Ahmedabad

Dhirubhai Shah & Co.

Rajkot Chartered Accountants
Baroda

Mumbai

CONTACT US
Head Office

4th Floor “Aditya”,

Nr. Mithakhali Six Roads, Handbook and a Quick
Ellisbridge,
Ahmedabad – 380006. Referencer on Few Important
Tel. No.: 079-2640 3326 Provisions of Companies Act 2013
Telefax: 079-2640 3325

Email : [email protected]

Dhirubhai Shah & Co.| Chartered Accountants 1

 Contents

1. Preface 03-03

2. Organizational Structure 04-06

3. Directorship, Management & Administration 07-12

4. Acceptance of deposits 13-14

5. Loan to Directors 15-15

6. Corporate Social Responsibility 16-16

7. Related Party Transactions 17-18

8. Accounts 19-22

9. Audit 23-25

10. Share Capital 26-27

11. Other important changes 28-29

12. Quick Referencer 30-32

Dhirubhai Shah & Co.| Chartered Accountants 2

 Preface

Applicability of Companies Act 2013

A number of provisions of the Companies Act, 2013 including those relating to

maintenance of books of account, preparation, adoption & filing of financial
statements, auditors reports and the Board of Directors report (Board's report)
have been brought into force with the introduction of the new Companies Act
2013.

The Ministry of Corporate Affairs has notified 183 new sections of the Companies Act 2013 by way of
notification dated 26th March 2014 in addition to 100 sections which were already notified by notification
dated 12th September 2013. These sections have been notified to come into effect from 1st April 2014.
With the notification of these sections, now a total of 283 sections of the new Act stands notified. All of
these provisions have been made applicable giving the companies a timeframe of 3 to 12 months to
comply with the various sections notified in the new Act.

It seems that lot of provisions have been made / modified keeping in mind the high profile cases of the
previous year‟s, such as the 2G scam and the Sahara case etc. In the pursuit to safeguard the interest of
the public shareholders, lenders and general public, the persons entrusted with drafting the law have
amended a lot of provisions and also introduced lot of penal as well as civil consequences, making it very
cumbersome even for smaller companies which to an extent is quiet unwarranted.

We are of the opinion that every person entrusted with the accounts, legal and financial verticals of the
company, should go through these amendments and tag the necessary provisions that would be
specifically applicable for them. Thereafter brainstorm and chart out the action plan in a manner that will
help them to comply with the revised Act, with the least administrative and financial hardship.

We hereby present before you a small compilation on the important provisions and amendments of the
Companies Act 2013. This would give you a basic understanding of all the important provisions that
require an urgent attention in order to finalize the way forward. We hope that you would find our booklet
informative. In case of any clarification required please do not hesitate to contact us.

Dhirubhai Shah & Co.| Chartered Accountants 3

 Organizational
Structure (1/3)

There are new kinds of structuring options available now while incorporating a Company. Introduction of
structures like the Small Company, One Person Company, Dormant Company etc. have been made in this
Companies Act. At times one would need a Company status just for seeking public monies either by way
of capital or debt. This kind of new structures would be helpful for people looking to drive the business on
their own. Below is the gist of new options that is now on hand.

Small Company

"Small company"‟ means a company, other than a public company.

Sr. no Particulars Amount

1 Paid up share capital does not exceed INR 50 Lakhs

2 Turnover does not exceed INR 200 Lakhs

Note: Small Company cannot be a holding or subsidiary company

Some of the relaxations provided to a small company are as indicated below:

 Cash flow statement is not required which is otherwise compulsory for most type of Companies

 Annual Return can be signed by one director if there is no Company Secretory (CS).

 Board meeting is required to be held at least once in six months with a gap of not less than of 90

days between the meetings.

 Company doesn‟t have to be registered specifically to become a small Company. One

automatically can avail the benefits of a small company.

Dhirubhai Shah & Co.| Chartered Accountants 4

 Organizational
Structure (2/3)

One Person Company (OPC)

A new concept of „One Person Company‟ (OPC) has been introduced in Companies Act 2013. Till
recently, if you wanted to set up a private company, one would require at least two
persons/partners/relatives because the law mandated a minimum of two shareholders. Now a company
can be formed even with only one member and it shall be called OPC

OPC will have only one 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. OPC has to
specifically mention the word “one person company” in brackets below the name of the company
wherever it is printed, affixed or engraved.

Major Changes in OPC as compared to Private Limited Company

 OPC can have even 1 director against minimum 2 for a Private ltd company
 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
 Provisions of board meeting, quorum and interested director shall not apply to OPC
 OPC need not hold an AGM
 Provisions relating to notice, explanatory statement, EGM, quorum, voting, chairman, poll, proxies,
postal ballot, does not apply to OPC.
 Financial Statements to be signed by only one director needs to be filed with ROC within 180 days
from the end of Financial Year
 OPC can also contract with the sole member who is a director
Dormant Company

Dormant Company is a very important concept under the New Companies Act of 2013. There are number
of Companies in India that are either incorporated for future projects or incorporated to hold assets and
are yet to carry out the operations or are in operational for a substantial period. Hence, where a company
is formed and registered under 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 company may make an
application to ROC to obtain status as a “dormant company

Dhirubhai Shah & Co.| Chartered Accountants 5

 Organizational
Structure (3/3)

In many cases, the dormant status did not mean that these Companies are defunct. Due to the nature of
business of these types of Companies, they are not in operation for the time being. Earlier, there was no
relaxation under the law to treat them at a different footing than the active Companies of the same class.
They were required to file forms as usual, hold board meetings at prescribed intervals and so on so forth.
 “inactive company” 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;
 “significant accounting transaction” means any transaction other than
a) Payment of fees by a company to ROC;
b) Payments made by it to comply with any legal requirement
c) Allotment of shares to fulfill the requirements of Companies Act 2013
d) Payments for maintenance of its office and records

 Maximum Period to continue with status of Dormant Company : Maximum 5 consecutive years
 Dormant status does not come automatically. An application for the same has to be made as stated
herein below for obtaining the status of Dormant Company.
Few of the relaxations for the Dormant Companies

a) Cash flow statement is not required to be prepared for dormant company

b) 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. Hence, if planned properly only 2 meetings are required
during the year.
c) Option to make it active anytime by making necessary applications.

