If not for less time some more data could have been collected.
Moreover, new companies act 2013 is at nascent stage .therefore not much data were available while conducting its
impact study. However, I gave my best possible effort to decipher through the data available and make a meaningful
inference from the same.

1.10CHAPTER PLAN:
As mentioned in the content that this project is consists of five chapters. The details about the chapter plan is
mentioned below-
1st chapter contained
2nd chapter contained
3rd chapter contained
4th chapter contained
And finaly 5th chapter covers
 CHAPTER 2
Regulatory framework of companies
in India: pre and post
independence era
2.1 COMPANY: A BIRD VIEW
“company” means a company incorporated under this Act or under any previous company law;
A Joint stock company is an incorporated association formed for the purpose of carrying on some business. It is an
artificial person having a distinctive name and a Common seal. It may be defined as “an artificial person created by
law with a distinctive name and a separate legal entity, a common seal, a common capital contributed by the
members and comprising transferable shares of a fixed denomination, with limited liability and with a perpetual
succession.”

According to Lord Justice Lindley defined a company as, "an association of many persons who contribute money
or money's worth to a common stock and employ it is some trade or business and who share the profit and loss
arising there from."

2.1.1 Feature of a Joint stock company.

1. Registration

2. Separate legal entity

3. Common seal
4. Perpetual succession
5. Limited liability
6. Separation of ownership from management
7. Transferability of share
8. Separate property
2.1.2 TYPES OF COMPANIES
Companies may be classified into different kinds or types from different points of view. These types of companies
that can be formed under 2013 Act has remained same as in 1956 Act except one more class ofcompany has been
added. The new class of company is OPC. The various types of companies in which significant changeshave made
are- Private Limited Company, Small Company, One Person Company (OPC) [Sec 2(62) of the 2013 Act]:, Dormant
Company [section 455 of the 2013 Act]:, Foreign company:, Holding-Subsidiary Company etc. These are discussed
below under their respective heads.

1. Classification of companies from the point of view of incorporation or registration: From the point of view
of their incorporation, companies can be classified into three types. They are.
a) Chartered companies: If a Company is incorporated under a special charter granted by the monarch it is
called a chartered companies and is regulated by that charter. Chartered companies were common in the 17th
and 18th centuries. For eg. British East India companies, Bank of England, Chartered Bank of Australia etc.
are examples of chartered companies. This form of organization does not exist in India, as there is no
 monarchy.
b) Statutory Companies: A statutory Company is a company which is incorporated under a special or separate
act of the legisiature (i.e.., parliament). Astatutorycompany requires special powers and privileges which it
does not get under the companies Act. So, it is registered under a special act of the legislature. The powers
and activities of a statutory companies are regulated by the special act under which it is established. This
method of incorporation is adopted for companies of national importance and public utility companies, such
as railway companies, electricity supply companies, etc. The RBI, SBI, LIC, UTI, etc are examples of
statutory companies.
c) Registered Companies: A company is brought into existence by registration with the registrar of companies
under the companies Act of 1956, is called a registered company. The activities of these companies are
governed by the comapanies Act. These constitute the most important Joint stock companies.
But now as per companies act 2013 “register of companies” means the register of companies maintained by
theRegistrar on paper or in any electronic mode under this Act;
* “Registrar” means a Registrar, an Additional Registrar, a Joint Registrar, a
Deputy Registrar or an Assistant Registrar, having the duty of registering companies
and discharging various functions under this Act;

2. Classification of Registered Companies on the basis of the liability of members: From the point of view of
the liability of the members, registered companies may be classified into three categories. They are:
a) Companies Limited by Shares: Companies limited by share are companies in which the liability of a
member is limited to the nominal or face value of the shares held by him. In short, these are the companies in
which the liability of a member is limited only to the amount unpaid on the shares held by him. These
companies are mostly trading companies. Most of the companies registered under the companies Act are of
this type.

b) Companies Limited by Guarantee: Companies limited by guarantee are companies in which the liability of
each member is limited to a fixed amount which he has guaranteed ie., agreed to contribute to the assets of
the company to meet the liabilities of the company in the event of its winding up. The amount guaranteed by
each member is mentioned in the Memorandum of Association or Articles of Association of the Company.
The members are required to pay the amount guaranteed by them, not during the life of the company but only
when the company is wound up and the assets of the company are not sufficient to meet the liabilities of the
company. These are mostly non-trading companies formed for the purpose of promoting art, culture, charity ,
science and education, etc.
c) Unlimited Companies: Unlimited companies are companies in which the liability of members is unlimited
i.e., members are liable for the debts of the company to an unlimited extent in the event of its winding up.
Each member is liable to contribute from his private assets in proportion to his capital, in the company
 towards the amount required for the payment of the entire or full liabilities of the company. If any of the
members is unable to contribute anything from his private assets, then, that addltlonal deficiency is to be
shared among the remaining members in proportion to their respective capital in the company.Simply
“unlimited company” means a company not having any limit on the liabilityof its members;
3. Classification of companies on the basis of ownership: On the basis of ownership, companies may be
classified into two kinds. They are:
a. Government companies
b. Non-govemment companies
a) Government contpanies: A Company in which not less than 51% of the share capital is held by the central
government and or by any state government or governments is called a goverment companies. It may be a
public company or a private company. Some of the prominent government companies are: Hindustan
Machine Tools, Bharat Electronic Limited, Indian Telephone Industries and Hindustan Aeronautics limited.

A Government company may be permitted by the central government to drop the words " Private Limited" or
the word "Limited" from its name. The Central Government can by notification in the official gazette, restrict
or modify the application of certain provision of the companies Act in regard to government companies.

b) Non- Government companies: A non-government company is a company which is owned and managed by
private investors.
4. Classifications of companies on the basis of nationality:On the basis of nationality, companies may be
classified into two kinds, They are:
a) Domestic companies
b) Foreign companies
a) Domestic companies: A Domestic company is a company which is inccrporated in India .Today most of the
Joint stock companies in India are domestic companies.
b) Foreign Company
"Foreign Company" is defined [in Sec2 (42)] to mean any company or a body corporate incorporated outsideIndia
and which –
i) has a place of business in India whether by itself or through an agent, physically or through electronic
mode1; and

1Under the rules: For the purposes of clause (42) of section 2 of the Act, ”electronic mode” means carrying out
electronically based,whether main server is installed in India or not, including, but not limited to -
(i) business to business and business to consumer transactions, data interchange and other digital supply transactions;
(ii) offering to accept deposits or inviting deposits or accepting deposits or subscriptions in securities, in India or from
citizens of
India;
(iii) financial settlements, web based marketing, advisory and transactional services, database services and products,
supply chain
management;
(iv) online services such as telemarketing, telecommuting, telemedicine, education and information research; and
ii) -conducts any business activity in India in any other manner.
The expression 'place of business' is defined to include a share transfer or registration office.
Application of Act to foreign companies: [Section 379 of the 2013 Act]. Where not less than fifty per
cent of the paid-up share capital, whether equity or preference or partly equity and partly preference, of a
foreign company is held by one or more citizens of India or by one or more companies or bodies corporate
incorporated in India, or by one or more citizens of India and one or more companies or bodies corporate
incorporated in India, whether singly or in the aggregate, such company shall comply with the provisions ofthis
Chapter and such other provisions of this Act as may be prescribed with regard to the business carried onby it in
India as if it were a company incorporated in India.
-Applicable provisions Chapter XXII Companies Incorporated outside India and under Companies(Registration
of Foreign Companies) Rules, 2014.
-As per FEMA, no person resident outside India shall, without prior approval of RBI establish inIndia, a branch,
project or a liaison office or any other place of business by whatever name called-A foreign company is required
to register with ROC within 30 days from the date of its establishing aplace of business in India [sec 380]-Setting
up of place of business in India by a foreign company through an agent or electronic modewill require
registration under 2013 Act.
Classification of companies on the basis of control:On the basis of control companies may be classified into
i. Holding companies
ii. Subsidiary companies.
Holding Companies and Subsidiary CompaniesSubsidiary – meaning, under 1956 Act, a company shall be deemed to
be subsidiary of other company, if
other company exercise or controls the composition of Board of directors or controls more than 50% of totalequity
share capital or total voting capital
Under 2013 Act, the concept of holding-subsidiary company relationship, as far as it relates to exercise orcontrol of
more than half share capital is concerned, requires one to consider the investor company'sshareholding in the total
paid up share capital (i.e. equity and preference) of the investee company forwhichthe relationship is to be examined.
Under the 1956 Act, the investor company's shareholding in thetotal equity paid up share capital needed to be
considered. Class or classes of holding companies to be prescribed cannot have layers of subsidiaries beyond such
numbers as may be prescribed Holding-subsidiary relationship will have to be re-examined especially where
company is funded with lower equity share capital base and higher preference share capital. This is likely to trigger
unintended consolidation."subsidiary company8" or "subsidiary", in relation to any other company (that is to say the
holding company), means a company in which the holding company—
(i)controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital either at its own or together with oneor more of
its subsidiary companies: Provided that such class or classes of holding companies as may be prescribed shall not
have layers ofsubsidiaries beyond such numbers as may be prescribed.
(v) all related data communication services,
whether conducted by e-mail, mobile devices, social media, cloud computing, document management, voice or data
transmission or otherwise
Explanation.—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in
sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;
(b) the composition of a company's Board of Directors shall be deemed to be controlled by another company if that
other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority
of the directors;
(c) the expression "company" includes any body corporate;
(d) "layer" in relation to a holding company means its subsidiary or subsidiaries; Subsidiary company not to hold
shares in its holding company
.Eg. When Company A has a control over company B, company A is known as a holding company and
company B which is so controlled is known as a subsidiary company.
5. Classification of companies on the basis of number of members: Registered companies with share capital may
be divided into two classes from the point of view of the the number of members
i. Private Companies
ii. Public Companies
Private Companies: “private company” means a company having a minimum paid-up share
Capital of one lakh rupees or such higher paid-up share capital as may be prescribed,and which by its articles,—
(i) restricts the right to transfer its shares;
(ii) except in case of One Person Company, limits the number of its members to two hundred ( it is increased from 50
to 200 [Sec 2(68) (ii) of the2013 Act])
It is provided that where two or more persons hold one or more shares in a company jointly, they shall, for the
purposes of this clause, be treated as a single member.
Provided further that—
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company,
were members of the company while in that employment and have continued to
be members after the employment ceased,shall not be included in the number of members; and
(iii) prohibits any invitation to the public to subscribe for any securities ofthe company;

-The condition of 1956 Act to have a restriction in the AoA of a private company prohibiting invitation or acceptance
of deposits has been removed. However, this deletion may not materially benefit a private company from borrowings
by way of deposits as stringent measures have now been provided for acceptance of depositsby a company.
-Directorships in private limited companies now counted for the purpose of maximum number of directorships i.e. 20
[Section 165 of the 2013 Act - Number of directorships.].
Public Companies:“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 higherpaid-up capital, as may be prescribed:
Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be
public company for the purposes of this Act even
where such subsidiary company continues to be a private company in its articles

