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Key highlights of new Indian Companies Act 2013

The Companies Act 2013 passed by the Parliament received the assent of the President of India
on 29th August 2013. The Act consolidates and amends the law relating to companies. The
Companies Act 2013 was notified in the Official Gazette on 30th August 2013. Download the
complete Act: Companies Act 2013. Some of the provisions of the Act have been implemented by
a notification published on 12th September, 2013. The provisions of Companies Act 1956 are still
in force.

Parliament approved the long-awaited overhaul of legislation governing Indian companies on 9

August 2013. The new law is aimed at easing the process of doing business in India and
improving corporate governance by making companies more accountable. The 2013 Act also
introduces new concepts such as one – Person Company, small company, dormant company and
corporate social responsibility (CSR) etc. The Act introduces significant changes in the provisions
related to governance, e-management, compliance and enforcement, disclosure norms, auditors,
mergers and acquisitions, class action suits and registered valuers. The act is now in force w.e.f.
1st April 2014.

There are more than 450 + sections, 7 schedules and 29 chapters, but today we will highlight few
important ones which may be relevant to financial advisors who transact business as a Pvt. Ltd.
Company or Small company (as per the new definition) or for those who would like to start an One
person Company. Under any circumstances this is not an exhaustive list. Those who are
interested may visit http://www.mca.gov.in to get the complete details about the Companies Act
2013 –

Introduction of One Person Company (OPC) - It's a Private Company having only one Member
and at least One Director. This concept is already prevalent in the Europe, USA, China, Singapore
and in several countries in the Gulf region. It was first recommended in India by an expert
committee (headed by Dr. J.J. Irani) in 2005. The one basic pre-requisite to incorporate an OPC is
that the only natural-born citizens of India, including small businessmen, entrepreneurs, artisans,
weavers or traders among others can take advantage of the ‘One Person Company’ (OPC)
concept outlined in the new Companies Act. The OPC shall have minimum paid up capital of INR
1 Lac and shall have no compulsion to hold AGM (Annual General meeting).

What is a small Company - It means a company, other than a public company, paid-up share
capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed
which shall not be more than five crorerupees; or turnover of which as per its last profit and loss
account does not exceed two Crore rupees or such higher amount as may be prescribed which
shall not be more than twenty Crore rupees. The 2013 Act provides exemptions to Small
Companies primarily from certain requirements relating to board meeting, presentation of cash
flow statement and certain merger process

Minimum members for private company – The new act has increased the limit of the number of
members from 50 to 200.

Immediate changes in stationery – The letterhead, bills or invoices, quotations, emails,

publications & notifications, letters or other official communications, should bear the full name of
contact person, address of company’s registered office, Corporate Identity Number ( CIN No.
which is a 21 digit number allotted by Government), Telephone number, fax number, Email id,
contact website (if any).

Articles of Association- In the next General Meeting, it is desirable to adopt Table F as standard
set of Articles of Association of the Company with relevant changes to suite the requirements of
the company. Further, every copy of Memorandum and Articles (MOA) issued to members should
contain a copy of all resolutions / agreements that are required to be filed with the Registrar of
companies (ROC).

Commencement of business – For all the companies (public/private company) registered under
Companies Act 2013 needs to file the following with the Registrar of Companies (ROC) in order to
commence their business –

1. A declaration by the director in prescribed form stating that the subscribers/ promoters to the
memorandum have paid the value of shares agreed to be taken by them
2. A confirmation that the company has filed a verification of its registered office with the Registrar
of companies (ROC)

In the case of a company requiring registration from any sectoral regulators such as RBI, SEBI
etc., approval from such regulator shall be required prior to starting the business.

Financial Year - The Companies Act 1956 Act provided companies to elect financial year. The
Companies Act 2013 Act eliminates the existing flexibility in having a financial year different than
31 March. The 2013 Act provides that the financial year for all companies should end on 31
March, with certain exceptions approved by the National Company Law Tribunal. Companies
should align the financial year to 31 March within two years from 01 April 2014.

Eligibility age to become Managing Director or whole time Director - The eligibility criteria for
the age limit has been revised to 21 years as against the existing requirement of 25 years.

Number of directorships held by an individual - Section 165 provides that a person cannot
have directorships (including alternate directorships) in more than 20 (twenty)companies, including
ten (ten) public companies. It provides a transition period of one year from 1 April 2014 to comply
with this requirement

Board of Directors and Disqualifications for appointment of director - The 2013 Act requires
that the company shall have a maximum of 15 (fifteen) directors (earlier it was 12) and appointing
more than 15 (fifteen) directors will require special resolution by shareholders.

Further, it requires appointment of at least one woman director on the board for prescribed class of
companies. It also requires that company should have at least 1 (one) resident director i.e. who
has stayed in India for a total period of not less than 182 (hundred and eighty two days) in the
previous calendar year.