As you are aware earlier there were only two options available with the shareholders either to float a
private limited company or a public limited company with shares being widely held or closely held.
Keeping the above in mind now a businessman has other options as well.

Dhirubhai Shah & Co.| Chartered Accountants 6

 Directorship,
Management &
Administration (1/6)

Directorship:

Number of directorship:

Maximum numbers of directorship is restricted to 20 companies. However, the maximum number of public
companies (including private companies that are either holding or subsidiary of a public company) in
which a person can be appointed as a director cannot exceed 10.

Board Report
A new concept in form of a Board Report for every Listed Company and Public Company having a paid
up share capital of INR 25 Crores or more, shall be made which will include performance report of its
Board members, Committee Members and Individual directors including independent non-executive
directors.
Resident director: Every company should now have compulsorily a Resident Director
Woman Director:

Following companies need to comply with the requirement of having at least one woman director as per
section 149 of the Companies Act 2013.

Companies Listed Companies Public Companies Private Limited

Companies

Appointment Mandatory for all listed Mandatory for Public Companies having Not Mandatory
criteria companies to appoint at
least 1 woman director - paid–up share capital of INR 100
crore or more,
- a turnover of INR 300 crore or more

Note: In this case the paid up share capital and the turnover as the case may be as on the date of latest
audited financial statements shall be taken into account.

Independent Directors

In case of Listed Companies In case of other public companies

At least one-third of the total number At least two out of the total directors are required to be independent
of directors as independent directors directors
Public companies include:

i. Companies having paid up share capital of INR 10 crore or more; or

ii. Companies having turnover of INR 100 crore or more; or
iii. Companies having outstanding loans, debentures and deposits,
exceeding INR 50 crore rupees

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 Directorship,
Management &
Administration (2/6)

a) All the listed and public companies shall comply with above requirement within one year from such
commencement i.e. 01st April 2014. Provisions shall not apply to a private limited company.
b) Provisions shall not apply to a private limited company.
c) If company ceases to fulfill any conditions for 3 consecutive years only then the requirement of
independent directors can be dispensed with.
d) Independent and non - executive directors can be held liable in respect of acts which had occurred
with his knowledge attributable through boards meetings/board processes if he failed to act diligently.
e) No independent director can hold office for more than two consecutive terms without serving a
cooling period for 3 years after completing two consecutive terms. During the cooling period the
independent director cannot be associated with the company in any manner direct or indirect. These
provisions would stand prospective i.e. persons already acting as independent directors can be
appointed for only one more term – after that cooling period will apply.
f) A person can act as an Independent director in maximum 7 Companies. A person who is a WTD in
some company can act as an Independent director only in 3 other Companies

Small shareholders directors

The Companies Act, 1956, has a provision for election of a small-shareholder director but it is not
mandatory. In order to protect the interest of shareholders every prescribed company (as mentioned
below) shall appoint a director elected by small shareholder‟s called Small Shareholders director.

Particulars Description

Applicability Applicable only to listed companies

Who is a Small A small shareholder means a shareholder holding shares of nominal value of not more than
Shareholder INR 20, 000

Procedure for On receiving notice from not less than 1000 small shareholders or 1/10 th of total small
appointing small shareholders whichever is less appoint a director. Alternatively company may also suo
shareholders director moto appoint a small shareholder.

Other points to be A) No person shall hold the position of small shareholders‟ director in more than two
noted companies at the same time
B) Tenure in the Company will be maximum 3 years and he shall not be liable for
rotation.
C) Proposed person may not necessarily be a shareholder
D) The person shall not be a small shareholder in any company operating in the same
sector

Dhirubhai Shah & Co.| Chartered Accountants 8

 Directorship,
Management &
Administration (3/6)

Committees under the new Companies Act 2013.

The new companies Act provides for mandatory setting up of the following committees of the BOD for
certain companies:

 Audit committee that shall also oversee the vigil committee .

 Stakeholder relationship committee
 Nomination and Remuneration committee
Vigilance Committee: Establish a Vigil mechanism for their directors and employees to report genuine
concern or grievances which provides for adequate safeguards against victimization of employees and
directors. Vigil mechanism is applicable to the following class of companies

Companies Listed Companies Companies

Appointment Mandatory for all listed Mandatory for Companies
criteria companies - Accepting public deposits
- Borrowings in excess of INR 50 crores

Note: The vigilance committee is a part of the audit committee where such committee is in existence. In
case of other companies, a director should be nominated to overlook the vigilance functions. These
provisions are applicable to a private limited company as well.

