Necessity of Corporate Governance

Alignment with various judgments

Sahara Case

Administrative convenience

Satyam Case

The Need

Flexible, more power to CG

Changes in Incorporation

New Types of Companies One Person Company, Small Company, Dormant Company Private Company max. 200 shareholders Memorandum will not have bifurcation of main, incidental and other object Business can be commenced only upon bringing share subscription and filing of verification of regd. Office with ROC (applicable to a Private Company as well) Promoter need to file identification proofs

Share Capital

1st Subscription to be brought in 2 months Time for issue share certificates reduced by 1 month (Now, 2 months as against 3 months) Allotment can not exceed to 50 persons in a year Preference shares for infra cos can be for >20 yrs Presentation of TD (Transfer Deed) with ROC is eliminated TD to be presented with co, in 60 days of execution New provisions of bonus issue applicable to pvt co

Deposit / Charges

Company can accept deposit only from members New definition of deposit to be prescribed Existing deposits to be repaid in 1 year New deposit acceptance require credit rating Public cos. may be allowed accept deposit from public Charge is also required for pledge and lien Forms can be filed in 30+270 days

Management & Administration

AGM can be held on Sunday. Can not be held on National Holidays Regulation related general meeting eg. Notice, explanatory stat, proxy applicable to private co Postal ballot may be required for all companies Scope of annual return is widened Promoters holding is required to be disclosed

Accounts and Audit

New Accounting and Auditing Standards Financial Year = April to March National Financial Reporting Authority [NFRA] Consolidation is mandatory [including associate co.] Internal audit will be mandatory Max no. of audits not more than 20 companies Erstwhile 23B to be filed by Company Appointment of Auditor will be for 5 years Liabilities of Auditor is unlimited Auditor to report fraud to CG Directors Report scope enlarged

Directors

Max. Directorship = 20 cos (including a Private Company, Maximum 10 public) One resident director is mandatory Woman Director , Independent Director Duties of Director not to make undue gains, not to have conflict of interest 7 days notice is mandatory for board meeting Erstwhile sec. 257 is applicable to pvt. Co. Leave of absence cannot be for full year Attendance thr Video Conferencing is allowed

Related Party Transactions

Erstwhile se. 297 / 314 is clubbed Rationalization in type of related parties covered Scope of Nature of transactions and type of parties enlarged KMP covered in related party transactions CG approval is replaced with non interested shareholders approval Erstwhile 24AA to be taken in April Company can not give loan to directors or related entities Exemption of loan to subsidiary - withdrawn Restriction on non cash transactions

Loans / Borrowings / Investment

Erstwhile 293 and 372A is applicable to pvt. Cos. If borrowing exceed net-worth requires special resolution Exemption to holding subsidiary withdrawn Requires filing with ROC of every board resolution for investment / loan / guarantee / security Erstwhile se. 372A is extended to transactions with all entities

ROC Filings
eForm under 1956 Act 18 Impact on timelines as per 2013 Act vis--vis 1956 Act 15 days against 30 days Relevan t Section of 2013 Act Sec 12 Additional details to be filed

Statement of all deposits accepted and remaining unpaid to be filed. All such existing deposits to be repaid within 1 year from commencement of 2013 Act or their due date, whichever is earlier Charge created of any asset / property of the Company needs to be registered with ROC

Existing 3 months from Sec 74 Deposit commencement s of Act

8/10

30 days. Additional period of 270 days

Sec 77

ROC Filings
eForm under 1956 Act Impact on timelines as per 2013 Act vis--vis 1956 Act No change in timelines Relevan Additional details to be filed t Section of 2013 Act Sec 92 Details are to be given as on the end of financial year as against as on the AGM date under 1956 Act. Additional Information - Details of Associates, details of promoters, KMP, dates of meetings, remuneration of directors and KMP, compounding details during the year also to be mentioned Details for changes in KMP also need to be filed with ROC, along with such particulars as may be prescribed

Annual Return

32

No change in timelines

Sec 170(2)

ROC Filings
eFor m under 1956 Act
23

Impact on timelines as per 2013 Act vis--vis 1956 Act

No change in timelines

Relevan Additional details to be filed t Section of 2013 Act

Sec 117 In addition to the existing matters, the resolutions passed by the Board for making calls on shareholders, authorization for buy back, issue of securities including debentures, borrow monies, invest funds, grant loans, giving guarantee, providing security, approval of Directors Report, diversification of business, approval for merger, acquisition of entire or substantial state in another Company and any other matters as may be prescribed also need to be registered.

Miscellaneous

Transfer of Profit to Reserve Rules eliminated Merger of WOS made simple High Court / BIFR / CLB = NCLT Penalties increased many folds CEO / CFO / independent director liable for default Roc filing after 300 days may require compounding Only fine related provisions are compoundable

Status of Private Limited Company

All private limited companies need to undergo amendment in articles of association w.r.t. to revised definition

Majority of earlier privileges stands modified

Status Erstwhile Privileges

Exemption / Relaxation available under companies Act, 1956 Private Companies were allowed to take loan from member, directors or their relatives Private Companies were allowed to have different types of capital Private Companies were allowed to have different provision wrt to voting rights Status under Companies Act, 2013 Apparently it can take only from members [ we will have to wait for the rules Privilege not available Privilege not available

Private Companies need not obtain Privilege not available commencement of business certificate Private Companies were exempted Privilege not available from taking shareholders & ROC approval for starting business in Other Objects Flexibility to hold AGM at a place / Privilege not available