All existing directors must have Directors Identification Number (DIN) allotted by central
government. Directors who already have DIN need not take any action. However, Directors not
having DIN should initiate the process of getting DIN allotted to him and inform the respective
companies on which he is a director. The Company, in turn, has to inform the registrar of
companies (ROC).

Independent Directors - The 2013 Act defines the term "Independent Director" . In case of listed
companies, one third of the board of directors should be independent directors. There is a
transition period of 1 (one) year form 01 April 2014 to comply with this requirement. The 2013 Act
also provides additional qualifications/ restrictions for independent directors as compared to the
1956 Act.
Section 150 enables manner of selection of independent directors and maintenance of databank
of independent directors and enables their selection out of data bank maintained by a prescribed
body

Resident Director: Every Company must have atleast one director who has stayed in India for a
total period of 182 days or more in previous calendar year. For existing companies, the
compliance need to be made before 31st March 2015.

Loans to director – The Company cannot advance any kind of loan / guarantee / security to any
director, Director of holding company, his / her partner/s, his/ her relative/s, Firm in which he or his
relative is partner, private limited in which he is director or member or any bodies corporate whose
25% or more of total voting power or Board of Directors is controlled by him.

Appointment of managing director, whole time director or manager [section 196 of 2013
Act] - The re-appointment of a managerial person cannot be made earlier than one year before
the expiry of the term instead of two years as per the existing provision of section 317 of the 1956
Act. However, the term for which managerial personnel can be appointed remains as five years.
Further, the 2013 Act lifts the upper bar for age limit and thus an individual above the age of 70
years can be appointed as key managerial personnel by passing a special resolution.

Key Managerial Personnel (KMP) - The Provisions relating to appointment of KMP includes (i)
the Chief Executive Officer (CEO) or the managing director (MD) or the manager (ii) the company
secretary (iii) the whole-time director; (iv) the Chief Financial Officer (CFO); and (v) such other
officer as may be prescribed is applicable only for Public Limited Companies having paid up
capital more than 10 crores and Private Limited Companies are exempted from appointment of
KMPs.

Attending Board Meetings - As per section 167 of the Act, a Director shall vacate his/her office if
he/she absents himself from all the meetings of the Board of Directors held during a period of 12
(twelve months) with or without seeking leave of absence of the Board. Simply speaking, attending
at least one Board Meeting by a director in a year is a must else he has to vacate his/her office.

Board meetings - Atleast 7 days notice to be given for Board Meeting. The Board need to meet
atleast 4 times within a year. There should not be a gap of more than 120 days between two
consecutive meetings.

Appointment of Statutory Auditors- Every Listed company can appoint an individual auditor for
5 years and a firm of auditors for 10 years. This period of 5 / 10 years commences from the date of
their appointment. Therefore, those companies who have reappointed their statutory auditors for
more than 5 / 10 years, have to appoint another auditor in their Annual General Meeting for year
2014.
Other specialized services which cannot be provided by Statutory Auditors - The Statutory
Auditor of the Company cannot give following specialized services directly or indirectly to the
company –

1. Accounting and book keeping services

2. Internal audit

3. Design and implementation of any financial information system

4. Actuarial services

5. Investment advisory services

6. Investment banking services

7. Rendering of outsourced financial services

8. Management and/or any other services as may be prescribed

Corporate Social Responsibility (CSR) – the company has to constitute a CSR committee of the
Board and 2% of the average net profits of the last three financial years are to be mandatorily
spent on CSR activities by an Indian company if any of the following criteria is met:

1. Net worth of Rs.500 crores or

2. Turnover of Rs. 1000 crores or more or

3. Net profit of Rs. 5 crores or more

Contributing to Incubators, which has been notified by the Government of India, is eligible for
spending under CSR. This is a prosperous time for incubators and entrepreneurs and can really
change the entrepreneurial eco system in India.

Financial statements - Financial Statements are now defined under the Act as comprising of the
following. All companies (except one person Company, small company and dormant company)are
now mandatorily required to maintain the following, which may not include the cash flow
statement) –

1. A balance sheet as at the end of the financial year

2. A profit and loss account / an income and expenditure account for thefinancial year, as the case
may be
3. Cash flow statement for the financial year

4. A statement of changes in equity (if applicable)

5. Any explanatory note annexed to, or forming part of, any document referredto in sub-clause (i)
to sub-clause (iv)
Disclaimer - The content of this article is intended to provide a general guide to the subject matter.
Specialist advice should be sought about your specific circumstances or you may visit
http://www.mca.gov.in or download the Companies Act 2013 & Companies Act 1956.

Author Details

Pradip Chakrabarty
Pradip is a first generation entrepreneur who has built a very successful business for
distribution of financial products over last 19 yrs. He is also the Founder and CEO of
www.advisorkhoj.com. Pradip is well respected in the Financial Services industry and brings
deep domain knowledge and leadership skills and is considered as one of the top Investment
Advisors in India. He can be contacted at [email protected]