The below summarizes the key requirements of the various committees:

Particulars Audit Nomination and Stakeholders Corporate Social

Committee Remuneration Relationship responsibility committee

committee (NRC) Committee

Applicability 1. All Listed companies and Companies whose All companies having
total Number of
2. All public companies shareholders, Deposit • Net worth in excess of INR
holders, debenture 500 crores or;
a. Having paid up capital of more • turnover in excess of INR
Holders and other
than INR 10 crores; 1000 crores or;
b. Having turnover of more than security Holders • Net profit in excess of INR 5
INR 100 crores; exceed 1,000 at any crores.
Having in aggregate, time during a FY
outstanding loans or borrowings mandated to spend, in every
or deposits exceeding INR 50 FY, minimum 2% of the
crores or more. average net profits

Dhirubhai Shah & Co.| Chartered Accountants 9

 Directorship,
Management &
Administration (4/6)

Particulars Audit Committee Nomination and Stakeholders Corporate Social

Remuneration Relationship responsibility
committee
committee (NRC) Committee

Major Roles and • To recommend • To identify persons To consider and • The committee to
Responsibilities appointment and who are qualified resolve grievances monitor CSR policy
remuneration of auditors to be directors of from time to time.
of the security
the company and
• To review and monitor the holders of the • The committee to
who can be
auditor‟s independence appointed in company formulate and
and performance and senior recommend to the
effectiveness of audit management board, a CSR policy,
process which will indicate
• To recommend to the activities to be
• To examine financial BOD a policy undertaken by the
statements and the relating to company.
auditors‟ report remuneration of
directors, KMP • The committee will
• To approve or modify any and other also need to
related party transactions employees recommend the
amount of
• To scrutinize inter- expenditure to be
corporate loans and • To evaluate incurred and
investments performance of monitor the policy
every director of from time-to-time
BOD

Date from which Existing companies having To be constituted To be constituted To be constituted

effective audit committee‟s already from Financial Year from Financial from Financial Year
in place should 2014-15 Year 2014-15 2014-15
reconstitute their board
with the new requirements
within one year of such
commencement i.e. 1st
April 2014

Management and administration

Some significant features relating to BOD and general meetings of members are summarized as under

Note: Elaborate rules have been specified to conduct board meetings via video conferencing which
everyone should go through as the same will assume paramount importance in times to come

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 Directorship,
Management &
Administration (5/6)

Important changes relating to Board Meetings

Sr. Particulars Provision contained in Provision contained in

No. Existing Companies Act, 1956 Companies Act 2013

1 First Board Meeting No specific time stipulated Every company shall hold the first meeting
for holding first board of the Board of Directors within 30 days of
meeting. incorporation

2 Time frame for No specific time frame for Minimum 7 days‟ notice is required
sending Notice sending notice

3 Time Gap between At least one meeting to be Not more than120 days between
two meetings held in every quarter. consecutive meetings of the Board

Companies Act 2013 has simplified the process of holding general meeting and has recognized voting by
electronic means.
Electronic Voting:
Now a shareholder need not physically attend the General meetings of the Company. The Company shall
create a secured system which gives the shareholders a facility to cast his vote in a secured manner. The
company shall generate a user id and a password for every shareholder who shall be given an option to
cast his vote on the platform created by the Company for casting the votes.

With the introduction of e voting, companies who not having large attendance during their general
meetings may have to consider the fact that lot of people might vote for a particular resolution on an
online mode.

Annual General Meeting

The provisions relating to holding of AGM in Companies Act 2013 are similar to 1956 Act except for the
below:

a) First AGM should be held within a period of 9 months from the date of closing of the first financial
year of the company
b) Annual General Meeting can be held on a Sunday but only from 9 AM to 6 PM.
c) Notice may now be sent in an electric form as well. Sending a physical notice is not a compulsion
d) Notice now must be sent at least prior to 21 business days instead of 21 days as mentioned in the
Companies Act. AGM can now be called on a shorter notice period with consent of 95% members
instead of erstwhile requirement of obtaining100% consent of the members
e) Listed Companies to file with ROC minutes of the meeting within 30 days of the meeting held and
conducted

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 Directorship,
Management &
Administration (6/6)

Extra Ordinary General Meeting

Board of Directors of the company or on requisition from members holding 1/10th amount of share capital
may call EGM whenever they deem fit. The provisions relating to holding of EGM in Companies Act 2013 are
exactly similar to Companies Act 1956

Minimum members for conducting AGM or EGM

Presence of only members physically present will be counted for the purpose of determining quorum.
Hence voting can be done electronically, but for the purpose of computing the quorum members only
physically present will be considered.

Type of Company Sub classification Minimum number of members

personally present

Private Limited Including small companies except OPC 2

Company

Public Companies 1) Upto 1000 members 5

2) Between 1000 to 5000 members 15

3) In excess of 5000 members 35

Reporting by listed company with ROC

Listed companies to file with ROC a report in respect of change in any number of shares held by promoters
or top 10 shareholders within 15 days of such change

Listed companies to file a report with ROC within 30 days of the conclusion of the AGM including a
confirmation that AGM meeting was convened held and conducted.

Annual Return

The Annual Return shall contain details as on the end of the Financial Year instead of as on the date of
AGM as is required under the 1956 Act.

The disclosures in the Annual Return are enhanced. Information relating to remuneration of directors and
Key Management Personnel , details of meetings of members, BOD and its various committees, matters
relating to certification of compliances, disclosures, shares held by or on behalf of FII etc. are also to be
provided.

Dhirubhai Shah & Co.| Chartered Accountants 12

 Acceptance of
Deposits (1/2)

A significant impact of the Companies Act 2013 is that only those public companies which meet the
prescribed net worth or turnover criteria (As per below) may accept deposits from persons even other than
its members – (Herein after referred to as Eligible Companies)

Eligibility Criteria Impact

Public Company having net worth in excess of INR 100 crores Can Accept deposits from members as
Public Company having turnover in excess of INR 500 crores well as public – Known as Eligible
Companies

All companies other than above can accept deposits only from its members and not from general public

NBFC‟s can raise deposits from non- members as well

General conditions mentioned in the rules for accepting deposits.

