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| 1 AN INSIGHT
COMPANIES BILL 2012
Presented By CA PRATIK ARORA
BACKGROUND
ADAPTATION
STRUCTURE
TIMELINE
KEY HIGHLIGHTS
NEW / AMENDED TERMS
NEW CONCEPTS
AUDIT & AUDITORS
PENAL PROVISIONS
LOANS & INVESTMENTS
DIRECTORS & KMP
CORPORATE SOCIAL RESPONSIBILITY
MERGER & ACQUISITIONS
OTHER KEY ISSUES.
PRESENTATION STRUCTURE
The Companies Act 1956 was enacted with the object to consolidate the existing
corporate laws and to provide a new basis for corporate operation in independent
India.
With enactment of this legislation in 1956, the act has since provided the legal
framework for corporate entities in India.
The need for streamlining this Act was felt from time to time as the corporate sector
grew in pace with the Indian economy, with as many as 24 amendments taking place
since 1956. Major amendments to the Act were made based on recommendations of
various committees.
The Companies Bill 2012 is an embodiment of the changes/ revisions required to
reflect the new corporate scenario in India.
BACKGROUND
ADAPTATION Massive increase in number of Companies from about 30,000 in 1956 to nearly 8
lakhs; (How many active and compliant!!!)
Modernization & regulatory harmony in the wake of corporate scandals; (Satyam
Saga & Sahara OFCD’s issue)
The existing Companies Act, 1956 is a voluminous document with 781 sections
containing provisions that cover aspects which are essentially procedural in nature.
This format has also resulted in the law becoming very rigid since any change
requires an amendment of the law through the parliamentary process.
The law has failed to take into account the changes in the national and international
economic scenario speedily.
Structure of the Companies Bill, 2012
STRUCTURE
470 CLAUSES
29 CHAPTERS
95 DEFINITIONS
7 SCHEDULES
AN INSIGHT
Companies Bill 2008 was introduced on 23rd October 2008 in the Lower House to replace existing Companies Act, 1956
Companies Bill, 2009 was reintroduced on 3rd August 2009 in the Lok Sabha to replace existing Companies Act 1956 (with minor modifications to the Companies Bill 2008)
Report of the SCF on Companies Bill, 2009 was introduced in the Lok Sabha on 31st August 2010
2008 2009 2010 2011
Due to the dissolution of the 14th Lok Sabha, the Companies Bill 2008 has lapsed
Bill was referred to the Standing Committee on Finance of the Parliament (the SCF) for examination and report on 9th September 2009
Companies Bill 2011 introduced in the Lok Sabha on 14th December 2011
TIMELINE
KEY HIGHLIGHTS • Number of permissible members in a private company has been raised to 200
from 50.
• The concept of One Person Company has been introduced.
• Provisions relating to further issue of capital to be applicable to all companies.
• Shares cannot be issued at a discount except sweat equity shares.
• Time gap between 2 buy-backs shall be minimum 1 year.
• Any deposit accepted before the commencement of 2012 Act or any interest due
thereon to be repaid within 1 year from the commencement of 2012 Act or from
the date on which such payments are due, whichever is earlier.
• Stringent norms provided for acceptance of fresh deposits including creation of
deposit repayment reserve account of 15% of the amount of deposits maturing in
the Current Year and the next Financial Year.
• National Financial Reporting Authority (NFRA) to be constituted by Central
Government to provide for matters relating to accounting and auditing policies
and standards Consolidation of financial statements made mandatory.
• 2% of average net profits of last 3 years to be mandatorily spent on Corporate
Social Responsibility for specified class of companies.
• Mandatory transfer of profits to reserves for dividend declaration done away with.
Companies may voluntarily transfer a portion of its profits to reserves.
• Individual auditors are to be compulsorily rotated every 5 years and audit firm
every 10 years in listed companies & certain other classes of companies, as may
be prescribed.
• One of the directors of a company shall be a person who has stayed in India for
182 days or more.
KEY HIGHLIGHTS
• Prescribed class of companies to have at least 1 woman director. Existing
companies to comply with this requirement within 1 year.
• Independent Director (ID) is not liable to retire by rotation.
• A Chairperson can be an MD or CEO at the same time, if the Articles of the
company permits or if the company does not have multiple businesses or where
the company has multiple businesses and has appointed 1 or more CEO for
each such business
• Provisions for loan to directors applicable to private companies and need to
obtain CG approval for such loans removed.