6. Other Kinds of Companies:

a) One Man Companies / Family Companies:
"One Person Company" means a company which has only one individual as a member the procedural guidance is
under Companies (Incorporation) Rules, 20143.
A company may be an OPC having a sole member. The memorandum of such OPC is required to indicate the name
of the person who shall become member in the event of death or incapacity of the sole member( Section 3(1)
proviso)OPC is required to specifically mention the word "one person company" below the name wherever it is used
2013 Act provides additional flexibility to OPC. Some of the relaxations provided to OPC are as under:
i) OPC should have minimum 1 director
ii) Where an OPC has only 1 director, the date on which the resolution is signed and dated by such director is
considered as the date of the board meeting
iii) Provisions of board meeting, quorum and interested director shall not apply to OPC
iv) OPC need not hold an AGM
v) Provisions relating to notice, explanatory statement, EGM, quorum, voting, chairman, poll, proxies, postalballot,
vi) NCLT's power of calling for EGM does not apply to OPC
vii) Financial Statements can be signed by only one director
viii) Financial Statements are to be filed with ROC within 180 days from the end of FY
ix) OPC can contract with the sole member who is a director
Converting a sole proprietary concern into an OPC will help carrying on the business with limited liability.
If the conditions under the tax laws are satisfied, such conversion from sole proprietorship to an OPC may be tax
neutral2
2Under Companies (Incorporation) Rules, 2014Rule 3. One Person Company.-
(1) Only a natural person who is an Indian citizen and resident in India-
(a) shall be eligible to incorporate a One Person Company;
(b) shall be a nominee for the sole member of a One Person Company.
Explanation.- For the purposes of this rule, the term "resident in India" means a person who has stayed in India for a
period of
not less than one hundred and eighty two days during the immediately preceding one calendar year.
(2) No person shall be eligible to incorporate more than a One Person Company or become nominee in more than one such
company.
(3) Where a natural person, being member in One Person Company in accordance with this rule becomes a member in
another
such Company by virtue of his being a nominee in that One Person Company, such person shall meet the eligibility criteria
specified in sub rule (2) within a period of one hundred and eighty days.
(4) No minor shall become member or nominee of the One Person Company or can hold share with beneficial interest.
(5) Such Company cannot be incorporated or converted into a company under section 8 of the Act.
(6) Such Company cannot carry out Non-Banking Financial Investment activities including investment in securities of any
body
corporates.
(7) No such company can convert voluntarily into any kind of company unless two years have expired from the date of
b)Licenced Companies: Association formed not for profit, but for promoting non trading purposes, such as art,
science, education, sports, regligion, charity, etc., can obtain a licence from the central layout and get themselves
registered as compaines with limited liability under Sec. 25 (U/S 25) of the companies act. They are called
companies not for profit or licenced companies.
Eg.Education institutions, cultural association, sports, clubs, charitable association, etc.
Dormant Company [section 455 of the 2013 Act]:
Where a company is formed and registered under 2013 Act and has no significant accounting transaction but is for a
future project or to hold an asset or intellectual property, such a company or an inactive company maymake an
application to ROC to obtain status as a "dormant company"
i) "inactive company6" means a company which has not been carrying on any business or operation, or has not made
any significant accounting transaction during the last 2 FYs, or has not filed financial statements and annual returns
during the last 2 FYs;
ii) "significant accounting transaction" means any transaction other than
(a) payment of fees by a company to ROC;
(b) payments made by it to fulfill the requirements of the 2013 Act or any other law;
(c) allotment of shares to fulfill the requirements of the 2013 Act; and
(d) payments for maintenance of its office and records.
In case of a company which has not filed financial statements or annual returns for 2 FYs consecutively, ROC shall
issue a notice to that company and enter the name of such company in the register maintained for dormant
companies.Cash flow statement is not required for dormant company
i) Board meetings required to be held at least in each half of a calendar year and the gap between the 2 meetings is
not less than 90 days
ii) A dormant company shall have the prescribed minimum number of directors, file prescribed documents and pay
prescribed annual fee to ROC to retain its dormant status
Small Company:
"Small company2"' means a company, other than a public company, whose paid-up share capital does not exceed Rs
5 million or such higher amount as may be prescribed (not exceeding Rs 50 million); or whose turnover as per its last
profit & loss account does not exceed Rs 20 million or such higher amount as may be prescribed (not exceeding Rs
200 million).
- Small Company cannot be a holding or subsidiary company.
2013 Act provides additional flexibility to small companies and OPC. Some of the relaxations provided to a small
company and OPC are as indicated below:
- Cash flow statement is not required
incorporation of One Person Company, except threshold limit (paid up share capital) is increased beyond fifty lakh rupees
or its
average annual turnover during the relevant period exceeds two crore rupees.
- Annual Return can be signed by CS or one director if there is no CS
- Board meeting is required to be held at least once in each half of a calendar year and the gap between the 2
meetings is not less than 90 days
- Merger process between 2 or more 'small companies' is to be approved on fast track basis. Such merger would
require approval of ROC, OL, members holding at least 90% of total number of shares and majority ofcreditors
representing 9/10th in value [Section 233 of the 2013 Act].
2.2 REGULATIONS OF COMPANIES BEFORE INDEPENDENCE :

Company law is that branch of law which deals exclusively with all aspects relating to companies, such as
incorporations of companies allotment of shares and share capital membership in companies management and
administration of companies, winding up of companies. etc.

Company law in India is that branch of Indian law which regulates companies in India. Hence let’s have a look
towards regulations of companies before independence .

Joint stock companies act of 1850:Companies legislation in India owes its origin to the English Company law. The
companies acts passed from time to time in India have been following the English companies acts with certain
modifications to suit Indian conditions. The first legislative enactment for "Registration of Joint stock companies"
was passed in the year 1850. This Act was based on the English companies Act, 1844 (known as the Joint stock
companies Act 1844) which recognized company as a distinct legal entity, but did not grant to it the privilege of
limited liability.

Joint Stock Companies act of 1857:The Joint stock companies act of 1850 was replaced by the Joint stock
companies act of 1857. This act of 1857 conferred, for the first time in India the benefit of limited liability on the
members of companies. But this act did not extend the benefit of limited liability to the members of banking
companies and insurance companies.

Joint Stock Companies Act or 1860:The Joint stock companies act of 1857 was replaced by the Joint stock
companies act of 1866. The Joint stock companies Act of 1860 extended the benefit of limited liability to the
members of Banking companies and insurance companies.

The companies Act or 1866:The Joint stock companies Act of 1860 was replaced by the companies Act of 1866.
The companies Act of 1866 was the first comprehensive companies Act passed in India. The companies Act of 1866
was based on the English companies Act of 1862. The companies Act of 1866 was intended to consolidate and
amend the law relating to the incorporation, regulation and winding up of trading companies and other associations.

Companies Act of1913:The Indian Companies Act, 1913 did not take into account the peculiar features of the Indian
trade and commerce and some peculiar institution such as "managing agency.” The Act was, therefore, found to be
 highly unsatisfactory in the course of its operation. Assuch, this Act was subjected to a large number of amendments
from time to time.

2.3 REGULATIONS OF COMPANIES AFTER INDEPENDENCE

After independence there is a remarkable change in companies regulation, a new act was came into existence i.e. –
companies act 1956 .this is detailed below.

Companies Act of 1956:After the end of World War II, the need for a further revision of the company law was felt.
Many changes had taken place in the organization and management of Joint stock companies. The government of
India, therefore, appointed on 25th October, 1950. A committee of 12 members representing various fields under the
chairmanship of Shri. H. C. Bhabha for a comprehensive review of the Indian companies Act 1913. The committee
submitted its report on all aspects of company law in April 1952. Based on the recommendation of the Bhabha
Committee companies Act of 1956 was passed. The companies Act of 1956 was based on the English companies Act
of 1948, with some modifications to suit the Indian conditions. The companies Act of 1956 came into force from 1st
April, 1956. This act contains 658 sections and 14 schedules.

OBJECTIVE OF THE COMPANIES ACT OF 1956:

The main objectives of the companies Act of I956 are:

I. To protect the interests of the investors by furnishing fair and accurate information in the prospectus.
II. To recognize the rights of the shareholders to receive reasonable information for making an intelligent judgment
with reference to the management.
III. To ensure full and fair disclosure of the affairs of the companies in their published annual accounts.
IV. To protect the interests of the Shareholders by ensuring the holding of general body meeting and ensuring
effective participation and control by the shareholders and providing for prevention of oppression of minority
and mismanagement.
V. To protect the interest of the creditors by preventing reduction of capital, by convening the meeting of creditors
and appointment of liquidators, and taking over the companies in case of mismanagement.
VI. To enforce proper performance of duties by persons responsible for the management of Companies.
VII. To prevent misconduct and malpractices on the part of company's management and abuse of power vested in
them.
VIII. To promote the healthy growth of companies by ensuring integrity in the conduct and management of the
company by the board of directors, placing restrictions on the borrowing powers of the board of directors and
preventing any act which is prejudicial to the interest of the shareholders, the public and the companies.
IX. To ensure that the activities of the company are carried on nut only in the interests of those directly concerned
with them but also in furtherance of the economic and social policy (i.e., the socialistic pattern of society) of the
country.
X. To empower the government to interfere and investigate into the affairs of the Company and to take over the
Company when the business of the Company is carried on in a manner prejudicial to the interests of the
Shareholders, the Company or the general public.
XI. To provide for the establishment of an appropriate authority for the administration of the Companies Act.
COMPANIES ACT 2013:
The new Companies Act (hereinafter referred as CA2013) is replacing old Companies Act, 1956 (hereinafter
referred as CA1956). The CA2013 makes comprehensive provisions to govern all listed and unlisted companies
in the country. The CA2013 is partially made effective w.e.f. 12th September, 2013, by way of implementing 98
Sections and repealing the relevant sections corresponded with CA1956
CHAPTER 3
Background of companies act:

Table no-1

Companies bill 2008:

The companies act 2013first came as bill which was known as companies bill .it was introduced in the year 2008
.named as Companies Bill 2008(Bill No. 57 of 2008)

Companies bill 2009:

Companies Bill, 2008 was not considered due to dissolution of LokSabha ; and reintroduced as Companies Bill,
2009 ( 59 of 2009). The same was referred to Standing Committee on Finance

Report of Standing Committee on Finance was introduced in LokSabha in 2010

Companies bill 2011:

Companies Bill, 2011 (No. 121 of 2011) introduced in LokSabha on 14thDecember 2011.

Companies bill 2012:

Companies Bill,2012 as amended was approved by LokSabha on 18thDecember 2012.
Companies act 2013:
Bill was approved by RajyaSabha on 8thAugust 2013, and received President‟s assent on 29thAugust 2013
Rationale behind new companies act:-
 Immense increase innumberofCompaniesfromabout30,000(approx)in1956tonearly8lakhs;
 Recognitionofgoodcorporatepractices&technologicalimprovements;
 Simplificationoflawbylocatingrelatedprovisionsunderoneclause/section
 Insertionofnewprovisionstomeetthecurrenteconomicenvironment
Objectives of companies act 2013
 Transparency through increased reporting framework
 Higher Auditor Accountability
 Creating flexibility and simplicity in the formation and maintenance of companies.
 Adopt IT and Modern Business and Financial Practices
 Growth through Corporate Social Responsibility agenda.
 Wider Director and Management Responsibility.
 To increase investor protection.

COMPANIES ACT, 2013: A STATISTICAL SNAPSHOT

The CA 2013 contains 29 Chapters divided into 470 sections and 7 schedules95 definations, as opposed to the 658
sections and 15 schedules under the CA 1956. However, the new law also makes extensive reference to sub-ordinate
legislation in the form of rules, which form an integral part of the new law governing companies in India. Pursuant to
the powers vested under the CA 2013, the MCA has also finalized the rules under each chapter, most of which have
been notified. This can be shown in the following figure.
Figure 1:
structure of companies act 2013

SILIENT FEATURE OF COMPANIES ACT (CA)2013:

1. Democracy of Shareholders: The CA2013 has introduced new concept of class action suits with a view of
making shareholders and other stakeholders, more informed and knowledgeable about their rights.

2. Supremacy of Shareholders: The CA2013 focused and provides major aspect on approvals from shareholders on
various significant transactions. The Government has rightly reduced the need for the companies to seek approvals to
managerial remuneration and the shareholders have been vested with the power to sanction the limit.

3. Strengthening Women Contributions through Board Room: The CA2013 stipulates appointment of at least
one woman Director on the Board of the prescribed class of Companies so as to widen the talent pool enabling big
Corporates to benefit from diversified backgrounds with different viewpoints.