1) Resolution in General meeting regarding acceptance of deposits

2) Issue circular giving specific details after filing the same with Register
3) Deposit at least 15% of the amount of deposits maturing during current financial year as a repayment
reserve account
4) There should have never been a default in repayment of deposits or interest earlier
5) To obtain credit rating for the Company

Limits of acceptance of deposits

Acceptance/renewal of deposits by Acceptance/renewal of deposits by eligible company

company (other than eligible company)

From the members shall not exceed 25% From the members shall not exceed 10% of the paid up share
of paid up share capital and free capital and free reserves
reserves

From the public shall not exceed 25% of the paid up share
capital and free reserves

Dhirubhai Shah & Co.| Chartered Accountants 13

 Acceptance of
Deposits (2/2)

Repayment of deposits accepted before 1st April 2014

Any deposit accepted before 01/04/2014 or any interest due thereon if remains unpaid on or
after 1st April 2014 then

a. The company has to file with registrar within 3 months a statement of all deposits and sums
remaining unpaid with interest
b. Repay the deposits along with interest before 31/03/2015 or from the date on which such
payments are due, whichever is earlier
c. Make an application to the tribunal for allowing further time to the company to repay the
deposit.

Hence, all the existing deposit holders will have to be repaid their deposits and if the Company
wishes to bring those funds back in the Company then the procedure laid down above for
acceptance of deposits as per the new Companies Act will have to be followed

Protection to the depositors

 An amount equivalent to 15% of deposits maturing during the FY as well as the following FY
will need to be kept in a separate bank account.

 Additionally, the new act also states that the deposit insurance as prescribed is also required
to be provided

Dhirubhai Shah & Co.| Chartered Accountants 14

 Loan to Directors

Loans to Directors or Entities in which Directors or their relatives are substantially interested

1) No Company whether public or private can advance any loan or provide any security or guarantee
in connection with the loan to a director or any other person related to the director or to any entity
in which the director or his/her relative is substantially interested.

2) The provisions are applicable from 1/4/2014 which means that granting of loans as per above is
prohibited from the 1st of April 2014. Loans advanced prior to this date to directors or entities in which
such directors are substantially interested will not be affected by the introduction of these new
provisions.
3) It is interesting to note that the definition of loan also intends to cover the amounts represented by
way of book debts. Hence it means that any amounts outstanding from a director or an entity in
which director is interested on account of transactions like sales purchases etc. are also now
prohibited. Further loans to professional or independent directors are also prohibited.
4) Contravention of the provision as per above would lead to penal consequences on the Company
amounting to a minimum of INR 5 lakhs to INR 25 Lakhs. The director to whom such loans are
advanced can also be subjected to imprisonment upto 6 months over and above the monetary
penal consequences.
5) The provisions of this section would not apply to Companies having Banking and NBFC licenses i.e.
companies which in the ordinary course of business advance loans, guarantees etc., provided they
charge a minimum of bank rate from such loans advanced to directors.
6) A company can give a loan to its MD or WTD as a part of conditions of service granted by the
Company to all its employees or pursuant to a scheme approved by members of special resolution.

Loans and Investments by Companies

1) A company generally is prohibited from making investments in any Company through more than two
layers of investment Companies. This means that a Company can have maximum two layer
downstream investments, not beyond.

2) A debenture is made to define which includes debenture stock, bonds or any other instrument of a
company evidencing a debt whether constituting a charge on the assets of the Company or not.
This definition would then cover Inter Corporate deposits received from the company and will have
to be treated as debentures

Dhirubhai Shah & Co.| Chartered Accountants 15

 Corporate Social
Responsibility

Company shall constitute a corporate social responsibility committee if

 Net worth in excess of INR 500 crores or;

 Turnover in excess of INR 1000 crores or;
 Net profit in excess of INR 5 crores.

The CSR committee will consist of three or more directors, out of which at least one director will be an
independent director. If Companies are not mandated to appoint an independent director then the
committee can be formed with all interested directors as well. (Please refer pg 7 section of independent
directors)

BOD of such companies is mandated to spend, in every FY, minimum 2% of the average net profits i.e.
book profits of the company made during the 3 immediately preceding FYs, in pursuance of its the CSR
Policy.

Key Points to be noted for CSR

 The committee will also need to recommend the amount of expenditure to be incurred and monitor
the policy from time-to-time.
 The board shall disclose the contents of the policy in its report, and place it on the website, if any, of
the company.
 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.
 The amounts reserved for the CSR can be spent over social projects and trusts having no nexus with
the Company or its management / promoters / key managerial persons.
 The amount spent over CSR will be available for tax deduction.
 However the amount reserved and not spent due to any reason will not be tax deductible
expenditure

Dhirubhai Shah & Co.| Chartered Accountants 16

 Related Party
Transactions (1/2)

The definition of ‘related party’ with respect to a company has been widely defined and includes:

 Holding Company, Subsidiary Company, Associate Company,

 Directors, Key Management Personnel (including their relatives),
 Firms / companies where directors / relatives are a partner or a director respectively
 A public company in which a director or a manager is a director or holds along with his relatives, more
than two per cent of its paid-up share capital; (*NOTE – 1)
 Any person on whose advice, directions or instructions a director or manager is accustomed to act
except advice given in a professional capacity.

The transactions of a company with its related parties, which are not in the ordinary course of business and
which are not at arm‟s length would require consent of the Board of Directors of the Company.

Related party transactions have been defined to include:

 Sale, purchase of any goods or materials;

 Selling or buying, property;
 Leasing of property;
 Availing or rendering of any services;
 Appointment of any agent for purchase or sale of goods, materials, services or property;
 Such related party‟s appointment to any office or place of profit in the company, its subsidiary
company or associate company; and
 Underwriting the subscription of any securities or derivatives thereof, of the company.

