Changes Specifically affecting Private Limited Companies
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Transcript Changes Specifically affecting Private Limited Companies
Changes Specifically affecting
Private Limited Companies
Anand Banka
Partner, Talati & Talati
What is Company?
Latin word
Com = with or together
Pains = bread
OPC?
Salient Features
COMPANIES ACT 1956
COMPANIES ACT 2013
13 Parts
29 Chapters
658 Sections
470 sections
15 Schedules
7 Schedules
Made effective in Phased manner
98 sections on 12 Sept 2013
Remaining on 01 April 2014
Rules – the game changer!!
Flexibility to notify sections separately via Rules
Definition
No. of members increased from 50 to 200
Joint shareholders to be treated as one member
Employees or Ex-employees are not included in the number
of members
Minimum share capital of Rs. 1,00,000
Commencement of Business
Company not to commence business unless
Declaration filed with ROC that every subscriber to the MOA
has paid the value of shares agreed to be taken by him
A verification of its registered address has been filed with ROC
If declaration not filed within 182 days from date of
incorporation, Registrar would initiate action to remove the
name of the company
Further issue of shares
Pre-emptive right of existing shareholder
Minimum 15 days and max 30 days for acceptance of offer
Notice of offer of rights shares can be dispatched through
electronic mode
If not right issue then To any person, if authorised by Special Resolution
At a price to be determined by registered valuer
Bonus shares
Sec 205 (3) of 1956 Act permitted capitalisation of profits or
reserves for issuing bonus shares
Thus, a company can issue bonus shares by capitalisation of
revaluation reserve
Supreme court decision in Bhagwati Developers v. Peerless
General Finance & Investment Co (2005)
SEBI (ICDR) Regulations, 2009 prohibits issue of Bonus
shares by capitalisation of revaluation reserves
Now, Companies Act 2013 also prohibits issuing Bonus shares
by capitalising reserves created by revaluation of assets
Annual Return
To be signed by Director and Company Secretary
If no CS, then by a CS in practice
If paid up capital > 5 crores AND Turnover > 25 crores
To be certified by a CS in practice
Stating that the company has complied with all the provisions of
this Act
Penalty on CS for non-compliance
Rs. 50,000 to Rs. 5 lacs
Consolidation
SEBI mandated consolidation
Only for Listed companies
Subsidiary, Associate and JV
Companies Act 2013 mandated Consolidation
For all companies, private or public
Subsidiary (incl. Associate and JV)
AS 21 was issued in 2001
Practical exposure to SMP?
IFRS: Private Companies net worth in excess of Rs. 500
crores
Inter-corporate Loans (Sec 185)
No company shall (directly or indirectly) Advance any loan (or give security or guarantee in relation to any
loan)
Including loan represented by a book debt
To its director or any other person in whom the director is
interested
-5 lacs to 25 lacs
Director of holding company
- Imprisonment
Partner of director
upto 6 months
Firm in which director or relative is a partner
Pvt company in which director is a director or member
Any body corporate in which >= 25% voting power held by such
director
Any body corporate BOD is accustomed to act in accordance with
directions of BOD of lending company
Contd…
Not applicable to –
Loans to MD or WTD
Employee loan
By special resolution
In ordinary course of business, provided interest is charged @
bank rate declared by RBI
Notification
19 Nov 2013
Sec 372A applicable till Sec 186 is notified
14 Feb 2014
Sec 372A exempts loans, guarantees, security or investment
by holing company to its wholly owned subsidiary
Sec 185 prohibits guarantee, security by holding company in
respect of loan taken by subsidiary company
Hence, till Sec 186 is notified, Guarantee, security provided
by holding to its subsidiary in respect of loans made by banks
or financial institutions shall be exempted
Rules
From 12 Sept to 31 March 2014
As per the interpretation, H Co cannot give loans to S Co
1 April 2014 onwards…
Any loan made by a holding company to its wholly owned
subsidiary company or any guarantee given or security provided
by a holding company in respect of any loan made to its wholly
owned subsidiary company is exempted from the requirements
under this section
Provided that such loans are utilised by the subsidiary company
for its principle business activities
Investments (Sec 186)
Investments to be made through not more than 2 layers of
investment companies
Exemptions
Company incorporated outside India
For the purpose of meeting the requirements under any law or
under any rule or regulation
-25,000 to 5
lacs
- Imprisonment
upto 2 years
Corporate Social Responsibility
Applicability
Net Worth >= 500 Cr
Turnover>= 1000 Cr
Net Profit >= 5 Cr
To spend 2% of Avg NP of last 3 years
3 Directors (incl. Independent Director)
2 Directors allowed
Independent director not required
Director
Atleast one director to be resident in India for more than 182
days in a calendar year
Maximum directorships = 20 companies (max 10 public
companies)
Previously – 15 public companies (Pvt companies excluded)
Disqualification of Director
Convicted of any offence and sentenced to imprisonment for 7
years or more
Convicted of any offence and sentenced to imprisonment for not
less than 6 months, and 5 yrs has not elapsed since
Convicted of offence of dealing with related party transactions at
any time during the preceding 5 years
Not obtained Director Identification Number
Is a director of a company whether public or private which
(Sec 274 (1) (g) of Companies Act.956)
Has not filed annual accounts or returns for any continuing 3 years
Has failed to repay on due date its deposit or interest thereon, or
redeem it debenture or pay dividend for one year or more
Related Party Transactions (sec 188)
Not an Arms-length
transaction
Arms-length transaction
Sec 188 not applicable
All other
transactions
Board Resolution
Paid up capital < 1
Crore
Paid up capital > 1
Crore
All transactions
1.Exceeds 5% of T/o or 20% of
NW, whichever is higher
2.Appt at place of profit with
remuneration > 1 lakh p.m.
