Ø
100
Sections notified in September 2013.
Ø
183
sections notified on March 25, 2014. All
effective from April 1, 2014.
Ø
With effect from April 1, 2014, every company,
private limited or public limited, which either has a net worth of Rs 500 crore
or a turnover of Rs 1,000 crore or net profit of Rs 5 crore, needs to spend at
least 2% of its average net profit for the immediately preceding three
financial years on corporate social responsibility activities. The CSR activities should not be undertaken in the normal
course of business and must be with respect to any of the activities mentioned
in Schedule VII of the 2013 Act. Contribution to any political party is not
considered to be a CSR activity and only activities in India would be
considered for computing CSR expenditure
Ø One-person company:
New Companies Act has introduced a concept of one-person company. A single
promoter now need not worry having another partner to incorporate a company. As
per the earlier Act, it was also required to have a minimum of two directors.
In case of any dispute between the directors, it would create a dead lock.
One-person company comes as a rescue in such a situation.
Ø Dormant company:
Earlier it used be a pain running and maintaining a company than incorporating one.
But after incorporation, liquidation was not easy. The 2013 Act states that a
company can be classified as dormant when it is formed for a future project or
to hold an asset or intellectual property and has no significant accounting
transaction. Also any inactive company can also apply as dormant company. So
any company which does not have any financial transaction can apply for dormant
company status and need not go through the hassles of maintaining, complying
with various legal requirements. Later, when they see some traction occurring
they can renew the company into an active company by following the required
formalities.
Ø Object of the company:
As per the new legislature, a private limited company can have charitable
purpose as a primary object, which was not allowed under the earlier
legislature. This will be a great boon for social entrepreneurs who could not
enjoy corporate benefits earlier. However, license can be revoked contravenes
any of the requirements of the section but also where the affairs of the
company are conducted fraudulently or in a manner violative of the objects of
the company or prejudicial to public interest. The new Act thus provides for
more stringent provisions for companies incorporated with charitable objects.
Ø A company can’t give loan to another company: As per the New Companies Act, any company is
prohibited to lend to another company where the directors and shareholders are
common. For example, Company A has good revenue and is making a profit.
Founders of Company A start another company, Company B. Now Company B cannot
borrow from Company A, as both companies have common shareholders. Penal
provision of non-compliance is extremely high, so companies have a hard look at
this.
Ø Penal provisions for non-compliance: In the New Companies Act, penal provisions have been
increased significantly. For regular non compliance like not filing return etc
can lead to criminal prosecution. So startup companies should ensure they
comply with regulations to avoid future problems.
Moreover,
every director will be prohibited to become director for a period of five years
in any other company if the default company fails to
·
File returns for
consecutive three years
·
Fail to pay dividend
For
example: Company A fails to file returns for three years. Its directors X, Y,
and Z cannot be appointed as directors of any other company for the next five
years. Moreover, they cannot even exit the company from the position of
director till the returns are filed. This is very critical for fund managers, because
if any of their portfolio companies don’t comply then their reputation will be
at stake.
Ø
Mandatory
Rotation of Auditors and CA can sign only 20 audit report.
Ø
Non-profit
companies (which were commonly called Section 25 companies under the Companies
Act, 1956) will now be called Section 8 companies;
Ø
Issue
of GDR by passing a special resolution;
Ø
Private
placement of shares (which would mean shares offered to not exceeding 200
persons in each financial year excluding the QIBs and ESOPs issued to
employees);
Ø
Kinds
of share capital – i.e. two kinds of share capital – equity shares and
preference share. Equity share capital is further subdivided into with voting
rights and with differential rights as to dividend, voting or otherwise
Ø
Voting
rights on shares – now no distinction has been made between cumulative and
non-cumulative preference shares when it comes to giving preference
shareholders voting rights on all matters of the company if the dividend is
unpaid for 2 years or more;
Ø
Prohibition
on issue of shares at discount, however, sweat equity shares are permitted;
Ø
Flexibility
in financial year.
Ø
Section 2(85)-Small Company Small Company means a company (other than a public company)
whose paid –up capital does not exceed Rs 5 million (or such other higher
amount as may be prescribed, not exceeding Rs 50 million) or whose turnover
does not exceed Rs 20 million ( or such other higher amount as may be
prescribed, not exceeding Rs 200 million) as per last profit and loss account.
Small Company cannot be a holding or a subsidiary company. 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.
Ø
Voting
through electronic means.
Ø Section 138- Internal audit : Section 138 mandates internal audit for prescribed class of
companies (*rules have prescribed the applicability of this section to
listed company; unlisted public company with a paid up capital of Rs 500
million or more, or turnover of Rs 2000 million or more, or outstanding
bank/financial institution borrowings of Rs 1000 million or more, or
outstanding deposits of Rs 250 million or more at any time during the last
financial year; and every unlisted public company with a turnover at any time
during the last financial year ; and private company with a turnover of Rs 2000
million or more, or outstanding bank/financial institution borrowings of Rs
1000 million or more, or outstanding deposits of Rs 250 million or more at any
time during the last financial year)
Ø Section 144- Auditor not to render
certain services : Section 144 prohibits auditors of a
company to render non-audit services to an audit client (or its holding company
or its subsidiary company). Prohibited non-audit services include 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 and
management services. Other restricted service may be further prescribed. There
is a transition period of one year from 01 April 2014 to comply with this
requirement.
Ø Section 188- Related party
transactions Section
188 requires that related party transactions exceeding prescribed amount (*rules
have prescribed the threshold either as an absolute amount or amount determined
as a percentage of turnover /net worth per last audited financial statements,
threshold varies depending on the nature of related party transactions) or
all such transactions entered by prescribed class of companies (*rules have
prescribed the applicability of requirement to company having a paid up capital
of Rs 100 million or more) which are not in the ordinary course of business
or not at arm’s length basis should be approved by the special resolution.
Related party shareholders are not permitted to exercise their voting rights in
such special resolution. It also
requires every related party transaction should be referred to in the Board’s
report along with the justification for entering into such transactions.
Ø Schedule II- useful lives to compute
depreciation Schedule
II prescribes useful life and residual value of an asset. Certain class of
companies (as may be prescribed) and companies that comply with accounting
standards prescribed under section 133 of the 2013 Act should disclose the
justification if the useful life and residual value of an asset are different
from those prescribed under Schedule II.. Impact of change in useful life and
residual life should be recognised over the revised remaining useful of the
asset.
Ø Women director for prescribed
companies. Maximum number of director can be 15.
Ø No Change
in Schedule VI.
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