In the following situations, in addition to approval of Board of Directors, prior approval of members by
means of a special resolution is required before entering into any related party transaction:

Dhirubhai Shah & Co.| Chartered Accountants 17

 Related Party
Transactions (2/2)

Nature of related party transaction Threshold limits

Any transactions Exceeding Rs 10 Crores

Sale, purchase or supply of any goods or >25% of the annual turnover

materials directly or through appointment of
agents

Selling or otherwise disposing of, or buying, >10% of the net worth (If net worth is negative then for
property of any kind directly or through all transactions)
appointment of agents

Appointment to any office or place of profit in Monthly remuneration exceeding Rs 2.5 Lacs
the company, its subsidiary company or
associate company

Remuneration for underwriting the Remuneration exceeding 1% of the total net worth
subscription of any securities or derivatives

Disclosures Norms:

 Disclosure to be made in board‟s report of every related party transaction or contract along with the
justification for entering into such contract or arrangement.
 Disclosure also to be made in explanatory statement and the same to be annexed to the notice of
general meeting

Note 1:
Just by the virtue of a person being a common director in two or more public companies all such
companies are now brought under the definition of a related party.

Dhirubhai Shah & Co.| Chartered Accountants 18

 Accounts
(1/4)

The Companies Act 2013 has introduced certain significant amendments under the chapter Accounts It
has also introduced several additional requirements such as preparation of consolidated financial
statements, additional reporting requirements for the directors in their report such as the development and
implementation of the risk management policy etc.

Following are the gist of key changes:

A) Concept of Financial Year

B) Consolidation and Holding Subsidiary Relationship
C) Computation of Depreciation

Financial Year:

The new companies act 2013 has introduced a significant change in definition of ‘Financial Year’: As per
the new act “Financial year”, shall mean only period ending on the 31st day of March every year. This
requirement of change in financial year is required to be complied within a period of 2 years i.e. 31 St
March 2016.
 In case of a company incorporated on or after the 1st day of January of a year, the first financial
year of such company shall end on the 31st day of March itself.

 In case of 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, the (National Company law Tribunal)
NCLT may allow any period as its FY, whether or not that period exceeds 12 months.

Consolidation of Financial Statements

 Currently, only clause 32 of the listing agreement mandates listed companies to publish consolidated
financial statements. Neither the existing Companies Act nor AS 21 requires other companies to
prepare consolidated financial statement. Under the Companies Act 2013, companies with one or
more subsidiaries will, in addition to Stand- alone also prepare consolidated financial statements.

 The mandatory consolidation applies to all companies (having subsidiaries) whether such company
is: Listed or unlisted, Private or public.

 For the purpose of consolidation of financial statements the word „subsidiary‟ includes „Associate
Company and Joint Venture. Further, at present, preparation of consolidated financial statements is
not mandatory for a listed company that has only an associate or a joint venture but not a subsidiary.
Since the definition of a subsidiary under the 2013 Act includes an associate or joint venture, all
companies including listed companies would need to prepare consolidated financial statements
even if they have only an associate or a joint venture and not a subsidiary.

Dhirubhai Shah & Co.| Chartered Accountants 19

 Accounts
(2/4)

Hence to give you a diagrammatic explanation please refer the flowchart below. Under both
circumstances consolidation would be applicable

Note: As per the lastest rules notified on 31/03/2014 definition of total share capital in the context of
meaning of subsidiary and associate now includes only equity and convertible preference share
capital

Holding-Subsidiary Relationship

Under Companies Act 1956 Under Companies Act 2013

Subsidiary company - Under the new act a company shall be

A company shall be deemed to be deemed to be subsidiary when:
subsidiary of other company, if other – the holding company controls the
company exercise or controls the composition of the Board of Directors
composition of Board of directors or controls – the holding company exercise or control
more than 50% of total equity share capital more than half of the total share capital
or total voting capital. either at its own or together with one or
more of its subsidiary companies

Dhirubhai Shah & Co.| Chartered Accountants 20

 Accounts
(3/4)

Depreciation

Schedule II to the 2013 Act requires systematic allocation of the depreciable amount of an asset over its
useful life unlike Schedule XIV of the previous Act (which specifies minimum rates of depreciation to be
provided by a company). Hence this schedule prescribes the number of years that the asset has to be
depreciated within unlike applying the rate of depreciation in the Companies Act 1956

Depreciable amount of an asset = Cost of an asset/other amount substituted for cost

(-)
Residual value

(Residual value should not be more than 5 % of the original cost of the asset)

Schedule II will be applicable as follows:

 For a prescribed class of companies (whose financial statements are required to comply with
accounting standards prescribed under the Companies Act 2013), the useful lives should normally be
in accordance with the Schedule. However, if a prescribed company uses a different useful life, it
should disclose a justification for doing so – The class of companies have not yet been prescribed

 For other companies, the useful life and the residual value applied should not be higher than that
prescribed in Part C of Schedule II.

Component approach

Companies are now required to adopt what is known as the „component approach‟ to compute
depreciation on fixed assets.

Schedule II of the 2013 Act also states that the specified useful lives are for the whole of the asset. When
the cost of a part (component) of the asset is significant to total cost of the asset and useful life of that
part is different from the useful life of the remaining asset, useful life of that significant part should be
determined separately.

A company will have to estimate the useful life of such a component (since it may not be provided in
Schedule II) and depreciate the cost of that specific component over this estimated useful life.