Status Erstwhile Privileges

Exemption / Relaxation available under companies Act, 1956 Flexibility to adopt relaxed provisions in AOA wrt General Meetings Maximum Remuneration of 11% towards Managerial Remuneration Status under Companies Act, 2013 Privilege not available Exempted for Private Company

Exemption from Ceiling on remuneration to be paid to working or non working directors

Exemption for counting number of audits which can be accepted by auditor [20]

Privilege not available

Privilege not available

Exemption from retirement of directors Continues by rotation

Status Erstwhile Privileges

Exemption / Relaxation available under companies Act, 1956 Exemption under 274(1)(g) Exemption for counting number of directorships which can be accepted by person [20] Exemption from prohibition on giving loan to directors or his related entities Directors are allowed to vote and participate in transactions in which they are interested No Maximum tenure for managerial personnel Exemption from 372A Status under Companies Act, 2013 Privilege not available Private Companies are specifically counted in this number Privilege not available Directors will not be allowed to participate as per the 2013 Act Maximum tenure of 5 years as per 2013 Act Privilege not available

Definition of Listed Company

The definition of Listed Company has been mentioned in Companies Act, 2013 it means any company which has any of its securities listed on any recognised stock exchange Hence, even private companies whose debt instruments are listed on BSE or NSE shall be considered as listed company under Companies Act, 2013

Additional compliance for listed Co.

Sec 93 A return to be filed with ROC for any change in number of shares held by promoters or top 10 shareholders within 15 days of such change Sec 121 Report/ Proceedings of AGM within 30 days from AGM Sec 134(3)(p) Board of Directors report to contain a statement regarding manner of formal annual evaluation of the Board, its committees and individual directors

Additional compliance for listed Co.

Sec 134(3)(p) Boards Report to confirm having laid down internal financial controls to be followed by Company and that such internal financial controls are adequate and operating efficiently Sec 197(12) Boards Report to mention ratio of remuneration drawn by each director to each median employees remuneration and other details as may be prescribed Sec 139(2) Restrictions on appointment of same auditor / auditors firm for more than 1/2

Additional compliance for listed Co.

Irrespective of applicability of Corporate Governance: Sec 149(4) Min 1/3 independent directors Sec 177 Constitution of Audit Committee Sec 178 - Constitution of Nomination and Remuneration Committee Sec 178(5) - Constitution of Stakeholders Relationship Committee (in case of more than 1000 shareholders) Sec 204 Secretarial Audit Report from

Corporate Social Responsibility

Every company having a net worth of 500 cr or more or turnover of 1000 cr or more to formulate a Corporate Social Responsibility(CSR) Committee CSR Committee shall constitute- Minimum 3 Directors out of which 1 shall be independent Boards Report to include a comment about it Board to ensure that at least 2% of average(during 3 preceding F Y) net profits spent towards CSR

Impact of 98 effective Sections

Majority of definitions have become effective Private Limited Companies need to carry different provision in their articles Existing CEO & CFO are liable as officer in default Independent and Non Executive Directors may be considered as officer in default in certain cases ESOP can be granted by closely held companies to employees of Holding or Subsidiary Companies

Impact of 98 effective Sections

Foreign Subsidiary of Indian Holding Company can hold shares of Indian holding company Subsidiary can hold shares of Holding Company as a Trustee CEO / CFO can certify the documents on behalf of the Company New Public Issues need to comply with provisions of new Act of 2013 Any security holder can approach Tribunal for non transfer of security within time against the Company

Impact of 98 effective Sections

Enhanced penalty provisions w.r.t. to charges have become effective Book Closure will require compliance of new Act. However SEBI has to prescribe the manner. Explanatory Statement issued after 12 September requires compliance of new Act

Impact of 98 effective Sections

1.

2.
3.

New quorum requirements for general meeting are effective which requires following persons to attend in person For members less than 1000 5 members For members 1000-5000 15 members For members more than 5000 30 members Relaxation of norms for circulation of members resolution

Impact of 98 effective Sections

1.

2.

Every Director will be held liable for non payment of dividend in time A person who fails to get appointed as Director in a general meeting, cannot be appointed as an Additional Director Private / Public cos need special resolution for Obtaining loan in excess of its paid up capital and free reserves Mortgaging property or selling undertaking

Impact of 98 effective Sections

Private Company requires approval of shareholders for giving donation in excess of 5% of avg. profits Restriction reg. political contribution is applicable to private company as well Private / public company can not give loan to director / directors related entities Loan can be given to working director under service rules [at par with other employees] Earlier exemption w.r.t. loans given by holding to subsidiary no longer exists

Impact of 98 effective Sections

Non cash transaction with directors require approval of shareholders and valuation from Registered Valuer Prohibition on forward dealing in securities is effective Prohibition on Insider Trading is effective Enabling provisions for constitution of NCLT and Appellate Tribunal has become effective

Impact of 98 effective Sections

1. 2. 3. 4. 5. 6.

Penalty provisions for following have become effective Fraud False Statement False evidence Penalty where no specific penalty is provided For repeat default For wrongful withholding of property Power to Condon of delay in certain cases has become effective

Impact of 98 effective Sections

CG can exempt certain class of companies from provisions of the new act CG can amend schedules of New Act CG can make Rules under the new Act CG can remove difficulties by an Order published in official gazette.