• Restriction on multilayer investment subsidiaries.
• Rate of interest on 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.
KEY HIGHLIGHTS
• Requirement of obtaining CG approval for related party transactions done away
with.
• Approval of CG required for certain managerial remuneration.
• Indian company can be merged with a foreign company.
• Fast track merger for small companies and holding-WOS introduced.
• Person / group of persons holding 90% or more equity shares by virtue of
amalgamation etc. can purchase the remaining equity shares of the company
from minority shareholders.
• Inability to pay debts will be considered as criteria for determining a sick
company .
• Provisions of revival and rehabilitation of sick companies to apply to all
companies and not only to an "industrial company“
KEY HIGHLIGHTS
NEW /AMENDED TERMS
PROMOTERS RELATED PARTY SMALL COMPANY ONE PERSON COMPANY
FOREIGN COMPANY
CONTROL LISTED COMPANY
DORMANT COMPANY
FINANCIAL YEAR ASSOCIATE COMPANY
OFFICER IN DEFAULT
SUBSIDIARY
NEW CONCEPTS
NEW CONCEPTS
ONE PERSON COMPANY Under the Companies Act, 1956, at least two people are required to form a company. The new concept will provide an opportunity to Indian entrepreneurs to enter the corporate world without even adding a family member to the venture, which they, at times, do just for the sake of a second name.
An OPC can be formed by subscribing
the name of a person to the memorandum and complying with the requirements of the Act in respect of registration. As regards the name of an OPC, new Bill provides that the words “one person company” shall be mentioned in brackets below the name of such a company, wherever its name is printed, affixed or engraved.
NEW CONCEPTS
SMALL COMPANY Company other than a public company, Having paid up share capital not exceeding fifty lakh rupees or such amount, not exceeding rupees five crores, as may be prescribed . Or having turnover not exceeding rupees two crores or such amount not exceeding rupees twenty crores, as may be prescribed, as per its last profit and loss account .
Various relaxation in terms of reporting
requirement, board meeting and procedure for mergers/amalgamation have been introduced. However, a holding / subsidiary or a
section 8 Company( section 25 as per Companies Act 1956) cannot be a small company.
DORMANT COMPANY A company formed for a future project or hold an asset or intellectual property and has no significant accounting transaction such a company or an inactive company can apply to the registrar for the status of dormant company. Company other than a public company. The registrar on consideration of the application shall allow the status of dormant company to the applicant and issue such certificate as may be prescribed to that effect. The registrar shall maintain the register of dormant company in the form as may be prescribed.
The dormant company shall have a
minimum number of directors , files such documents and pay such annual fees as may be prescribed to the registrar to retain its dormant status in the register.
The registrar will strike off the name of
that company form the register of dormant company when it fails to comply with the requirement of this section.
NEW CONCEPTS
NEW CONCEPTS
COMPLIANCE REQUIREMENTS PARTICULARS ONE PERSON
COMPANY SMALL COMPANY DORMANT
COMPANY
Cash flow requirement Not applicable Not applicable Not applicable
Annual return CS/ Director Not applicable
Board meetings One meeting in each half of the calendar year and gap not less than 90 days
Quorum Not applicable 2 members personally present Not applicable
Others Limited liability and flexibility in compliance
Relatively less Compliance and easy to operate
Can be converted to an Active Co later
AUDIT & AUDITORS
AUDIT & AUDITORS Appointment of Auditor in unlisted 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
Appointment of Auditor in listed and specified class of companies
APPOINTMENT PERIOD OF APPOINTMENT
Individual 1 term of 5 consecutive years. Audit Firm 2 terms of 5 consecutive years
Cooling off period of 5 years before next appointment
AUDIT & AUDITORS A limit of 20 audits per partner without any distinction between public and private
companies, as against the current ICAI imposed limit of 30 audits.
Ratification of appointment of auditors, by the members at every annual
general meeting of the company, has been made mandatory
Shareholders at liberty to decide by passing resolution that audit partner and the
audit team, be rotated every year
Company bound to re-open and recast its financial statements if application
having been made by following and an order has been made by the NCLT or a
other Court.
