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BACKGROUND
October 2011 - The Cabinet approved the proposal to make official amendments to the Companies Bill, 2011 14th December, 2011 Companies Amendment Bill, 2011 introduced in the Lok Sabha, but was immediately referred to Standing Committee on Finance 26th June, 2012 Standing Committee submitted its report to Speaker, Lok Sabha 13th August, 2012 The report of standing committee laid before Lok Sabha and On 18th December, 2012 Based on standing committee report, amendments were proposed and finally the Companies Bill, 2012 was passed at 10.46 P .M. after discussions which lasted for about 3 hours.
470 Clauses & 7 schedules as against 658 sections and 15 schedules in the existing Companies Act, 1956 Bill divided into 29 chapters New chapters on Registered Valuers, Government Companies, Nidhis, NCLT and Special Courts Bill empowers Central Government to make rules through delegated legislation after having detailed consultative process Bill Provides for self regulatory process but stringent compliance regime
CLASSIFICATION OF COMPANIES
New Concept of One Person Company (OPC) (Clause 2(62)) New Concept of Small Company - will have relatively less burdensome compliance requirements. Small Company will have paid up capital not exceeding Rs. 50 lakhs or turnover not exceeding Rs. 20 Crores as may be prescribed(Clause 2(85)) Maximum number of members for a private company increased from existing 50 to 200 Concept of dormant companies introduced. Such companies will remain on register of companies with minimum compliance requirements without carrying on any operation Definition of Foreign Company expanded to include companies having place of business directly or through its agent, physically or through electronic mode, and conducting business in India in any manner Multi layered structuring of subsidiary companies sought to be regulated by prescribing maximum number of layers.
ISSUE OF SECURITIES
The Bill governs the issue of all types of securities, not only shares and debentures. Contents of prospectus have been made more detailed. Private Placement can be made to not more than 50 shareholders. Any issue of securities to more than 50 shareholders shall be regarded as public offer and SEBI guidelines would apply to it. Return of allotment to be filed for issuance of all types of securities Companies cannot issue shares at discount other than as sweat equity.
E GOVERNANCE
Enabling provisions for E Governance with respect to : Maintenance and inspection of documents in electronic form Option of keeping of books of accounts in electronic form financial statements to be placed on companys website Holding of board meetings through video conferencing/other electronic mode Electronic Voting
DIRECTORS
Minimum No. of Directors Three for a public company Two for a private company One for a OPC (One Person Company) Maximum No. of Directors 15 ; Increase in maximum number of directors beyond 15 can be done through members special resolution Central Government not required At least one woman director on the board of such class of companies as may be prescribed Resident Director must for every company At least one director should be resident in India for 182 days or more in the previous calendar year. Concept of Independent directors introduced in the Companies Bill
INDEPENDENT DIRECTOR
Independent director clearly defined in the Bill At least one third of directors of a listed company should be independent directors Certain class or classes of public companies will also have to appoint independent directors on the Board as may be prescribed by the Central Government Nominee director shall not be regarded as an independent director Independent director shall not be entitled to ESOP
A director may resign by notice in writing. Board to intimate Registrar about the resignation and place the resignation before the general meeting of members Director concerned shall also forward a copy of the resignation along with the reasons to the Registrar within 30 days of his resignation The notice of resignation shall be effective from the date of its receipt by the company or if the notice mentions a date, then from such date whichever is later
OTHER COMMITTEES OF THE BOARD Nomination and Remuneration Committee Stakeholder Relationship Committee Corporate Social Responsibility (CSR) Committee
GENERAL MEETINGS
Listed Company is required to file with the Registrar a report on each AGM within 15 days of the meeting that the meeting was convened, held and conducted as per provisions of the Act and rules. OPC need not hold AGM Business hours for holding AGM specified as 9.00 A.m. to 6.00 P.M. Word public holiday is replaced with National Holiday. First AGM to be held within 9 months of closure of first financial year and subsequent AGM within 6 months. Option to hold first AGM within 18 months of incorporation or 9 months of Closure of financial year whichever is earlier, removed. Quorum for general body meetings of public companies will depend upon the number of shareholders. Notice in electronic form permitted.
SECRETARIAL STANDARDS
(CLAUSE 118(10) READ WITH 205)
Every company shall observe Secretarial Standards with respect to General and Board Meetings The Secretarial Standards shall be specified by the Institute of Company Secretaries of India and approved by the Central Government Duty of company secretary to ensure that company complies with the Secretarial Standards Beginning of a new era in which non financial standards are given importance.