4. Corporate Social Responsibility: The CA2013 stipulates certain class of Companies to spend a certain amount of
money every year on activities/initiatives reflecting Corporate Social Responsibility. There may be difficulties in
implementing in the initial years but this measure would help in improving the Under-privileged & backward
sections of Society and the Corporate would in fact gain in terms of their reputation and image in the Society.

5. National Company Law Tribunal: The CA2013 introduced National Company Law Tribunal and the National
Company Law Appellate Tribunal to replace the Company Law Board and Board for Industrial and Financial
Reconstruction. They would relieve the Courts of their burden while simultaneously providing specialized justice.

6. Fast Track Mergers: The CA2013 proposes a fast track and simplified procedure for mergers and amalgamations
of certain class of companies such as holding and subsidiary, and small companies after obtaining approval of the
Indian government.

7. Cross Border Mergers: The CA2013 permits cross border mergers, both ways; a foreign company merging with
an India Company and vice versa but with prior permission of RBI.

8. Prohibition on forward dealings and insider trading: The CA2013 prohibits directors and key managerial
personnel from purchasing call and put options of shares of the company, its holding company and its subsidiary and
associate companies as if such person is reasonably expected to have access to price-sensitive information (being
information which, if published, is likely to affect the price of the company’s securities). Earlier these provisions
were contained in regulations framed by SEBI, as the capital market regulator. Now, it has also been informed that
SEBI is expected to discuss changes in certain norms for listed firms so as to make them in line with the rules in the
new Act.

9. Increase in number of Shareholders: The CA 2013 increased the number of maximum shareholders in a private
company from 50 to 200.

10. Limit on Maximum Partners: The maximum number of persons/partners in any association/partnership may be
upto such number as may be prescribed but not exceeding one hundred. This restriction will not apply to an
association or partnership, constituted by professionals like lawyer, chartered accountants, company secretaries, etc.
who are governed by their special laws. Under the CA1956, there was a limit of maximum 20 persons/partners and
there was no exemption granted to the professionals.

11. One Person Company: The CA2013 provides new form of private company, i.e., one person company is
introduced that may have only one director and one shareholder. The CA1956 requires minimum two shareholders
and two directors in case of a private company.
12. Entrenchment in Articles of Association: The CA2013 provides for entrenchment of articles of association
have been introduced.
13. Electronic Mode: The CA2013 proposed E-Governance for various company processes like maintenance and
inspection of documents in electronic form, option of keeping of books of accounts in electronic form, financial
statements to be placed on company's website, etc.

14. Restriction on Composition: Every company shall have at least one director who has stayed in India for a total
period of not less than 182 (one hundred and eighty two) days in the previous calendar year.

15. Independent Directors: The CA2013 provides that all listed companies should have at least one-third of the
Board as independent directors. Such other class or classes of public companies as may be prescribed by the Central
Government shall also be required to appoint independent directors. No independent director shall hold office for
more than two consecutive terms of five years.

16. Serving Notice of Board Meeting: The CA2013 requires at least seven days' notice to call a board meeting. The
notice may be sent by electronic means to every director at his address registered with the company. The CA1956 did
not prescribe any notice period to call the board meeting of a company.

17Duties of Director defined: Under the CA1956, a director had fiduciary duties towards a company. However, the
CA2013 has NOW defined the duties of a director.

18. Liability on Directors and Officers: The CA2013 does not restrict an Indian company from indemnifying its
directors and officers like the CA1956.

19. Rotation of Auditors: The CA2013 provides for rotation of auditors and audit firms in case of publicly traded
companies.

20. Auditors performing Non-Audit Services: The CA2013 prohibits Auditors from performing non-audit services
to the company where they are auditor to ensure independence and accountability of auditor.

21. Financial Year: Every company’s financial year will be the period ending on 31 March every year.

22. Rehabilitation and Liquidation Process: The entire rehabilitation and liquidation process of the companies in
financial crisis has been made time bound under CA2013.
 3.5 LIST OF CHAPTERS OF COMPANIES ACT, 2013 FOR WHICH DRAFT RULES HAVE BEEN
RELEASED

Table no 2: list of chapters of companies act 2013

3.6 Key definitions and concepts

The 2013 Act has introduced several new concepts and has also tried to streamline many of the requirements by
introducing new definitions. This chapter covers some of these new concepts and definitions in brief.
Companies
One-person company: The 2013 Act introduces a new type of entity to the existing list i.e. apart from forming
a public or private limited company, the 2013 Act enables the formation of a new entity a 'one-person company'
(OPC). An OPC means a company with only one person as its member [section 3(1) of the 2013 Act].
Private company: The 2013 Act introduces a change in the definition for a private company, inter-alia, the
new requirement increases the limit of the number of members from 50 to 200. [Section 2(68) of the 2013 Act].
Small company: A small company has been defined as a company, other than a public company.
i) Paid-up share capital of which does not exceed 50 lakh INR or such higher amount as may be prescribed
which shall not be more than five crore INR
ii) Turnover of which as per its last profit-and-loss account does not exceed two crore INR or such higher
amount as may be prescribed which shall not be more than 20 crore INR: As
set out in the 2013 Act, this section will not be applicable to the following:
-A holding company or a subsidiary company -A
company registered under section 8
-A company or body corporate governed by any special Act [section 2(85) of the 2013 Act]
Dormant company: The 2013 Act states that a company can be classified as dormant when it is formed and
registered under this 2013 Act for a future project or to hold an asset or intellectual property and has no significant
accounting transaction. Such a company or an inactive one may apply to the ROC in such manner as may be
prescribed for obtaining the status of a dormant company.[Section 455 of the 2013 Act]
Roles and responsibilities
Officer: The definition of officer has been extended to include promoters and key managerial personnel
[section 2(59) of the 2013 Act].
Key managerial personnel: The term 'key managerial personnel' has been defined in the 2013 Act and has
been used in several sections, thus expanding the scope of persons covered by such sections [section 2(51) of the
2013 Act].
Promoter: The term 'promoter' has been defined in the following ways:
-A person who has been named as such in a prospectus or is identified by the

company in the annual return referred to in Section 92 of the 2013 Act that deals with annual return; or
-who has control over the affairs of the company, directly or indirectly whether as a shareholder,
director or otherwise; or
-in accordance with whose advice, directions or instructions the Board of Directors of the company is
accustomed to act.
The proviso to this section states that sub-section (c) would not apply to a person who is acting merely in
a professional capacity. [Section 2(69) of the 2013 Act]
Independent Director: The term' Independent Director' has now been defined in the 2013 Act, along with
several new requirements relating to their appointment, role and responsibilities. Further some of these requirements
are not in line with the corresponding requirements under the equity listing agreement [section 2(47), 149(5) of the
2013 Act].
Investments
Subsidiary: The definition of subsidiary as included in the 2013 Act states that certain class or classes of
holding company (as may be prescribed) shall not have layers of subsidiaries beyond such numbers as may
beprescribed. With such a restrictive section, it appears that a holding company will no longer be able to hold
subsidiaries beyond a specified number [section 2(87) of the 2013 Act].
 One of the measures adopted in 2013 Act to ensure transparency is to restrict one's ability to set up multiple
investment companies.
Sec 2(87) r/w Sec 186A of the 2013 Act, company unless permitted under the Rules can make investment
through not more than 2 layers of investment companies. Exceptions to this basic law are:
■ acquisition of a foreign company which has investment subsidiary beyond 2 layers as per the relevant
foreign law; and
■ a subsidiary company making investment to comply with any relevant law.
"Investment Company" has been defined to mean a company whose principal business is the acquisition of
shares, debentures or other securities.

Financial statements
Financial year: It has been defined as the period ending on the 31st day of March every year, and where it has
been incorporated on or after the 1st day of January of a, the period ending on the 31st day of March of the following
year, in respect whereof financial statement of the company or body corporate is made up. [Section 2(41) of the 2013
Act]. While there are certain exceptions included, this section mandates a uniform accounting year for all companies
and may create significant implementation issues.
Consolidated financial statements: The 2013 Act now mandates consolidated financial statements (CFS) for
any company having a subsidiary or an associate or a joint venture, to prepare and present consolidated financial
statements in addition to standalone financial statements.
Conflicting definitions: There are several definitions in the 2013 Act divergent from those used in the notified
accounting standards, such as a joint venture or an associate,, etc., which may lead to hardships in compliance.

Audit and auditors

Mandatory auditor rotation and joint auditors: The 2013 Act now mandates the rotation of auditors after the
specified time period. The 2013 Act also includes an enabling provision for joint audits.
Non-audit services: The 2013 Act now states that any services to be rendered by the auditor should be
approved by the board of directors or the audit committee. Additionally, the auditor is also restricted from providing
certain specific services.
Auditing standards: The Standards on Auditing have been accorded legal sanctity in the 2013 Act and would
be subject to notification by the NFRA. Auditors are now mandatorily bound by the 2013 Act to ensure compliance
with Standards on Auditing.
Cognisance to Indian Accounting Standards (Ind AS): The 2013 Act, in several sections, has given
cognisance to the Indian Accounting Standards, which are standards converged with International Financial
Reporting Standards, in view of their becoming applicable in future. For example, the definition of a financial
statement includes a 'statement of changes in equity' which would be required under Ind AS. [Section 2(40) of the
2013 Act]
Secretarial audit for bigger companies: In respect of listed companies and other class of companies as may be
prescribed, the 2013 Act provides for a mandatory requirement to have secretarial audit. The draft rules make it
applicable to every public company with paid-up share capital >Rs. 100 crores. As specified in the 2013 Act, such
companies would be required to annex a secretarial audit report given by a Company Secretary in practice with its
Board's report. [Section 204 of the 2013 Act]
Secretarial Standards: The 2013 Act requires every company to observe secretarial standards specified by the
Institute of Company Secretaries of India with respect to general and board meetings [Section 118 (10) of the 2013
Act], which were hitherto not given cognizance under the 1956 Act.
Internal Audit: The importance of internal audit has been well acknowledged in Companies (Auditor Report)
Order, 2003 (the 'Order'), pursuant to which auditor of a company is required to comment on the fact that the internal
audit system of the company is commensurate with the nature and size of the company's operations. However, the
Order did not mandate that an internal audit should be conducted by the internal auditor of the company. The Order
acknowledged that an internal audit can be conducted by an individual who is not in appointment by the company.
 The 2013 Act now moves a step forward and mandates the appointment of an internal auditor who shall either
be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct
internal audit of the functions and activities of the company.
The class or classes of companies which shall be required to mandatorily appoint an internal auditor as
per the draft rules are as follows: *
■ Every listed company
■ Every public company having paid-up share capital of more than 10 crore INR
■ Every other public company which has any outstanding loans or borrowings from banks or public financial
institutions more than 25 crore INR or which has accepted deposits of more than 25 crore INR at any point of
time during the last financial year
Audit of items of cost: The central government may, by order, in respect of such class of companies engaged
in the production of such goods or providing such services as may be prescribed, direct that particulars relating to the
utilisation of material or labour or to other items of cost as may be prescribed shall also be included in the books of
account kept by that class of companies. By virtue of this section of the 2013 Act, the cost audit would be mandated
for certain companies. [Section 148 of the 2013 Act]. It is pertinent to note that similar requirements have recently
been notified by the central government.
Regulators
National Company Law Tribunal (Tribunal or NCLT): In accordance with the Supreme Court's (SC)
judgment, on 11 May 2010, on the composition and constitution of the Tribunal, modifications relating to
qualification and experience, etc. of the members of the Tribunal has been made. Appeals from the Tribunal shall lie
with the NCLT. Chapter XXVII of the 2013 Act consisting of section 407 to 434 deals with NCLT and appellate
Tribunal.
National Financial Reporting Authority (NFRA): The 2013 Act requires the constitution of NFRA, which has
been bestowed with significant powers not only in issuing the authoritative pronouncements, but also in regulating
the audit profession.
Serious Fraud Investigation Office (SFIO): The 2013 Act has bestowed legal status to SFIO.
Mergers and acquisitions
The 2013 Act has streamlined as well as introduced concepts such as reverse mergers (merger of foreign companies
with Indian companies) and squeeze-out provisions, which are significant. The 2013 Act has also introduced the
requirement for valuations in several cases, including mergers and acquisitions, by registered valuers.
Corporate social responsibility
The 2013 Act makes an effort to introduce the culture of corporate social responsibility (CSR) in Indian corporates
by requiring companies to formulate a corporate social responsibility policy and at least incur a given minimum
expenditure on social activities.
Class action suits
The 2013 Act introduces a new concept of class action suits which can be initiated by shareholders against the
company and auditors.
Prohibition of association or partnership of persons exceeding certain number
The 2013 Act puts a restriction on the number of partners that can be admitted to a partnership at 100. To be specific,
the 2013 Act states that no association or partnership consisting of more than the given number of persons as may be
prescribed shall be formed for the purpose of carrying on any business that has for its object the acquisition of gain
by the association or partnership or by the individual members thereof, unless it is registered as a company under this
1956 Act or is formed under any other law for the time being in force:
As an exception, the aforesaid restriction would not apply to the following:
■ A Hindu undivided family carrying on any business
■ An association or partnership, if it is formed by professionals who are governed by special acts like the
Chartered Accountants Act, etc.[section 464 of the 2013 Act]
Power to remove difficulties
The central government will have the power to exempt or modify provisions of the 2013 Act for a class or classes of
companies in public interest. Relevant notification shall be required to be laid in draft form in Parliament for a period
of 30 days. The 2013 Act further states no such order shall be made after the expiry of a period of five years from the
date of commencement of section 1 of the 2013 Act [section 470 of the 2013 Act].
Insider trading and prohibition on forward dealings
The 2013 Act for the first time defines 'insider trading and price-sensitive information and prohibits any person
including the director or key managerial person from entering into insider trading [section 195 of the 2013 Act].
Further, the Act also prohibits directors and key managerial personnel from forward dealings in the company or its
holding, subsidiary or associate company [section 194 of the 2013 Act].
Setting up of a company
The 2013 Act introduces a new form of entity 'one-person company' and incorporates certain new provisions in
respect of memorandum and articles of association. For instance, the concept of including entrenchment provisions
in the articles of association has been introduced.