Consolidated financial statements of companies are required to also include
financial statements of associate companies and joint ventures
AUDIT & AUDITORS Class action suits, can be filed against auditors to claim damages or
compensation for improper or misleading statement of particulars in the audit report or for fraudulent, unlawful or wrongful actions.
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 financial information system; ‒ actuarial services; ‒ investment advisory services; ‒ investment banking services; ‒ rendering of outsourced financial services; ‒ management services; and ‒ any other kinds of services as may be prescribed.
An auditor or audit firm who or which has been performing any non-audit services on or before the commencement of 2012 Act shall comply with the above before the closure of the 1st FY after the date of such commencement.
PARTICULARS UNDER COMPANIES ACT,1956 UNDER COMPANIES BILL
Mandatory rotation No mandatory rotation
Mandatory rotation ofIndividual Auditor afterterm of 5 yrs & AuditFirm after 10 yrs
Whistleblower No such provision Immediate reporting byAuditors to Government incase of fraud
Restriction on services
No such provisions
Prohibition of renderingclassified services byAuditors toCo./Holding/Subsidiary
Other disqualification
Sec 226 prescribes qualification & disqualification criteria Additional disqualification of Auditors
Additional disqualificationof Auditors
AUDIT & AUDITORS APPOINTMENT OF AUDITORS -COMPARISON
AUDIT & AUDITORS RESIGNATION & REMOVAL OF AUDITORS PARTICULARS UNDER COMPANIES ACT,1956 UNDER COMPANIES BILL
Reasons for resignation
No such provision
Statement indicating thereasons for resignation shallbe filed within 30 days tocompany, Registrar & CAGin case of Governmentcompanies
Special resolution on removal of auditor
No special resolution for removing auditor on expiry of tenure
Special resolution requiredfor appointment of auditorother than retiring auditor
Change of auditor by Tribunal
No such provisions
Tribunal can suo-moto or onapplication from Centralgovernment/ any person candirect change of Auditor
AN INSIGHT
PENAL PROVISIONS
PENAL PROVISIONS
UNDER COMPANIES ACT 1956 Penalty for non- compliance by auditor with sections 227 and 229. If any auditor' s report is made, or any document of the company is signed or authenticated, otherwise than in conformity with the requirements of sections 227 and 229, the auditor concerned, and the person, if any, other than the auditor who signs the report or signs or authenticates the document, shall, if the default is willful, be punishable with fine which may extend to one thousand rupees.
If default is made by a company in complying with any of the provisions contained in sections 225 to 231, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees.
PENAL PROVISIONS
If any of the provisions of sections 139 to 146 is contravened, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees, or with both
COMPANIES BILL 2012
If an auditor of a company contravenes any of the provisions of section 139,section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees.
LOANS & INVESTMENTS
LOANS & INVESTMENTS PARTICULARS COMPANIES ACT 1956 COMPANIES BILL 2012
Applicability Not applicable to Private Company Applicable to all Companies
Coverage
Loans given by one company to another company Guarantees and securities in favour of a person who has given any loan to the company Acquiring by subscription or otherwise, securities of a company by other company
Loan to any person or otherbody corporate Guarantee or provide securityin connection with a loan toany other body corporate orperson Acquiring by subscription orotherwise, securities of anyother body corporate.
Exemptions Exemption available for loans, investments and guarantees given by Holding Co to its WOS
No such exemption
Exemptions
Exemption available to infrastructure companies for loans, provision of security and guarantee, investments
The exemption available toinfrastructure companiescontinues for loans, provisionof security and guarantee butnot for investments
LOANS & INVESTMENTS PARTICULARS COMPANIES ACT 1956 COMPANIES BILL 2012
Rate of loan At the prevailing bank rate
At a rate not lower than theprevailing yield of the 1, 3, 5or 10 years G-Sec closest to the tenor of
the loan
Upper limit/ Capping
Higher of 60%(Paid-up share capital+ free reserves) or 100% (free reserves and)
Higher of 60% (Paid-up sharecapital+ free reserves +Securities premium) or 100%(free reserves and securitiespremium)
Approval for exceeding the limit
No change. Prior approval by Special resolution passed in general meeting
No change. Prior approval bySpecial resolution passed ingeneral meeting
DIRECTORS & KMP
DIRECTORS & KMP Duties of the directors towards a company prescribed (not prescribed in the
companies Act 1956.