Dhirubhai Shah & Co.| Chartered Accountants 21

 Accounts
(4/4)

Transitional Provisions:

On transition, the carrying amount of an asset is depreciated as follows:

(a) Over the remaining useful life of the asset as per Schedule II of the 2013 Act; or;

(b) Recognized in opening retained earnings when the remaining useful life of the asset is nil.

Schedule XIV Vs Schedule II:

Companies Act,1956 – Sch.XIV Companies Act,2013- Sch.II

It deals with only depreciation of It deals with tangible assets and amortization of
tangible assets. intangible assets also.

It contained rates of depreciation of It contains only useful lives of tangible assets and
tangible assets. does not prescribe depreciation rates.

100% Depreciation shall be charged on Omits the provision for 100% Depreciation on
assets whose actual cost does not immaterial items i.e., assets whose actual cost
exceed INR 5,000/- does not exceed INR 5,000/-

Extra shift deprecation for double shift Extra shift depreciation working simplified
and triple shift was to be made
separately in proportion with No. of For Double shift:
days for which concern worked second 50% more depreciation for that period for which
shift or triple shift asset used.

For Triple shift:

100% more depreciation for that period for which
asset used.

Dhirubhai Shah & Co.| Chartered Accountants 22

 Audit
(1/3)

Key Changes:

 Under the current provision of the companies Act 1956, auditor is appointed in the AGM and holds
office till the conclusion of next AGM. Under the Companies Act 2013 the company shall appoint the
auditor in the first AGM and shall hold the office till the conclusion of sixth AGM.

 Though the auditor is appointed for five years, the matter relating to such appointment shall be
placed before the members for ratification at each AGM.

 Change of auditors before the five year term would require special resolution after obtaining the
previous approval of the Central Government. Further the auditor concerned would have to be given
a reasonable opportunity of being heard.

 Now rotation of auditors has been mandated by the Act which prescribes that an auditor needs to be
compulsorily rotated after 2 terms of 5 years each in case of an auditor being a partnership firm and
one terms of 5 years in case of the auditor being a sole proprietor.

 It is interesting to note that this rotation has been made applicable with retrospective effect and a
moratorium of 3 years has been granted to all the companies to comply with these new provisions

 The cooling period will be in force for a period of 5 years for which the existing auditor cannot be
reappointed

Companies falling under rotation are tabulated as under and to be considered as specified class of
Companies

Class of Companies Criteria

Listed Companies Mandatory For All

Public Companies Share Capital in excess of INR 10 crores or public borrowings in excess of
INR 50 crores
Private Companies Share Capital in excess of INR 20 crores or public borrowings in excess of
INR 50 crores

Dhirubhai Shah & Co.| Chartered Accountants 23

 Audit
(2/3)

Appointment of auditors in listed and specified class companies as mentioned above

Appointment Period of appointment

Companies Act 2013 Companies Act 1956

Individual 1 term of consecutive 5 To hold office till conclusion of next AGM and can be
years reappointed
Audit firm 2 terms of consecutive 5 To hold office till conclusion of next AGM and can be
years reappointed
Cooling off 5 years before next
period appointment

Following illustration explains the rotation of auditor’s provision in a nutshell (In case auditor being a
partnership firm)

Number of consecutive years Maximum number of consecutive Aggregate period for which
for which an audit firm has years for which the firm may still be the firm can be appointed
been functioning as auditor in appointed in the same company auditor
the same company as on (including transitional period)
today

10 years or more 3 years 13 years or more

9 years 3 years 12 years
8 years 3 years 11 years
7 years 3 years 10 years
6 years 4 years 10 years
5 years 5 years 10 years
4 years 6 years 10 years
3 years 7 years 10 years
2 years 8 years 10 years
1 year 9 years 10 years

Dhirubhai Shah & Co.| Chartered Accountants 24

 Audit
(3/3)

Internal Audit

Appointment of Chartered Accountants for Internal audit in case of Public companies

Criteria Amount
Paid up share capital; ≥ INR 50 Crore
Turnover; ≥ INR 200 Crore
Outstanding loans or borrowings from banks or public financial institutions ≥ INR 100 Crore
Outstanding deposits ≥ INR 25 Crore
Listed All

Appointment of Chartered Accountants for Internal audit in case of Private companies

Criteria Amount
Turnover; or ≥ INR 200 Crore
Outstanding loans or borrowings from banks or public financial institutions ≥ INR 100 Crore

Secretarial Audit

Conducting of Secretarial Audit in case of Public Companies

Criteria Amount
Turnover; or ≥ INR 250 Crore
Paid Up Share Capital ≥ INR 50 Crore
Listed All

The new Companies Act 2013 contains specific provisions that prohibit the Statutory Auditor of a
company to render non-audit services to the company or its holding company or its subsidiaries. The
word subsidiary as per the new Companies Act 2013 has been assigned a very wide definition. (Covered
in pg 20 of this booklet)

Prohibited non-audit services include

 accounting and book keeping services/ rendering of outsourced financial services;

 internal audit;
 design and implementation of any financial information system;
 Actuarial services/investment advisory services/investment banking services/management services

Further, the rules are yet to prescribe “other services” which cannot be rendered by the Statutory Auditor
of the Company

Dhirubhai Shah & Co.| Chartered Accountants 25

 Share Capital
(1/2)

Issuing Shares with differential voting rights

Any Company is prohibited to issue shares with differential voting rights or differential dividend unless it
complies with following conditions

1) Authorized by AOA and passed by a ordinary resolution in a general meeting

2) Such shares should not exceed 26% of the total capital
3) Track record of the company to have paid dividend for atleast 3 consecutive years
4) The company has not defaulted in any payments either to shareholders or financial institutions

The company cannot convert any of its existing share capital into equity carrying differential rights. The
shareholders holding shares with differential rights shall still be eligible for bonus and rights issue.