Postal Ballot [Sec 2(65) r/w 110 of the 2013 Act]

Voting by Postal ballot through post / electronic mode is made applicable to all companies.

Registered Valuers [Sec 247 of the 2013 Act]

Where any valuation is required to be made in respect of any property, stocks, shares, debentures, securities,
goodwill or other assets or of net-worth or liabilities under 2013 Act, such valuation shall be done by a person
registered with the Government as a valuer. Registered valuer shall be appointed by the audit committee or in its
absence by the BOD.

SPECIFIC PROVISIONS:
1.Share Capital
Key highlights
•For defined infrastructural projects, preference shares can be issued for a period exceeding 20 year3
•Provisions relating to further issue of capital made applicable to all companies4
•The terms for offer of securities, form and manner of 'private placement' to be as prescribed
•Shares cannot be issued at a discount except sweat equity shares5
•Time gap between 2 buy-backs shall be minimum 1 year6
----------------------------------------------------------------------------------------------------------------
Types of Share Capital

3Section 55(2)

4Sec 62

5Sec 63 r/w sec 64

6Sec68
 There is no change in the concept of types of share capital as in 1956 Act. The shares can be of the following
types7:
i) Equity shares
(i) With voting rights; or
(ii) With differential rights as to dividend, voting or otherwise
ii) Preference shares
Shares with Differential Rights
The provisions relating to issue of shares with differential rights as to dividend, voting or otherwise have
been retained in 2013 Act. The conditions for issuance for such shares are through the prescribed Rule 4 of
Companies (Share Capital and Debentures) Rules, 20148. The proviso to section 48(1) of the 2013 Act states that if
the variation by one class of shareholders affects the rights of any other class of shareholders, the consent of three-
fourths of such other class of shareholders shall also be obtained and the provisions of this section shall apply to such
variation.
Rule 2(r) of the 2013 Act :9 “Total Share Capital”, for the purposes of clause (6) and clause (87) of section 2,
means the aggregate of the -
(a) paid-up equity share capital; and
(b) convertible preference share capital;
Issue and redemption of preference shares10
■ Tenure of preference shares has been kept at 20 years 11. However, companies having "infrastructural projects" (as
defined) can issue preference shares for tenure beyond 20 years, subject to the redemption of specified percentage of

7Sec 43

8Chapter4_Share Capital and Debentures (rules) Rule 4. Equity shares with differential rights.-
(1) No company limited by shares shall issue equity shares with differential rights as to dividend, voting or
otherwise, unless it complies with the following conditions, namely:-
(a) the articles of association of the company authorizes the issue of shares with differential rights;
(b) the issue of shares is authorized by an ordinary resolution passed at a general meeting of the shareholders:
Provided that where the equity shares of a company are listed on a recognized stock exchange, the issue of such
shares shall be approved by the shareholders through postal ballot ;
(c) the shares with differential rights shall not exceed twenty-six percent of the total post-issue paid up equity share
capital including equity shares with differential rights issued at any point of time;
(d) the company having consistent track record of distributable profits for the last three years;
(e) the company has not defaulted in filing financial statements and annual returns for three financial years immediately
preceding the financial year in which it is decided to issue such shares;
(f) the company has no subsisting default in the payment of a declared dividend to its shareholders or repayment of its
matured deposits or redemption of its preference shares or debentures that have become due for redemption or
payment of interest on such deposits or debentures or payment of dividend;
(g) the company has not defaulted in payment of the dividend on preference shares or repayment of any term loan from a
public financial institution or State level financial institution or scheduled Bank that has become repayable or interest
payable thereon or dues with respect to statutory payments relating to its employees to any authority or default in
crediting the amount in Investor Education and Protection Fund to the Central Government;
(h) the company has not been penalized by Court or Tribunal during the last three years of any offence under the
Reserve Bank of India Act, 1934, the Securities and Exchange Board of India Act, 1992, the Securities Contracts
Regulation Act, 1956, the Foreign Exchange Management Act, 1999 or any other special Act, under which such
companies being regulated by sectoral regulators.

9Companies (Specification of definitions details) Rules, 2014.

10Section 55

11Section 55
 shares as per Rules12 to be prescribed, on an annual basis at the option of the preference shareholders
■ Where a company is unable to redeem any preference shares or to pay dividend thereon in accordance with the terms
of issue, it may redeem such preference shares by further issue of redeemable preference shares equal to the amount
due and dividend due thereon. This is subject to -
i) consent of the holders of 3/4th in value of such preference shares; and
ii) approval of NCLT.
■ On issue of such further redeemable preference shares, the preference shares not redeemed earlier shall be deemed to
have been redeemed.
Voting rights on preference shares13
■ 2013 Act provides that where a dividend in respect of a class of preferences shares has not been paid for a period of 2
years or more, such class of preferences shareholders shall have a right to vote on all the resolutions placed before a
general meeting of the company. This is irrespective of whether the preferences shares are cumulative or non-
cumulative. Thus, unlike 1956 Act, 2013 Act makes no distinction between cumulative preferences shares and non-
cumulative preferences shares in the matter of the voting rights in the event of non-payment of dividend.
Further issue of capital14
■ Provisions relating to further issue of capital are made applicable to all types of companies i.e. even private
companies have to comply with these provisions for any further issue of capital. This extension to private companies
is to ensure that the shareholders are consulted and their opinion considered for issue of shares by special resolution.
■ Pricing of a preferential issue of shares by a company shall15 be determined by a Registered Valuers 34. Conditions are
prescribed in the Rules for preferential issue by companies .
■ Amounts received as share application money by private companies also will not be available for use until it
allotment of shares.
■ Shelf prospectus (i.e. prospectus in respect of which securities are issued for subscription in one or more issues
without the issue of a further prospectus) can be issued by classes of companies to be prescribed by Regulations of
SEBI.
Issue of Bonus shares16
■ Unlike 1956 Act, conditions are specified for issue of Bonus shares under 2013 Act which are made applicable to all
companies. Accordingly, issue of fully paid-up bonus shares can be made out of its free reserves or the securities
premium account or capital redemption reserve account. However, company cannot issue bonus shares by
capitalizing revaluation reserves.
■ A company is required to comply with the following conditions in addition to the conditions to be prescribed under
the Rules before issuance of bonus shares:
i) authorization by AOA
ii) shareholders' approval in a general meeting
iii) not defaulted in payment of interest or principal in respect of fixed deposit or debt securities issued by it;
12Companies (Share Capital and Debentures) Rules, 2014

13Section 47(2)

14Section 62

15Rule 13.Issue of shares on preferential basis -of Companies (Share Capital and Debentures) Rules, 2014.

16Section 63
 iv) not defaulted in payment of statutory dues of the employees like provident fund, gratuity and bonus;
v) partly paid shares outstanding on the date of allotment should be fully paid- up prior to issue of bonus
shares and
■ 2013 Act further provides that bonus shares cannot be issued in lieu of dividend.
Allotment, transfer and transmission of securities17
■ Securities or any interest of any member in a public company shall be freely transferable. However, any contract or
arrangement between 2 or more persons in respect of transfer of securities shall be enforceable as a contract.
■ 2013 Act lays down new timelines for issuance of certificates in respect of allotment, transfer and transmission of
securities. The revised timelines are as under:

Certificates for Time stipulated for issuance of certificates

Shares - on subscription to the MOA and within 2 months from the date of
AOA incorporation
i.e. on incorporation of a company
Shares - allotted subsequent to within 2 months from the date of allotment if
incorporation shares
are issued in physical form; or
immediately on allotment to the depository
where
shares are issued in demat form

within 1 month from the date of receipt of

Shares - for transfer the
instrument of transfer
within 6 months from the date of
Debentures allotment of
Debentures

Table no:

Issue of shares at a discount

■ 1956 Act permitted issue of shares at a discount to its par value subject to conditions. 2013 Act prohibits issue of
shares at a discount except in case of "sweat equity shares" issued to the employees of the Company18.
- "sweat equity shares19" means such equity shares as are issued by a company to its directors or employees at a
discount or forconsideration, other than cash, for providing their know-how or making available rights in the
nature of intellectual property rights or value additions, by whatever name called20
Utilization of securities premium21
Securities premium may be applied for permitted purposes. Utilization of securities premium for any other purpose
17Section 56

18Section 56

19Sec 2(88)

20Also see rule 8 under Companies (Share Capital and Debentures) Rules, 2014.

21Sec 52(2)
 would entail compliance with provisions relating to reduction of capital.
(a) towards the issue of unissued shares of the company to the members of the company as fully paid bonus
shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or
debentures of the company;
(d) in providing for the premium payable on the redemption of any redeemable preference shares or of any
debentures of the company; or
(e) for the purchase of its own shares or other securities under section 68.
For classes of companies to be prescribed in the Rules, utilization of securities premium for the following
purposes will require such a company to ensure that the Accounting Standards prescribed have been complied:
(a ) in paying up unissued equity shares of the company to be issued to members of the company as fully
paid bonus shares; or
(b) in writing off the expenses of or the commission paid or discount allowed on any issue of equity shares
of the company; or
(c) for the purchase of its own shares or other securities under section 68.

