The New Companies Act 2013 came int effect from April 1. The act replaces the old Companies Act of 1956 and has brought in new measures for investor protection, better corporate governance and corporate social responsibility. We’d posted earlier, on the Highlights of the Companies Bill. This post by Pankaj Agarwala of eLagaan, looks at some of the new clauses that one needs to be aware of.
New Clauses in Companies Act, 2013
1. Clause 2(68) A private company can have a maximum number of members of 200 in place of earlier existing limit of 50.
2. Clause 2(41) defines the financial year of each company to be kept as April to March each year except where the company incorporated after 1st January can have first accounting year closed in March of following financial year and in case of holding or subsidiary of a foreign company, the Tribunal may allow for a financial year different from April to March as may be required for consolidation of financials. Existing companies should follow this within a period of two years.
3. KMP is defined to include – CEO or MD, CS, WTD, CFO and such other officer as prescribed.
4. Clause 5 – The Articles may contain provision for entrenchment to the effect that specified provisions of the Articles may be altered only if the conditions or procedures as that are more restrictive than those applicable in the case of a special resolution are met or complied with. These entrenchment clauses needs to be mentioned in the form at the time of Incorporation or can be made restrictive by Special Resolution of the members by amending the AOA.
5. The company to have a communication address at the time of incorporation but registered office needs to be established within a period of 15 days of Incorporation and should be intimated to MCA within 30 days of Incorporation.
6. Clause 11 requires every companies (both private and public) to obtain a Certificate of Commencement of Business. This can be obtained after a declaration is filed in Form INC-21 with MCA. This declaration is to be filed after filing form for notification of registered office and after funding of Rs.1 lac / 5 lac to company bank account. Failure to file this within 180 days of incorporation may lead to MCA strike off the name of the company.
7. Clause 149 requires every company to have at least one director who has stayed in India for a period of atleast 182 days in the previous calendar year. A director can hold directorship in 15 companies in place of earlier limit of 12.
8. Clause 173 – Atleast 7 days notice to be given for Board Meeting. Board to meet 4 times within a year. There should not be a gap of more than 120 days between two consecutive meeting.
9. Clause 110 – Private companies also allowed to transact business by means of Postal Ballot.
10. Internal Audit is not required for private companies. It is required only for listed companies and public companies meeting certain criteria.
11. Clause 180 requires the Board to act only by special resolutions at general meeting for: – i) sell, lease or dispose of the whole or substantially whole of the undertaking ii) investment in trust securities as a result of merger or amalgamation iii) borrow an amount (including the amount already borrowed excluding temporary loans) more than paid up capital plus free reserves.
12. Clause 186 requires Investment not to be made through two layers of investment companies. Rate of interest on ICDs to be rate of interest on dated G-Secs.
13. Clause 188 Related party disclosures increased to cover sale, purchase, supply of goods or materials, selling/ disposing / buying of any property, leasing of property, availing or rendering of services, appointment of agent for purchase or sale of goods, materials, services or property, appointment of any related party to place of profit.
14. Clause 185 Company cannot grant loan to directors made applicable to private companies as well.
15. Clause 128 Company can keep books of accounts in electronic form.
16. Clause 196 read with Clause 203 – Every company having paid up capital of Rs.5 CR or more to appoint a whole time KMP. MD or WTD in any company cannot be appointed or reappointed for more than 5 consecutive years.
17. Clause 134 – Disclosures in Board Report made more elaborate.
18. Clause 140 – Auditor to file a statement with the Company and ROC within 30 days of resignation indicating reasons and other facts relevant for resignation.
19. Clause 19 – No subsidiary company to hold any shares in its holding company. This was already existing vide Section 42 of 1956 Act.
20. Clause 4(i) MOA not to contain the Other Objects of the Company.
21 Clause 56 – Share certificates to be delivered within a period of two months from initial subscription or allotment and within one month from date of transfer.
22. Clause 53 – Company cannot issue shares at discount except other than on issue on equity shares.
23. Clause 42 – All monies towards share subscription should be received by cheque or DD or thorough other banking channels and not in cash. All the shares subscription should be allotted within a period of 60 days from date of receipt of application money. If allotment is not made, it needs be refunded within 15 days from the expiry of 60 days. Any failure to repay will attract interest @ 12% p.a. from the expiry of 60 days. If refund is not made it will be treated as deposits.
24. Depreciation to be computed based on useful life of the Assets as given in Schedule II of Companies Act, 2013 instead of minimum depreciation as currently provided in Companies Act, 1956.
25. Clause 247 Valuation of shares, stocks, properties etc. has to be done based on the methods defined.
26. New type of company called OPC has been introduced with relaxed rules to be followed (For more, read One Person Company Explained).
Got questions? Check out the NextBigWhat forum.
[About the Author: Pankaj Agarwala is with e-Lagaan, a services company which offers CA, CS, business legal & payroll services for businesses in India.]