Issuing shares under sweat equity:

A company may issue sweat equity shares (Even at a discount) after one year of commencement to its
directors or employees for providing knowhow, intellectual rights or any other kind of value additions
provided following conditions are satisfied.

1) A special resolution being passed in a general meeting

2) In one financial year a maximum 15% of the existing paid up capital or shares of the value of INR 5
crores whichever is higher
3) Overall limit of sweat equity shares that can be issued by a company is 25%
4) Sweat equity shares to be locked in for a period of 3 years.
5) The valuation of shares issued under sweat equity to be carried out by a valuer. Even the valuation
of the intangible asset against which such sweat equity is issued shall be carried out by a valuer
giving justification to the board regarding the value of such sweat equity issued

Shares issued as sweat equity shall be added for considering the limits of managerial remuneration
under section 197/198

Issue of shares on preferential basis.-

„Preferential Offer‟ means an issue of shares or other securities, by a company to any select person or
group of persons on a preferential basis and does not include shares or other securities offered through a
public issue, rights issue, employee stock option scheme, employee stock purchase scheme or an issue of
sweat equity shares or bonus shares or depository receipts issued in a country outside India or foreign
securities.

Dhirubhai Shah & Co.| Chartered Accountants 26

 Share Capital
(2/2)

Where the preferential offer of shares or other securities is made by a company whose share or other
securities are not listed, the preferential offer shall be made in accordance with the provisions of the Act
and rules made hereunder and subject to compliance with the following requirements, namely:-

1) authorized by its articles of association and also authorized by a special resolution of the members
at the General meeting
2) The securities allotted by way of preferential offer shall be made fully paid up at the time of their
allotment.
3) The allotment of securities shall be completed within a period of twelve months from the date of
passing of the special resolution.
4) The price of the shares or other securities to be issued on a preferential basis, either for cash or for
consideration other than cash, shall be determined on the basis of valuation report of a valuer;
5) Where convertible securities are offered with an option to apply for and get equity shares allotted,
the price of the resultant shares shall be determined beforehand on the basis of a valuation report
of a registered valuer
6) Where shares or other securities are to be allotted for consideration other than cash, the valuation
of such consideration shall be done by a valuer who shall submit a valuation report to the company
giving justification for the valuation

Employee’s Stock option

Any company can issue ESOP to its employees subject to fulfillment of the following conditions

1) Passing of special resolution at the General meeting

2) Grant of maximum option amounting to 1% of the share capital to identified employees in one
single year.
3) There is a time gap of minimum one year between the granting of option and their vesting as per
the ESOP policy
4) Such shares are not subject to bonus, dividends etc. till shares are issued or option is exercised.
5) Such shares are non-transferrable.
There is a freedom to decide the exercise price of the options and the lock in period for such shares. For
granting of ESOP following employees are not covered.

A) Independent directors
B) An employee who is promoter of relative of the promoter
C) A director or his relative already holding more than 10 % equity shares in the Company

Dhirubhai Shah & Co.| Chartered Accountants 27

 Other important
Changes (1/2)

Particulars Companies Act 1956 Companies Act 2013

Change in Time limit for intimation to Time limit has been cut to 15 days
registered office registrar was 30 days
of the company

Commencement Previously was applicable Now applicable to both private and public
of business only to Public company. companies. ROC has powers to remove the name of
the company from the registrar if declaration not
filed within 180 days from incorporation

Change of Name No provision existed Company to paint, affix outside every office/place of
in last 2 years business, letter heads, invoices, Cards etc along with
the new name, the former name/names changed in
last 2 years

Printing of CIN No such compulsion Every company is required to print CIN on Co.'s
etc. Business Letters, Bill Heads, Letter Papers and in all
Co.'s Notices and Co.'s other Official Publications
In case of OPC, the words „One Person Company‟
shall be mentioned in the brackets below the name
of the company.
Alteration in AOA Any alteration in AOA to be Not any alteration to be filed within 15 days
filed with registrar within 30
days

Object Clause Earlier the clause was Object clause divided into
MOA divided into:
- Object to be pursued by company on
- Main objects incorporation
- Incidental objects - Incidental objects
- Other objects
Issue of shares at Issue of shares at discount Prohibits issue of shares at discount as void and not
discount was permissible subject to permissible except for sweat equity shares
conditions and approval of
Central Government

Dhirubhai Shah & Co.| Chartered Accountants 28

 Other important
Changes (2/2)

Particulars Companies Act 1956 Companies Act 2013

Multilayer No such provision existed A company can make investment through not more
investment than 2 layers of investment companies.
subsidiaries

Secretarial Audit Secretarial audit by Secretarial Audit made applicable to all listed
and compliance companies having paid up companies and public companies having paid up
share capital of INR 10 lakhs capital INR 50 Crores or more OR Turnover of INR 250
to INR 5 crores Crores or more.

A copy of secretarial audit report also to be annexed

to the Board‟s report.

Cross border No such provision existed Cross border mergers with a foreign company
mergers permitted with prior approval of RBI

Fast Track merger No such provision existed Simple procedure has been introduced for merger of:

• Holding Company and wholly owned subsidiary

• Two small companies

Report on general No requirement for filing of Listed companies are required to file a report on each
meeting any report to ROC AGM within 30 days to ROC

Reopening of No provision for the re- Accounts can be re-opened in case of an application
accounts opening od accounts by Central Govt, Income Tax, SEBI or any other statue
existed.