2. DEBENTURES (SEC 71 & 72)

A Company may issue debentures either with an option to convert such debentures into shares wholly or
partly at the time of redemption. The issue of such debentures shall be approved by a special resolution passed at
a general meeting.
i) Debentures cannot carry any voting rights
ii) Secured debentures may be issued by a company subject to prescribed terms and conditions
iii) Compulsory creation of Debenture Redemption Reserve (DRR): Where the debentures are issued by a
company, the company is required to create a DRR out of profits of the company available for payment of
dividend and the amount credited to such account is to be utilized only for the redemption of debentures
Appointment of Debenture Trustees: Before issuing a prospectus or making an offer or invitation to the public
or to its members exceeding 500, for the subscription of its debentures, a company is required to appoint one or more
debenture trustees
Responsibility of Debenture Trustees: In cases where the debenture trustee comes to a conclusion that the
assets of the company are insufficient to pay principal amount as and when it becomes due, debenture trustee may
file a petition before NCLT to impose restrictions on the company from incurring any further liabilities

3.DIVIDEND:
Key highlights
•Mandatory transfer of profits to reserves before declaration of dividend done away with. Companies may
voluntarily transfer a portion of itsprofits to reserves.
•Mandatory transfer of profits to reserves for dividend declaration dispensed with.
---------------------------------------------------------------------------------------------------------------------
■ Dividend to be paid out of;
-profits of the company for the year after providing for depreciation; or
-profits of the previous years arrived at after providing for depreciation and remaining undistributed; or
-both of the above [Sec123 of the 2013 Act].
■ [Sec123(3) of the 2013 Act] Interim dividend may be declared only out of surplus in Profit & Loss Account and out
 of profits of the FY in which dividend is sought to be declared. In case a company has incurred losses up to the
preceding quarter of the current FY then interim dividend shall not be declared at a rate higher than the average
dividend declared by the company during the immediately preceding 3 FYs.
■ Failure to comply with provisions relating to acceptance and repayment of deposits will prevent a company to
declare any dividend during the period of such non-compliances
■ Dividend to be distributed within 30 days of its declaration in cash only. Dividend cannot be distributed in
kind.
■ Where unpaid / unclaimed dividend has been transferred to IEPF, the corresponding shares on which such dividend
was unpaid / unclaimed shall also be transferred by the company to IEPF
■ Amounts that can be credited to IEPF widened to include
-amount received on disgorgement;
-redemption amount of preference shares remaining unpaid / unclaimed for 7 years or more;
-sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for 7
years or more.
The provisions for declaration and payment of dividend are simplified
Subject to Rules to be prescribed, dividend can be paid out of accumulated reserves without restrictions as to rate
of dividend
Rules: Chapter8_Declaration and Payment of Dividend
Rule 3. Declaration of dividend out of reserves.- In the event of adequacy or absence of profits in any year, a
company may declare dividend out of surplus subject to the fulfillment of the following conditions, namely:-
(1) The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the
three years immediately preceding that year:
Provided that this sub-rule shall not apply to a company, which has not declared any dividend in each of the three
preceding financial year.
(2) The total amount to be drawn from such accumulated profits shall not exceed one-tenth of the sum of its paid-up
share capital and free reserves as appearing in the latest audited financial statement.
(3) The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which dividend is
declared before any dividend in respect of equity shares is declared.
(4) The balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up share capital as
appearing in the latest audited financial statement.
(5) No company shall declare dividend unless carried over previous losses and depreciation not provided in previous
year are set off against profit of the company of the current year the loss or depreciation, whichever is less, in
previous years is set off against the profit of the company for the year for which dividend is declared or paid.
 4.ACCOUNTS AND AUDIT
Key highlights
•Companies to have a uniform financial year - ending on 31 March each year.
•1956 Act allowed companies to have financial period of upto 15 months and 18 months with special permission of
ROC. This flexibility isremoved.
•The definition of FY of the 2013 Act has been aligned with the Tax laws.
•Consolidation of financials for a company having a subsidiary, associate or a joint venture made mandatory.
•National Financial Reporting Authority (NFRA) to be constituted by Central Government to provide for dealing
with matters relating toaccounting and auditing policies and standards to be followed by companies and their
auditors.
•Mandatory audit rotation for listed and prescribed classes of companies.
•Restriction placed on provision of specified non-audit services by an auditor to ensure independence and
accountability of the auditor.
•Mandatory internal audit for prescribed classes of companies.
•Mandatory firm rotation.
•The provisions relating to appointment of auditor, period of appointment, disqualifications of auditors and services
that an auditor cannotprovide have been substantially modified in 2013 Act.

----------------------------------------------------------------------------------------------------------------
Financial Year
■ "Financial year", in relation to any company or body corporate, means the period ending on the 31st day of March
every year.[Sec 2(41) of the 2013 Act]
-This requirement in case of a company or body corporate, existing on the commencement of the 2013 Act, is to
be complied within a period of 2 years from commencement of the 2013 Act.
-Where a company has been incorporated on or after the 1st day of January of a year, the period ending on the
31st day of March of the following year, in respect whereof financial statement of the company or body corporate is
made up.
■ A company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India
and is required to follow a different FY for consolidation of its accounts outside India, the NCLT may allow any
period as its FY, whether or not that period is a year.
■ A subsidiary in India of a foreign company may, with the approval of NCLT follow a different period as its FY. The
question for consideration is whether an application will be entertained by NCLT for following a different period as
FY by company in India which is an associate company or joint venture company of a foreign entity.
Financial statements
■ 1956 Act does not define the term "Financial Statement". 2013 Act defines the term "financial statement"[Sec 2(40)
of the 2013 Act] in relation to a company to include:
i. a balance sheet as at the end of the FY;
ii. a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and
expenditure account for the FY;
iii. cash flow statement for the FY;
iv. a statement of changes in equity, if applicable; and
v. any explanatory note annexed to, or forming part of, any document referred to above.
The financial statement, with respect to OPC, small company and dormant company, may not include the cash
flow statement
■ The books of account and other relevant papers are to be kept at the registered office or such other place in India as
BoD may decide and such books can also be kept in electronic mode in the manner to be prescribed [Sec 128 of the
2013 Act]
■ As per 1956 Act, balance sheet and statement of profit and loss are required to be signed by manager or secretary and
by 2 Directors including MD where there is one. 2013 Act [Sec 134(1) of the 2013 Act requires Financial Statements
to be signed at least by
-chairperson of the company, if authorized by BOD or -2
 directors including MD, where there is one and -CEO if he is a
Director,
-CFO and CS, wherever they are appointed.
In case of OPC balance sheet and statement of profit and loss are required to be signed by one director only.
■ Consolidation of financial statements is made mandatory for all companies where a company has one or more
subsidiaries whether Indian or foreign
■ The mandatory consolidation applies to all companies whether such company is:
Listed or unlisted; -private or
public.
■ For the purposes of consolidation of financial statements, the expression subsidiary includes associate company and
joint venture [Sec129 (3) of the 2013 Act]
-'Associate company'[Sec 2(6) of the 2013 Act], in relation to another company, means a company in which that
other company has a significant influence, but which is not a subsidiary company of the company having such
influence and includes a joint venture company.
-'Significant influence' means control of at least twenty per cent of total share capital, or of business decisions
under an agreement. [Sec 2(6) of the 2013 Act].
-'Control', [Sec 2(27) of the 2013 Act] shall include the right to appoint majority of the directors or to control the
management or policy decisions exercisable by a person or persons acting individually or in concert, directly or
indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting
agreements or in any other manner .
the salient features of the financial statement of its subsidiary(s) in form to be prescribed by Rules
■ CG may direct maintaining of books of accounts of a company for a period more than 8 years where any
investigation has been ordered.
■ CFO made responsible and liable for penalty and / or prosecution for non-compliance with various provisions such
as maintenance of books of accounts, preparation & filing of annual accounts, disclosure of financial information in
offer document, risk management, internal control etc.
■ Consolidation of financial statements of subsidiaries (whether in India or abroad) is applicable to all the companies.
C Re-Opening of accounts and voluntary revision to Financial Statements or Board Report [Sec 130 of
the 2013 Act]
■ Under 2013 Act, on an application made by CG, IT authorities, SEBI or any other statutory regulatory body or
authority or any person concerned and on an order being made by a Court or NCLT, a company can re-open its books
of accounts or re-cast its financial statements on the below grounds:
-that the relevant earlier accounts were prepared in a fraudulent manner; or
-affairs of the company were mismanaged during the relevant period casting a doubt on the reliability of the
financial statements.
■ The company may voluntarily revise the financial statement or Directors' report in respect of any of the 3 preceding
FYs after obtaining approval of NCLT, if the BOD believes that the financial statements or Directors' report do not
comply with the relevant provisions of the 2013 Act. A detailed explanation would be required to be given in
Director's report for the relevant FY for which such revision is made [Sec 131 of the 2013 Act]
Cognisance of Accounting Standards
In several instancesunder
acrosssection
the 2013 Act, there are1956
provisions which
the are also covered within the accounting standards
currently notified
there under. 211(3C) of the Act and Companies (accounting standards) Rules, 2006
There are certain differences in the manner in which a few terms have been defined under the 1956 Act. While
the differences in some of these terms may not have any adverse impact, in certain cases, these differences may
create implementation issues. Differences in definitions exist in the following cases:
■ Associate company
■ Control
■ Subsidiary company
■ Related party
Associate company: The definition of an associate company poses certain challenges since:
■ It includes joint ventures
■ Significant influence is defined to mean 'control ... of business decisions under an agreement'
■ It differs from the definition of an associate as per the Accounting Standard 23: Accounting for Investments in
Associates in Consolidated Financial Statements.

■ The status of an associate and a joint venture cannot be equated since, the degree of control that a company
can exercise in such entities, varies significantly. While 'joint control' is the driving factor in case of joint
ventures, a company can at the most only 'participate' in the operating or financing decisions in case of an
associate company.
■ With regard to the explanation to the section in the 2013 Act, which defines the term 'significant influence, it is to be
noted that if a company has 'control' [control has been defined in section 2(27) of the 2013 Act] with respect to
business decisions of another company, such other company will in fact be tantamount to a subsidiary and not an
associate company. Hence, the use of the term 'control' within the definition of significant influence leads to a
conflict between the two definitions (associate company and subsidiary company).
We believe that the terms which have been defined in the accounting standards, which also form a part of the
Companies Act, 1956, must not been defined again in the case of an associate, control and subsidiary company, in
order to eliminate contradictions and ambiguity in compliance requirements. The concept of definitions of the
accounting standards having primary significance has already been given cognizance in the Revised Schedule VI to
the Companies 1956 Act, as well.
Further, the definitions of the terms 'associate' and 'significant influence' are also not consistent with the
definitions provided within the Accounting Standard 18: Related Party Transactions, and Accounting Standard 23:
Accounting for Investments in Associates in Consolidated Financial Statements (AS 23).
Subsidiaries: The term 'control', which is relevant with respect to identifying subsidiaries, has been defined in
section 2(27) of the 2013 Act. While this definition mandates consideration of 'share holding' as one of the factors,
the corresponding definition in AS 21: Consolidated Financial Statements (AS 21) refers to 'voting power'. This issue
is an existing one since a similar difference exists between the definition of 'subsidiary', where the term 'control' is
relevant under the existing 1956 Act [section 4(1) of the 1956 Act]. Accordingly, while for consideration of an entity
as a subsidiary for the purpose of consolidated financial statements (CFS), reference is made to AS 21, for the
purpose of any compliance with the 1956 Act, reference is made to section 4(1) of 1956 Act.
Now that the requirement of preparing consolidated financial statements has been included within the 2013 Act
itself, a conflict arises as to whether the definition as per the 2013 Act should be considered for identifying a
subsidiary or the definition as per the AS 21. In any case, the company will be non-compliant with the requirement of
either the 2013 Act or the AS.
With regard to related party, while there is a substantial difference between the definition under the 2013 Act and
AS 18, the difference does not impact the financial statements, since the disclosures in the financial statements will
be continued to be made as per AS 18.
National Financial Reporting Authority [Sec 132 of the 2013 Act]
■ NFRA to be constituted by Central Government to provide for dealing with matters relating to accounting and
auditing policies and standards to be followed by companies and their auditors
■ 2013 Act provides functions of NFRA, which shall include:
-Make recommendations to CG on the formulation of accounting and auditing policies and standards;
-Monitor and enforce compliance with accounting and auditing standards;
-Oversee the quality of service of the professions and suggest measures required for improvement in quality of
services and such other related matters as may be prescribed;
-Perform other prescribed functions in relation to above as may be prescribed.
■ CG may prescribe standards of accounting or any addendum thereto, as recommended by the ICAI in consultation
with and after examination of the recommendations made by NFRA.
■ NFRA to consist of Chairperson and other part time and the full time members not exceeding 15.
■ The Chairperson and full time members of NFRA shall not be associated with any audit firm (including related
consultancy firms) during the course of their appointment and 2 years thereafter
■ 2013 Act provides powers to NFRA, which includes:
-Investigate into the matters of professional or other misconduct committed by member or firm of CA.
-Powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit.
-Where professional or other misconduct is proved, NFRA have the power to make order for imposing monetary
penalty or debarring the member or the firm from engaging himself or itself from practice as member of the institute
for a minimum period of 6 months or for such higher period not exceeding 10 years.
■ Any person aggrieved by the order of NFRA can prefer an appeal to NFRAA.
 4. Auditor
Appointment of first auditor - on incorporation [Sec 139(6) of the 2013 Act]93
The first auditor is to be appointed by the BOD within 30 days of incorporation of a company. If the first auditor
is not appointed by the BOD within 30 days from the date of incorporation, then the members shall appoint the first
auditor within 90 days at the EGM. The tenure of the first auditor shall be upto the conclusion of first AGM.
Appointment of auditor other than the first auditor [Sec 139 of the 2013 Act & Rules]94:
The manner and procedure for selection of an auditor shall be as per the Rules to be prescribed. The basic
provisions are as summarized under:
Appointment of auditor in listed and prescribed class or classes of companies:
Appointment Maximum period of appointment
Of an individual as an auditor
Of an audit firm as an auditor
Cooling off period of 5 years beforenext
appointment