Maximum number of directors can be 15. This number can go up by passing a
special resolution.
In certain prescribed companies at least one woman director should be
appointed.
Every company to have a resident director , i.e. a director who has stayed in
India for a minimum 182 days in the previous calendar year.
Every company belonging to such class or description of companies as may be
prescribed shall have Managing Director (MD) or chief Executive.
Every whole time KMP to be appointed by BOD meeting .
A whole time KMP not to hold office in more than one company at a time.
Any vacancy in the office of any KMP to be filled by the BOD within 6 months.
DIRECTORS KMP’S & GOVERNANCE
Concept of independent directors has been introduced for the first time in
Company Law.
All listed companies shall 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.
The independent director has been clearly defined in the Bill.
Nominee director nominated by any financial institution, or in pursuance of any
agreement, or appointed by any government to represent its shareholding shall
not be deemed to be an independent director.
INDEPENDENT DIRECTOR
An independent director shall not be entitled to any remuneration other than
sitting fee, reimbursement of expenses for participation in the Board and other
meetings and profit related commission as may be approved by the members.
An Independent director shall not be entitled to any stock option.
Only an independent director can be appointed as alternate director to an
independent director.
DIRECTORS KMP’S & GOVERNANCE
INDEPENDENT DIRECTOR
CORPORATE SOCIAL RESPONSIBILITY
CORPORATE SOCIAL RESPONSIBILITY
PARTICULARS COMPANIES BILL 2012
Who is covered Companies that have a turnover of Rs 1,000 crore, or Have a net worth of Rs 500 crore, or That have recorded a net profit of Rs 5 crore
Provisions These companies are expected to spend 2 per cent of their profit in preceding three financial years towards CSR
Punishment
The bill says they are “expected” to …meaning it is not compulsory to spend money . But , the same bill also provides that -Board of director will be responsible for seeing that
company spends money for CSR. -It is compulsory to send report on the CSR spending to the
corporate affairs minister. - If company is not spending, it has to give reasons for it.
MERGER & ACQUISITIONS
MERGER & ACQUISITIONS Merger of Indian companies with companies incorporated in foreign jurisdictions (as may be notified separately by central government) is permitted. Only the persons holding 10 per cent or above of relevant shareholding or having outstanding debt of 5% or above in the company are now entitled to oppose a scheme of arrangement. Bill requires a company to file certificate from its auditors with the tribunal to the effect that accounting treatment in the scheme is in accordance with prescribed accounting standards. The Bill also has provisions stating that in case of merger of a listed company into an unlisted company , the transferee company shall remain unlisted until it becomes listed company. Bill Proposes that where a transferor company is dissolved pursuant to an arrangement , the fees paid by transferor company on its authorized share capital shall be set-off against fees paid by transferee company.
PARTICULARS COMPANIES ACT 1956 COMPANIES BILL 2012
Merger of Indian Co into Foreign Co Not permitted
Permitted Prior approval of the RBIrequired before any foreigncompany merges with an Indiancompany or vice versa
Merger or amalgamation between small companies or between holding companies and a WOS or prescribed companies
No such provision
Proposed new process ofmerger amalgamation of smallcompanies or group companies involves theapproval of shareholdersholding at least 90% of theshares of the company
MERGER & ACQUISITIONS
PARTICULARS COMPANIES ACT 1956 COMPANIES BILL 2012
Auditors certificate No such provision for Private Cos
Auditor to certify accounting treatment in the scheme is in conformity with the AS prescribed under Clause 133 of the Bill
Dispensation of the meeting of creditors
Possible to seek approval of dispensation based upon consent letters received
Creditor or class of creditors, having at least 90% value agree and confirm, by way of an affidavit to the scheme
MERGER & ACQUISITIONS
OTHER KEY ISSUES Recognition of Electronic form of Books Of accounts.
Provision of reopening /recasting of books of accounts
Provision of revision of financial statement
Authority to prescribe Accounting Standards now vested with central government.
Appointment of registered valuer made mandatory
Appointment of registered valuer to be effective by audit committee or Board of
Directors.
Exit opportunity to the dissenting shareholders of transferor company/listed
company being merged with an unlisted company.
Submission of valuation report by liquidator in the event where tribunal has made
a winding up order
Acquisition of minority shareholding by holders of at least 90% of issued equity
share capital of a company