3. Remuneration for
underwriting > 10 lakhs
SPECIAL
RESOLUTION
RPT (Sec 188) Issues
25,000 to 5 lacs
Special resolution (Votes for = 3 * votes against)
Pvt Company with 2 members who are also directors?
Interested directors cannot vote
Interested shareholders cannot vote
Hence, transaction possible only if it is at arm’s length
RPT definition different from AS 18, as in
KMP and directors of holding, subsidiary, associate and their
relatives
Senior management of holding, subsidiary, associate and their
relatives
Appointment of KMP
Paid up share capital >= 5 crores
1 lac to 5 lacs
MD/ CEO/ Manager/ WTD
Whole-time Company Secretary
CFO
Can be a KMP of only one company at the same time, except
its subsidiary company
Chairperson to be different from MD/ CEO, unless
exempted by articles of association
Term of MD = 5 years
Rules
Every listed company and
every other public company
having a paid-up share capital >= 10 Crores
shall have whole-time key managerial personnel
Depreciation
Component Accounting
Depreciation based on useful life
Example: P&M
Old – 4.75% i.e. 20 years
Change in the useful life
New – 15 years
Used <= 15 years
Used >= 15 years
Depreciate over
balance useful life
Charge to retained
earnings
Rotation of Auditors
Proprietor = max 5 years
Firm = max 2 tenors of 5 years each
Cooling period of 3 years
Confusion: what if resign in the 9th year?
Auditor cannot provide other services
OPC and small company excluded from rotation
Rules
all private limited companies having paid up share capital of
rupees twenty crore or more;
OR
having public borrowings from financial institutions, banks or
public deposits of rupees fifty crores or more
Part IX of 1956 Act
Sec 366 to Sec 374 of 2013 Act corresponds to Part IX
Partnership to Company
LLP to Company?
LLP Act, 2008 – no provision
Part IX – no provision
As per Companies Act, 2013 – LLP, Partnership both can be
converted into company
Acceptance of Deposits
Companies (Acceptance of Deposits) Rules, 1975
Definition of deposit excludes –
Amount received from Director or relative of the director or from
member
Companies (Acceptance of Deposits) Rules, 2014
Definition of deposit excludes –
Amount received from Director
Hence, amount received from relatives and members will be
considered as public deposit
Other important points…
It cannot issue securities (eg. debentures) to more than 200
in a year (private placement)
Form Stakeholders relationship committee if security holders
> 1,000
Institute Vigil Mechanism if borrowings > 50 Crores from
banks and financial institutions
Exemption from appointment of Women Director and Small
Shareholder Director
Fraud (sec 447)
-Imprisonment upto
10 years
- fine upto 3 times
the amount
any act, omission, concealment of any fact or abuse of
position
committed by any person or any other person with the
connivance in any manner,
with intent to deceive,
to gain undue advantage from, or to injure the interests of,
the company or its shareholders or its creditors or any other
person,
whether or not there is any wrongful gain or wrongful
loss;
Also considered fraud…
If in any return, report, certificate, financial statement,
prospectus, statement or other document, any person makes
a statement,—
(a) which is false in any material particulars, knowing it to be false;
or
(b) which omits any material fact, knowing it to be material
Anand Banka
Partner,
Talati & Talati
Email: [email protected]
Mob: 98673 53743