1 term of 5 consecutive years

2 terms of 5 consecutive years
Common conditions for appointment of auditor in listed and classes of companies to be prescribed:
■ Incoming audit firm should not have any common partners who were the partners of the outgoing audit firm i.e. the
audit firm whose tenure expired in the immediately preceding FY by virtue of mandatory rotation requirement
■ Rules to be prescribed to state the manner in which the companies shall rotate their auditors
■ Audit committee of listed and other classes of companies to be prescribed to recommend appointment of an
auditor
■ Transition period of 3 years provided to the companies to comply with the mandatory rotation of auditor requirement
Appointment of auditor in other companies i.e. other than listed and prescribed class or classes of
companies: Appointment / Period of appointment
At first AGM to hold office till conclusion of 6th AGM subject to ratification by members at every AGM
Subsequent to hold office till conclusion of 6th meeting, subject to ratification by members at every AGM
A Mandatory firm rotation
The 2013 Act has introduced the concept of rotation of auditors as well as audit firms. It states that in case of
listed companies (and other class (es) of companies as may be prescribed) it would be mandatory to rotate auditors
every five years in case of the appointment of an individual as an auditor and every 10 years in case of the
appointment of an audit firm with a uniform cooling off period of five years in both the cases. Further, firms with
common partners in the outgoing audit firm will also be ineligible for appointment as auditor during the cooling off
period. The 2013 Act has allowed a transition period of three years for complying with the requirements of the
rotation of auditors [section 139(2) of the 2013 Act]. Further, the 2013 Act also grants an option to shareholders to
further require rotation of the audit partner and staff at such intervals as they may choose [section 139(3) of the 2013
Act].
Currently, while the 1956 Act does not have any requirements relating to the auditor or audit firm rotation, the
Code of Ethics issued by the ICAI has a requirement to rotate audit partners, in case of listed companies, after every
seven years with a cooling-off period of two years.
B Joint audits
The 2013 Act provides that members of the company may require the audit process to be conducted by more than
one auditor [section 139(3) of the 2013 Act].
C Non-audit services to audit clients
The 2013 Act states that any service to be rendered by the auditor needs to be approved by the board of directors
or the audit committee.
93
Read with rules under Chapter10_Audit and Auditors
94
Read with Rules - Chapter10_Audit and Auditors Rule 6. Manner of rotation of auditors by the companies on
expiry of their term.-
 Auditor cannot provide following services "directly or indirectly" to the company or its holding company or
subsidiary company, namely: - accounting and book keeping services;
-internal audit;
-design and implementation of any financialinformation system;
-actuarial services;
-investment advisory services; -investment
banking services;
-rendering of outsourced financial services;
-management services; and
-other services to be prescribed under the Rules.
An auditor or audit firm who or which has been performing any non-audit services on or before the
commencement of the 2013 Act shall comply with the above before the closure of the 1st FY after the date of such
commencement. "Directly or indirectly" shall include rendering of services by the auditor,—
-Where auditor is an individual - Either himself or through his relative or any other person connected or
associated with such individual or through any other entity, whatsoever, in which such individual has significant
influence or control, or whose name or trade mark or brand is used by such individual
-Where auditor is a firm - Either itself or through any of its partners or through its parent, subsidiary or associate
entity or through any other entity, whatsoever, in which the firm or any partner of the firm has significant influence
or control, or whose name or trade mark or brand is used by the firm or any of its partners.
Further, the 2013 Act provides that such services cannot be rendered by the audit firm either directly or indirectly
through itself or any of its partners, its parent or subsidiary or through any other entity whatsoever, in which the firm
or any other partner from the firm has significant influence or control or whose name or trademark or brand is being
used by the firm or any of its partners [section 144 of the 2013 Act]. The 1956 Act currently does not specify any
requirements relating to non-audit services.
These restrictions are aimed at achieving auditor independence. Auditor independence is fundamental to public
confidence on the reliability of the auditors' reports. This concept adds credibility to the published financial
information and value to investors, creditors, companies, employees as well as other stakeholders. Independence is
the audit profession's primary means of demonstrating to the public as well as the regulators that auditors and audit
firms are performing in line with established principles of integrity and objectivity. To comply with these
independence norms, the 2013 Act provides for a transitional period of one year, that is, an auditor or an audit firm
who or which has been performing any non- audit services on or before the commencement of the 1956 Act shall
comply with these provisions before closure of the first financial year after the date of commencement.

D Auditors liability
The scope and extent of the auditor's liability, has been substantially enhanced under the 2013 Act. Now, the
auditor is not only exposed to various new forms of liabilities, however, these liabilities prescribed in the existing
1956 Act have been made more stringent. The auditor is now subject to oversight by multiple regulators apart from
the ICAI such as The National Financial Reporting Authority (NFRA, and the body replacing the NACAS) is now
authorised to investigate matters involving professional or other misconduct of the auditors. The penalty provisions
and other repercussions that an auditor may now be subject to as per the 2013 Act includes monetary penalties,
imprisonment, debarring of the auditor and the firm, and in case of frauds, can even be subject to class action suits.

Internal audit
■ Classes of companies to be prescribed to appoint an internal auditor who shall be CA or cost accountant or such other
professional as may be decided by the BOD.
Following provisions relating to auditors are applicable to all companies:
■ The members at every subsequent AGM will be required to ratify the appointment of auditor, in case a fresh
appointment is not made
■ The company may resolve:
■ If Audit firm is appointed, the audit partner and his team shall rotate at such intervals as may be resolved by
members.

45 | P a g e
 -Audit shall be conducted by more than 1 auditor (i.e. joint auditor).
■ The 1956 Act requires all the partners of the firm to be a qualified CA and practicing in India. 2013 Act
provides
that:
-Majority of partners practicing in India should be qualified CA;
-If LLP is appointed as auditor, only partners who are CA shall be authorized to sign
■ Procedure and manner of selection of auditor to be prescribed by the Rules
■ Additional grounds for disqualifications for appointment as auditor provided
4. Loan to Directors [Sec185 of the 2013 Act]
Key highlights
•No company shall directly or indirectly advance any loan (including loan represented by a book debt) or give
guarantee or provide security inconnection with such loan to any director / related persons.
- An exception to the above rule is made for MD or a whole time director (WTD) if such loan is in accordance
with the terms of services extended to all employees or is approved by shareholders by special resolution.
•The 1956 Act exempted private companies and allowed public companies to give loans etc. with prior approval of
CG, restrictions on givingloans etc. to directors have been extended in 2013 Act even to private companies viz
Provisions for loan to directors applicable to private companies.
-------------------------------------------------------------------------------------------------------------------------------
2013 Act provides that a company cannot, directly or indirectly,
-advance any loan, including any loan represented by a book debt to any director or any other person in whom
the director is interested (as specified); or
-give any guarantee or provide any security in connection with any loan taken by its director or such other
person ■ The above restriction is not applicable to
-Loan to a MD / WTD which is as a part of contract of services extended to all its employees or pursuant to any
scheme approved by members by special resolution.
-A company which in the ordinary course of its business provides loan, guarantee or security (for due repayment
of any loan) and charges interest which is not less than Bank Rate declared by RBI.
■ Ability of a company, whether public or private, to give loan etc. to directors is substantially curtailed
■ Even if a loan etc. obtained in contravention of the above provisions is repaid, the contravener would still be exposed
to punishment by way of imprisonment.
■ These provisions should be considered applicable prospectively and should not affect existing loans etc. which are
given in compliance with the 1956 Act but which are not in conformity with 2013 Act. After the enactment of the
2013 Act, any renewal of loan etc. needs to be in conformity with 2013 Act. These read with rules under
Chapter12_Meetings of Board and its Powers viz Rule 1095.
 95
Rule 10. Loans to Director etc. under section 185.-
(1) Any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security
provided by a holding company in respect of any loan made to its wholly owned subsidiary company is exempted
from the requirements under this section; and
9
(2) Any guarantee given or security provided by a holding company in respect of loan made by any bank or financial
institution to its subsidiary company is exempted from the requirements under this section:
Provided that such loans made under sub-rule (1) and (2) are utilised by the subsidiary company for its
principle business activities.
 7. Investment, loan, guarantee, security by company:
Key highlights
•Loans, guarantee and security made to any person (the 1956 Act dealt only with body corporate) will attract
compliance requirements.
•Rate of interest on loan granted cannot be lower than the prevailing yield of 1 year, 3 year, 5 year or 10 year
Government Security closest tothe tenure of the loan.
•The list of exemptions has been curtailed.
----------------------------------------------------------------------------------------------------------------
Loan and investment by company [Sec 186 of the 2013 Act]
■ Company may give a loan to any person or other body corporate or give any guarantee or provide security in
connection with a loan to any other body corporate or person or acquire by way of subscription, purchase or
otherwise, securities of any other body corporate not exceeding the higher of:
-60% of paid up share capital, free reserves and securities premium; or
-100% of free reserves and securities premium. Where the amount of investment, loan, guarantee or security, as
the case may be, exceeds the above limits, prior approval by special resolution is to be obtained. These read with
rules under Chapter12_Meetings of Board and its Powers viz Rule 1196.
■ Free reserves are reserves which are available for distribution as dividend as per latest audited balance sheet but
exclude unrealized / notional gains, revaluation reserve, any change in carrying amount of an asset or of a liability
recognized in equity, including surplus in profit and loss account on measurement of the asset or the liability at fair
value.
■ 2013 Act covers within its ambit giving loans, guarantee and security not only to a body corporate but also to any
other person.
■ Rate of interest on the loan granted shall not be lower than the prevailing yield of 1 year, 3 year, 5 year or 10 year
Government Security closest to the tenure of the loan. 1956 Act benchmarked the minimum interest to the Bank Rate
as made public by RBI.
■ Company will have to disclose in the financial statements the full particulars of loans, investments, guarantee or
security and the purpose for which loans, guarantee or security are proposed to be utilized by the recipient of it
■ 2013 Act contains following exemptions:
-Loan given or guarantee or security provided by
■ banking company or insurance company or housing finance company in ordinary course of business;
■ company engaged in the business of financing of companies or of providing infrastructural facilities as
specified. -Investment and lending by NBFC, registered with RBI, whose principal business is acquisition of
securities -Acquisition by companies having principal business of acquisition of securities
-Acquisition of shares pursuant to a 'rights issue'
■ Classes of companies to be prescribed and companies registered with SEBI cannot take intercorporate loan or deposit
exceeding the limit to be prescribed under the Rules
1. Companies will have to ensure that their exposure is within the ceiling in view of the provisions having been
expanded to include investment / loan / guarantee / security made to 'any other person'- e.g. if a loan is given to a
partnership firm, it would require compliance of the above provisions
2. The following exemptions available under the 1956 Act are no longer available:

96
Rule 11. Loan and investment by a company under section 186 of the Act.-
(1) Where a loan or guarantee is given or where a security has been provided by a company to its wholly owned
subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of
subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company, the requirement of
sub-section (3) of section 186 shall not apply:
Provided that the company shall disclose the details of such loans or guarantee or security or acquisition
in the financial statement as provided under sub-section (4) of section 186.
(2) For the purposes of clause (a) of sub-section (11) of section 186, the expression “business of financing of
companies” shall include, with regard to a Non-Banking Financial Company registered with Reserve Bank of India,
 “business of giving of any loan to a person or providing any guaranty or security for due repayment of any loan
availed by any person in the ordinary course of its business”.
(3) No company registered under section 12 of the Securities and Exchange Board of India Act, 1992 and also
covered under such class or classes of companies which may be notified by the Central Government in
consultation with the Securities and Exchange Board, shall take any inter-corporate loan or deposits, in excess of
the limits specified under the regulations applicable to such company, pursuant to which it has obtained certificate
of registration from the Securities and Exchange Board of India.
Investment by banking company or insurance company or housing finance company in the ordinary course of its
business, or a company engaged in the business of providing infrastructural facilities
■ Loan / investment / guarantee / security by a private company
■ Loan / investment / guarantee / security by a holding company to its WOS
■ Loan / guarantee / security by a company whose principal business is acquisition of securities
3. After the enactment of the 2013 Act, any renewal of loan etc. needs to be in conformity with 2013 Act
These provisions should be considered applicable prospectively and should not affect existing investments, loans etc.
which are given in compliance with the 1956 Act but which are not in conformity with 2013 Act.
5. One would have to examine the Rules to be notified in this regard.
7.Related party transactions:
Key highlights
•Requirement of obtaining Central Government approval for related party transactions not required.
•Approval of related party transactions by Audit Committee / Board of Directors at Board meeting made mandatory.
•Related party transactions to also require prior shareholder's approval by special resolution for companies having
prescribed paid up capital ortransactions exceeding prescribed amounts.
•Related party transactions to be disclosed in the Director's Report along with justification thereof.
----------------------------------------------------------------------------------------------------------------
Related party and relative are defined as:
Sec 2(76) of the 2013 Act "related party", with reference to a company, means— (i)
a director or his relative;
(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager is a member or director;
(v) a public company in which a director or manager is a director or holds along with his relatives, more than two
per cent of its paid-up share capital;
(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in
accordance with the advice, directions or instructions of a director or manager;
(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in
aprofessional capacity;
(viii) any company which is—
(A) a holding, subsidiary or an associate company of such company; or (B) a
subsidiary of a holding company to which it is also a subsidiary; (ix) such
other person as may be prescribed;
Further under - Companies (Specification of definitions details) Rules, 2014.
Rule 3. Related party: - For the purposes of sub-clause (ix) of clause (76) of section 2 of the Act, a director or key
managerial personnel of the holding company or his relative with reference to a company, shall be deemed to be a
related party.
Sec 2(77) of the 2013 Act "relative", with reference to any person, means anyone who is related to another, if
— (i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed;
Rule 4. List of relatives in terms of clause (77) of section 2.(Companies (Specification of definitions details) Rules,
2014)
- A person shall be deemed to be the relative of another, if he or she is related to another in the following manner,
namely:-
(1) Father:
Provided that the term “Father” includes step-father.
(2) Mother:
Provided that the term “Mother” includes the step-mother.
(3) Son:
Provided that the term “Son” includes the step-son.
(4) Son’s wife.
(5) Daughter.
(6) Daughter’s husband.
(7) Brother:
Provided that the term “Brother” includes the step-brother;
(8) Sister:
Provided that the term “Sister” includes the step-sister.
 Whereas Related party transactions provisions are under sec 188 wherein:

■ Any transaction can be entered into by a company in the ordinary course of its business with a related party on an
arm's length basis. Arm's length transaction means a transaction between two related parties that is conducted as if
they were unrelated, so that there is no conflict of interest.
■ Where a transaction with a related party is (i) not in the ordinary course of business or (ii) is in the ordinary course of
business but not on an arm's length basis, the consent of the BOD by a resolution at a board meeting and compliance
with the conditions to be prescribed is necessary before a company can enter into a transaction with a related party
i.e. any contract or arrangement with a related party with respect to:
a) sale, purchase or supply of any goods or material;
b) buying, selling or disposing of property of any kind;
c) leasing of any kind of property;
d) availing or rendering of any services;
e) appointment of agent for purchase or sale of goods, material, services or property;
f) related party's appointment to any office or place of profit in the company, its subsidiary company associate
company; or
g) underwriting the subscription of any shares in or derivatives thereof;
1956 Act, subject to certain exemptions, regulated related party transactions relating to a), d) and g) only. The
concept of arm's length transaction was not enacted in the 1956 Act
■ Related party transactions by a company having paid-up capital or exceeding value of transaction, to be prescribed,
will require prior approval of members by special resolution if such transaction (i) is not in the ordinary course of
business or (ii) is in the ordinary course of business but not on an arm's length basis. Related party who is a member
of such a company cannot vote on such a special resolution.
■ Requirement of obtaining CG approval for related party transactions, as provided in 1956 Act, done away with
■ Transaction with a director of the company or its holding, subsidiary or associate company or a person connected for
acquisition or sale of assets for consideration other than cash to require prior approval of the members in a general
meeting and supported by values determined by RV. If the director or connected person is a director of the holding
company, approval of shareholders is required to be obtained by passing a resolution in general meeting of the
holding company.
■ If OPC enters into a contract with the sole member of the company who is also its director, the company shall, unless
the contract is in writing:
-ensure that the terms of the contract or offer are contained in the memorandum or are recorded in the minutes of
the first Board meeting held after entering into the contract.
-inform ROC about such contract within 15 days of entering into the contract.
■ Related party transactions to be disclosed in Director's report along with the justification for entering in to such
transactions.
■ Removal of taking CG approval for related party will remove the uncertainty in timeline and execution of the related
party transactions.
■ Related party transactions at arms' length price will call for aligning the benchmarking under transfer pricing norms
as per Income Tax Act for both domestic and international transactions.

8 Corporate Social Responsibility:

Corporate Social Responsibility (CSR)98
■ 2% of average net profits of last 3 years to be mandatorily spent on CSR by companies having
Provisions applicable to every company having:
-net worth of Rs 5 billion or more; or -turnover of
Rs 10 billion or more; or
-net profit of Rs 50 million or more during any FY
■ BOD of such companies is mandated to spend, in every FY, minimum 2% of the average net profits of the company
made during the 3 immediately preceding FYs, in pursuance of its the CSR Policy.
■ Such companies are required to constitute CSR committee of its BOD which is responsible for formulating and
recommending to the BOD the CSR Policy of the company.
■ BOD is required to approve the CSR policy and disclose its content in the Director's Report and also place the same
on the company's website.
■ The company is required to give preference to local area and areas where it operates for spending the amount
earmarked for CSR.
■ If the company fails to spend such amount, BOD is required to specify the reasons for not spending the amount in the
Director's report.
■ In view of the mandatory requirement under the 2013 Act, expenditure on CSR may be allowed as deduction under
the Income Tax Act depending on the facts.

98
Sec 135 Corporate Social Responsibility
 CHAPTER-4
A comparative analysis of companies act 2013 vs
companies act 1956
A comparative analysis of companies act 2013 vs companies act 1956 with special reference to the above discussed
provisions.
Share capital
Basis of Companies Act 2013
difference
Kinds of For issuance of Equity Share Capital
share with differential voting rights, the
conditions to be complied has been
changed. Some of key conditions
are:
 Authorization in the Articles
 Shareholders’ approval by
Special Resolution. In case
of listed company, by postal
ballot or a poll at a General
Meeting.
 Number of such shares =
25% of the total post issue
paid up equity share capital.
 Track record of dividend
payment of 10% for the last
3 preceding financial year.
 No default in the payment of
a declared dividend to its
shareholders or repayment of
its matured deposits or
redemption of its preference
shares or debentures that
have become due for
redemption or payment of
interest on such deposits or
preference shares or
debentures or repayment of
any term loan from a public
financial institution or State
level financial institution or
scheduled Bank that has
become repayable or interest
payable thereon or dues with
respect to statutory payments
Companies Act 1956
For issuance of Equity Share Capital with
differential voting rights, following
conditions have been prescribed in the
rules:
 Authorization in the Articles
 Shareholders’ approval by Special
Resolution. In Shareholders’
approval by Special Resolution.
In case of listed company, by
postal ballot.
 Number of such shares = 25% of
the total post issue paid up equity
share capital.
 Distributable profits for last 3
preceding financial year.
 No default in the repayment
payment of deposits or interest
thereon on due date or redeem its
debenture on due date or pay
dividend.
 No default in meeting investors
grievances.
 Disclosures in Explanatory
Statement with respect to
Number, Price, Justification,
Scale etc.
 Existing equity share capital with
voting rights shall not be
converted into equity share
capital carrying differential voting
rights and vice–versa. (Rule 3 of
 relating to its employees to the Companies (Issue of Share
any authority. Capital with Differential Voting
Rights) Rules, 2001)
 Disclosures in Explanatory
Statement and Directors
Report with respect to
Number, Price, Justification,
Allottees, Pre and Post
Shareholding Pattern etc.

 Existing equity share capital

with voting rights shall not
be converted into equity
share capital carrying
differential voting rights and
vice–versa. (Rule no. 3.)
Voting rights  Where preference  No such provision in this Act.
share holder are
entitled to vote on
every resolution
placed before the
meeting then the
proportion of the  In case of cumulative Preference
voting rights of
Equity shareholders
to the voting rights of
the Preference
shareholders shall be
in the same
proportion as the
paid-up capital in
respect of the Equity
shares to the paid-up
capital in respect of
the Preference shares
 No classification of
preference shares as
cumulative and non-
cumulative for the
purpose of
identification of
voting rights
Preference shares classified as
cumulative and non-cumulative
Preference shares for the purpose
of identification of voting rights
shares, if the dividend has
remained unpaid for an aggregate
period of not less than 2 years
preceding the date of
commencement of meeting and in
case of non cumulative shares
either in respect of period of not
less than 2 years ending with the
expiry of the financial
immediately preceding the
commencement of the meeting or
in respect of any aggregate period
of not less than 3 years comprised
in the 6 years ending with the
expiry of the financial year
aforesaid, then such preference
share holders can vote on every
resolution placed before the
company at any meeting

 Preference
shareholders can vote
on every resolution
 placed before the
company at any
meeting only when
dividends payable in
respect of a class of
preference shares are
in arrears for a period
of 2 years or more

Application  Certain class of companies,  No such provision under this act

of premium as may be prescribed, and
whose financial statements
comply with the accounting
standards prescribed for such
class of companies under
section 133, can utilize the
share premium account only
for the following 3 purposes.

 in paying up unissued equity

shares of the company to be
issued to members of the
company as fully paid bonus
shares or

 in writing off the expenses of

or the commission paid or
discount allowed on any
issue of equity shares of the
company or

 for the purchase of its own

shares or other securities
under section 68
Issue of  Company cannot issue  A company may issue shares at a
shares at shares at discount other than discount subject to the conditions
discount as sweat equity, specified and approval of the
Central Government
Employe  Where a company having  No specific provision provided in
stock share capital proposes to the Act
option(ESOP increase its subscribed
) capital by the issue of further  In case of listed companies, SEBI
shares, such shares apart ESOP Guidelines to be complied
from existing shareholder with
may also be offered to
employees by way of ESOP  In case of Unlisted Public
 subject to the approval of companies, rules as prescribed
shareholders by way of under Unlisted Public Companies
special resolution and (Preferential. Allotment) Rules,
subject to certain conditions 2003 to be followed

 In case of listed company,

with SEBI ESOP Guidelines.