Revision of No such provisions for Directors in case of any noncompliance, may prepare
financial revision of financial revised financial statements / report in respect of any
statements statements existed 3 preceding FY after getting approval from the
tribunal

Dhirubhai Shah & Co.| Chartered Accountants 29

 Quick Referencer
(1/3)

10 Immediate Actions to be taken by the Company:

1. Inform the accounts and legal teams, to study and brainstorm over the new provisions
that would be applicable and the way forward to comply with them
2. Print new letter heads containing Corporate Identification Numbers (CIN)
3. If a private limited company exceeds certain limits in terms of share capital, borrowings
or turnover, then many new provisions would be made applicable to them. Hence a
detailed study of such new provisions to be done study the impact that these provisions
would have on their companies
4. Inform the independent directors regarding the new provisions that will be applicable in
their case i.e. rotation, cooling period, performance report etc.
5. Restructure the board if required
6. Restructure various committees as required by the new Companies Act 2013 i.e. Whistle
blower, CSR etc.
7. If the companies have raised deposits then a concrete plan as to how to adhere to the
revised provisions regarding acceptance of deposits
8. Educating the accounts team with the new developments in case of finalization of
accounts such as preparation of cash flow statement, consolidation, identification of
related parties etc.
9. Plan regarding the new provisions that will be applicable in case of Companies Audit i.e.
rotation of auditors, internal audits, secretarial audit etc.
10. Not to advance any loans to a related party. To an extent possible completely eliminate
the related party inter-company transactions

Dhirubhai Shah & Co.| Chartered Accountants 30

 Quick Referencer
(2/3)

A Glance on few provisions of The Companies Act 2013 for Public Limited Companies

 Limit on maximum number of members for Pvt Ltd Co increased from 50 to 200.

 Appointment of Internal Auditor made compulsory for specified class of Companies

 Declaration to be filed by Subscribers stating that the subscription money & paid up capital has
been brought in the Company before commencement of business.

 Conversion of the existing company into OPC can be done when the paid up capital is less than INR.
50 Lacs or average annual turnover during the relevant period is less than INR 2 Crores.

 Restriction on giving loans, advances or providing securities, guarantees to Directors and other
interested entities.

 Concept of Corporate Social Responsibility (CSR) is applicable to Pvt Ltd companies too. Eligible
Companies shall mandatorily form a CSR Committee and spend 2% of its average net profits made
during the 3 immediately preceding Financial Years. However such company need not have CSR
committee

 The company needs to refund the deposits accepted from shareholders and follow the new
procedure as mentioned in the Companies Act 2013

 Mandatory Consolidation of financial statements in case of company having subsidiary(s), associates

& joint ventures.

 Rotation for Appointment of Statutory auditor applicable to specified class of Companies. Rotation
not applicable to OPC and Small Companies.

 Annual Return to be certified by Practicing Company Secretary in case of Companies having Paid up
share capital of INR 10 Crores or more OR Turnover of INR 50 Crores or more.

 In case of other companies, Annual Return to be signed by Director and company secretary, or where
there is no company secretary, by a Practicing CS.

 Appointment of Internal Auditor made applicable to companies having turnover of INR 200 Crores or
more OR outstanding loans/borrowings exceeding INR 100 Crores or more during the preceding
financial year.

Dhirubhai Shah & Co.| Chartered Accountants 31

 Quick Referencer
(3/3)

Glance on a few provisions of Companies Act 2013 on Private Limited Companies

 Appointment of Internal Auditor made applicable to specified class of Companies

 Auditors rotation for specified class of companies made mandatory

 A person can act as a Director in a maximum of 20 companies, out of which not more than 10
should be public companies.

 The Board shall be reconstituted for specified class of companies with the following:

 Woman Director
 Independent Director
 Constitution of Audit Committee, Nomination & Remuneration Committee and Stakeholders
Relationship Committee, vigilance committee.

 Listed companies to file a Return with ROC in respect of change in shareholdings of Promoters and
top 10 shareholders within 15 days.

 All Listed Company to file a Report on proceedings of AGM with ROC within 30 days of the AGM.

 Every Listed Company and Public Company having paid up share capital of INR 10 Crores
or more shall appoint whole-time Key Managerial Personnel‟s [KMP‟s] i.e. Managing
Director/Whole time Director/CEO, Company Secretary and CFO.

 Board Report of every Listed Company and Public Company having a paid up share capital of
INR 25 Crores or more, shall include performance report of its Board members, Committee Members
and Individual directors.

 Secretarial Audit made applicable to all listed companies and public companies having paid up
capital INR 50 Crores or more OR Turnover of INR 250 Crores or more

 Provisions regarding public deposits and deposits from members to be adhered to as per the new
Companies Act 2013

Dhirubhai Shah & Co.| Chartered Accountants 32

Head Office:
401/408, “Aditya”, B/H Abhijeet -1,
Near Mithakhali Six
Roads,Ellisbridge,
Ahmedabad (Gujarat) 380006

Rajkot Branch:
Aditya Centre, 2nd Floor, Committed to
Phulchhab Chowk,
Rajkot.-360 001. (Gujarat) Excellence
Mumbai Branch:
1st Floor Cama Chambers,
23 Nagindas Master Road,
Mumbai 400023

Vadodara Branch:
204, Sarkar Complex,
Opp ABS Tower,
Old Padra Road,
Vadodara 390015

Website: www.dbsgroup.in
Email: [email protected]

DISCLAIMER:

This has been prepared solely for information purposes for our
clients and does not constitute a solicitation to any class of persons
to act on the basis of opinions expressed thereto in this publication.
The information contained herein is subject to change without prior
notice. While every effort has been made to ensure the accuracy
and completeness of information contained in this presentation, we
make no guarantee & assume no responsibility for any errors or
omissions of information. This is for private circulation only.

Dhirubhai Shah & Co.| Chartered Accountants 33