Means CEO, CFO, Company Secretary, Whole time Director and such other officer as may be prescribed Such class of company or companies as may be prescribed shall have the following whole time managerial personnel : MD or CEO or Manager and in their absence a Whole Time Director Company Secretary The appointment of KMP shall be by a Board resolution which will outline the terms and conditions of the appointment The vacancy in the office of KMP shall be filled up within a period of six months from the date of such vacancy
MANAGERIAL REMUNERATION
(CLAUSE 97)
Ceiling of 11% on Net Profits for Managerial Remuneration continue to be applicable to Directors, Managing Director, Whole Time Director and Manager For Companies with no or inadequate profits, remuneration shall be payable in accordance with Schedule V, which provides a table containing maximum remuneration payable depending upon effective capital of the company Payment of remuneration not in accordance with Schedule V would require approval of the Central Government. Independent directors not entitled to Stock Options, but may get payment of fee and profit linked commission subject to limits in the Bill / rules Insurance Premium paid by company on behalf of its KMP for indemnifying them against any liability arising out of their duties shall not be treated as part of remuneration
FINANCIAL STATEMENTS (CLAUSE 129) The term financial statements is defined to include Balance Sheet, P&L, Cash Flow, statement of changes in equity and explanatory note forming part of these documents Financial year shall end on 31st March every year - Two years given for companies to change Financial statements shall comply with the notified accounting standards Holding Companies have to compulsorily consolidate the accounts of subsidiaries (Subsidiaries for the purpose include associate company and Joint venture company) and also place a statement of its subsidiaries before the members Central Government empowered to provide for consolidation of accounts and financial statements in such manner as may be prescribed
Application in this regard by Central Government, Income Tax Authority, SEBI or any other statutory regulatory body or authority or person concerned and an order is passed by competent court / tribunal that Relevant accounts were prepared in a fraudulent manner or Affairs of company were mismanaged causing doubts about the reliability of the financial statements
INITIATED BY THE BOARD OF DIRECTORS (CLAUSE 131) If it appears to the Board that financial statements or board report does not comply with the applicable provisions and an order is passed by Tribunal
STATUTORY AUDITORS
WHO CAN BE APPOINTED AS STATUTORY AUDITORS (CLAUSE 141) Only a CA can be appointed as Statutory Auditors. In the case of a firm, majority of the partners should be practicing in India If a LLP is appointed as auditors only a CA authorized to act and sign on behalf of the firm as auditors The auditor should not suffer from any disqualification and should be otherwise eligible for appointment in accordance with the other conditions specified
Mandated for every listed company and a company belonging to such other class of companies as may be prescribed Expected to significantly enlarge scope for Practicing Company Secretary (PCS) Company to give all assistance and facilities to PCS Board to explain in full any qualification or observation or other remarks made in the PCS in his report.
Certification of Annual Return is similar to the existing compliance certificate under Section 383A of the Companies Act Annual Return is required to be signed by a director and Company Secretary or where there is no Company Secretary by a Secretary in Whole Time Practice Annual Return is required to be certified by a Secretary in Whole Time Practice even if the same is signed by the Whole Time Secretary of the company in case of a listed company and such other companies having such paid up capital and turnover as may be prescribed.
INTERNAL AUDIT
(CLAUSE 138)
Appointment of Internal Auditor by certain class or classes of companies as may be prescribed Internal Auditor shall be either CA or CMA or such other professional as may be decided by the Board of Directors Central Government authorized to prescribe rules regarding intervals in which internal audit will be conducted and reported to the Board.
that transfer or disposal of funds, properties or assets is likely to take place, which is prejudicial to the interests of the company , then Tribunal may consider such cases and is empowered to order freezing of such transfer, removal or disposal of assets for a period of three years. New Clause 228 provides for inspection and investigation shall also mutatis mutandis apply to inspection or investigation of foreign companies
Statutory status proposed for SFIO Investigation report of SFIO shall be treated as a report filed by police officer SFIO shall power to arrest in respect of certain offences of the Bill which attract the punishment for fraud Stringent penal provisions for fraud related offences Fraud shall have meaning as defined in Clause 447
The entire rehabilitation and liquidation process has been made time bound (Clause 254) Winding up is to be resorted only when revival is not feasible Tribunal is empowered to appoint an interim administrator or a Company Administrator from the panel of CA / CMA / CS Company Administrator to prepare a scheme of revival and rehabilitation If revival scheme is not approved, Tribunal shall order for winding up
COMPANY LIQUIDATORS
The Tribunal may appoint Provisional Liquidator of the company till the making of the Winding up order (Clause 273) Provisional Liquidator or the Company Liquidator, as the case may be shall be appointed from a panel of CS, CA, CMA, Advocates or firms or bodies corporate having these professionals as may be notified by the Central Government (Clause 275) The Company Liquidator may with the sanction of Tribunal appoint one or more professionals to assist him in the performance of his duties and functions (Clause 291)
COMPANY LAW TRIBUNAL AND APPELLATE TRIBUNAL Clause 408 provides for constitution of a National Company Law Tribunal and such number of technical and judicial members as Central Government may deem it necessary Clause 410 provides for constitution of an Appellate Tribunal consisting of a Chairperson and such number of members not exceeding eleven as deemed fit by the Central Government for hearing appeals against orders of the Tribunal Clause 419 provides for constitution of such number of benches as may be specified by the Central Government Clause 422 provides for expeditious disposal of all matters referred to Tribunal and Appellate Tribunal within 3 months of their reference. Also provides for reasons to be recorded in writing if matter cannot be disposed of within 3 months and may extend up to a further period of 90 days
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