 In case of Unlisted company,

with the conditions as
prescribed under Rule No.
12 Some of the major
conditions are given below:

 Requirement to seek
approval from shareholders
by special resolution even by
private companies

 Mandatory disclosures in
explanatory statement
annexed to the notice for
passing the Special
Resolution

 Exercise price can be

determined freely

 Separate resolution is
required for grant of options
to employees of subsidiary
or holding company; and/or
grant of option to identified
employees, during any one
year, equal to or exceeding
1% of the issued capital
(excluding outstanding
warrants and conversions) of
the company at the time of
grant of option.

 Minimum period of one year

between grant of options and
vesting of options.

 Mandatory disclosure about

 ESOS in Directors’ Report.
 Freedom to specify the lock-
in period.
 Options granted are not
transferable and shall not be
pledged, hypothecated,
mortgaged or otherwise
encumbered or alienated in
any other manner. (Rule no
12
SWEAT  A company may issue sweat A company may issue sweat equity
EQUITY equity shares:
 By passing a special
resolution in general
meeting.
 After the lapse of 1 year
from the date on which the
company has commenced
business.
 In case of Unlisted
Company, subject to the
compliance of the following
conditions but not limited to:
 The special resolution passed
for the purpose of issue of
sweat equity shares is valid
for 1 year.
 Maximum Number of sweat
equity shares during the
year: 15% of the existing
paid up equity share capital
in a year or shares of the
issue value of Rs 5crore,
whichever is higher.
However at any time, the
maximum number of sweat
equity shares should not be
more than 25% of the paid
up equity capital of the
company.
shares:
 By passing a special resolution in
general meeting.
 After the lapse of 1 year from the
date on which the company has
commenced business.
 In case of Unlisted Company,
subject to the compliance of the
following conditions:
 No validity period prescribed for
special resolution.
 Maximum Number of sweat
equity shares during the year:
15% of the existing paid up
equity share capital in a year or
shares of the issue value of Rs 5
crore, whichever is higher.
 Locked in Shares: Sweat equity
shares issued to employees or
directors shall be locked in for a
period of 3 years from the date of
allotment period of 3 years from
the date of allotment.
 Disclosures in Explanatory
Statement and Directors Report.
Preparation of Register.
 In case of Listed Company,

 Locked in Shares: Sweat
equity shares issued to
directors or employees shall
be locked in/non transferable
for a period of 3 years from
the date of allotment. The
fact that the share certificates
are under lock-in for the
specified period shall be
mentioned on the share
certificate
compliance required with the
Securities and Exchange Board of
India (Issue of Sweat Equity)
Regulations, 2002
 Sweat Equity allowed to be
granted to an employee of
subsidiary company incorporated
outside India.

 Disclosures in Explanatory
Statement and Directors
Report

 Preparation of Register in
accordance with Form No.
SH.3.

 In case of Listed Company,

compliance required with
Securities and Exchange
Board of India (Issue of
Sweat Equity) Regulations,
2002

 Sweat Equity cannot be

granted to employee of
subsidiary Company
incorporated outside India.
(Rule no 8)
BONUS  A company may issue fully  Company can issue Bonus Shares
SHARES paid-up bonus shares to its but no detailed conditions was
members, in any manner prescribed
whatsoever, out of its free
reserves, securities premium
account or the Capital
Redemption Reserve account

 Members’ resolution now

mandatory

 No bonus issue from

 revaluation reserves possible
now even for unlisted
companies

 Bonus issue once announced

cannot be withdrawn. (Rule
no. 14)
Preference  A company engaged in the
shares setting up and dealing with
of infrastructure projects as
prescribed under Schedule
VI of Companies Act, 2013
may issue preference shares
for a period exceeding 20
years but not exceeding 20
years, subject to the
redemption of a minimum
10% of such preference
shares per year from the 20
first year onwards or earlier,
on proportionate basis, at the
option of the preference
shareholders. (Rule no 10)
 No company limited by shares
shall issue any preference shares
which are redeemable after the
expiry of a period of 20 years
from the date of issue
 There is no such provision
regarding consent of shareholders
and Tribunal for issuance of
further redeemable shares.
 No such disclosures required to
be made in the resolution.

 For the issuance of further

redeemable shares in case if
the company is not in a
position to redeem any
preference shares or to pay
any dividend on such shares
as required, the consent of
the holders of 3/4th in value
of such shares is required
along with the consent of
Tribunal

 Disclosures such as payment

of dividend, conversion,
voting rights, redemption etc.
shall be made by the
company in the resolution
with respect to the issue of
preference shares (Rule No.
9)

Provisions  Scope of the section has been
related to widened to all Securities
Transfer and
Transmission  The period for depositing
instrument of transfer has
been modified. It shall be
delivered within 60 days of
its execution irrespective of
 Scope of the section limited to
shares and debentures only.
 Period of 12 months or book
closure, whichever is later, in case
of listed companies and 2 months
in case of unlisted companies
within which an instrument of
 the nature of the company. In transfer shall be deposited with
case instrument of transfer is the company.
deposited after the prescribed
time, the company will  The power of making appeal in
register the transfer subject case of refusal of transfer is to the
to indemnity. transferor or the transferee or the
person who give intimation for
the transmission by operation of
 The power of making the
law as the case may be.
appeal in case of refusal of
transfer has now been limited
 The penalty in case of
for the Transferee only. The
contravention of the order of the
penalty in case of
Tribunal in case of registration of
contravention of the order of
transfer is compoundable
the Tribunal regarding
 Instrument of transfer was in
registration of transfer or
Form No. 7B
transmission or rectification
 Period for issue of share
of register is now non-
certificates
compoundable.
 No period prescribed in case of
 Instrument of transfer shall incorporation
 months in case of allotment of
be in Form no. SH 4 (Rule
shares
No. 11(1)) Period for issue of
 2 month in case of receipt of
share certificates
instrument of transfer or
intimation of transmission
 2 months in case of
incorporation

 2 months in case of allotment

of shares

 1 month in case of receipt of

instrument of transfer or
intimation of transmission
Private  Separate provisions for
Placement Private Placement of
securities for both Listed and
Unlisted Companies Funds
can be raised only through
issuance of a private
placement offer letter to not
more than 200 people in
aggregate in a financial year.
Any offer beyond such
number shall be treated as
public offer
 Private Companies were out of
purview of the private placement
 Not more than 49 persons can be
offered or invited to subscribe to
shares and debentures of the
Company. Any offer beyond such
number shall be treated as public
offer
 No other conditions were
 provided in this Act.
 The value of such offer or
invitation per person shall be
with an investment size of
not less than Rs 20 thousand
of face value of securities

 Allotment of securities shall

be made within 60 days from
the date of receipt of
application money.

Further issue  The provision of this section
of Share will be applicable in case of
Capital allotment of shares at any
time after the incorporation
of the company
 The provisions of this shall
also be applicable to private
company
 An allotment pursuant to a
special resolution is needed
to be completed within a
period of 12 months from the
date of the passing of special
resolution. In case the
company fails to do so, a
fresh special resolution shall
be needed to be passed by
the company.
 The price at which share will
be issued in case of company
other listed, shall be
determined by the registered
valuer.
 The term preferential issue is
defined.
 In case of right issue, the
offer shall remain open for
not less than 15 days and not
exceeding 30 days from the
date of the offer, within
which the offer, if not
 The provisions related to issue of
further shares applicable only if
the company at any time after the
expiry of 2 years from the
incorporation of the company or
at any time after the expiry of the
one year from the allotment of
shares in that company made for
the first time after its formation,
whichever is earlier, proposed to
increase the subscribed share
capital.
 This provision was only
applicable to public company
 No time period was provided in
respect of validity of
theresolution.
 No such term was defined.
 In case of right issue, the offer
shall remain open for not less than
15 days but no maximum period
was defined.
 accepted, will be deemed to
have been declined.
 The disclosure requirement
in the explanatory statement
has been increased.(Rule no
13)
 Provisions of the preferential
allotment shall be read with
private placement provisions

Prohibition  A company can make  A company cannot make buyback

on Buyback buyback if any default
in certain regarding
cases  repayment of deposit or
interest payable thereon,
 redemption of debentures or
Preference shares or
 payment of dividend to any
shareholder or
 repayment of any term loan
or interest payable thereon to
any financial institution or
bank have been remedied
and a period of 3 years must
have lapsed after such
default ceased to subsist
 No concept of buy-back
from odd lot since it is not
relevant today
Debenture  The tenure of debentures
trustee shall not exceed10 years
except in case of companies
engaged in the setting up of
infrastructure projects in
which case it shall not
exceed30 years.
 The company is required to
appoint debenture trustee
only when the company
issues Prospectus or makes
an offer or invitation to the
public or to its members
exceeding 500 hundred for
the subscription of its
debentures
 additional disqualifications
has been prescribed. No
if a default regarding:
 repayment of deposit or interest
payable thereon,
 redemption of debentures or
Preference shares or
 payment of dividend to any
shareholder or
 repayment of any term loan or
interest payable thereon to any
financial institution or bank is
subsisting
 Provides for buy-back out of odd-
lots
 No tenure provided.
 The company is required to
appoint debenture trustee when
the company issues Prospectus or
make an offer or invitation to the
public, irrespective of the number.
 No person shall be appointed as a
debenture
 trustee, if he
 beneficially holds shares in the
company
 is beneficially entitled to moneys
which are to be
 person shall be appointed
as a debenture trustee, if
he-

 beneficially holds shares in

the company
 is a promoter, director or key
managerial personnel or any
other officer or an employee
of the company or its
holding, subsidiary or
associate company
 is beneficially entitled to
moneys which are to be paid
by the company otherwise
than as remuneration payable
to the debenture trustee
 is indebted to the company,
or its subsidiary or its
holding or associate
company or a subsidiary of
such holding company;
 has furnished any guarantee
in respect of the principal
debts secured by the
debentures or interest
thereon;
 has any pecuniary
relationship with the
company amounting to 2%
or more of its gross turnover
or total income or Rs 50 lakh
or such higher amount as
may be prescribed,
whichever is lower, during
the 2 immediately preceding
financial years or during the
current financial year
 is relative of any promoter or
any person who is in the
employment of the company
as a director or key
managerial personnel
 Any debenture trustee may
be removed from office
before the expiry of his term
only if it is approved by the
holders of not less than 3/4th
in value of the debentures
outstanding, at their meeting.
 More comprehensive duties
of the debenture trustee has
been provided.
 Debenture Redemption
Reserve shall be created out
of the profits of the company
available for payment of
dividend and an amount
equivalent to at least 50% of
the amount raised through
the debenture issue shall be
deposited in debenture
redemption reserve before
debenture redemption
commences.
 Every company required to
create debenture redemption
reserve shall on or before
30th of April in each year,
invest or deposit a sum
which shall not be less than
15% of its debentures
maturing during the ending
on 31st March next year in
prescribed modes. (Rule no.
18.)