for all CS Aspirants: Key Highlights of Companies Bill 2012: Some of the key highlights of the Bill are listed below: 1) One Person Company The concept of One Person Company has been introduced. Clause 3(1)(c) provides for the same. Clause 2(62) defines a One Person Company as a company which has only one person as a member. 2) Small Companies Concept of small companies with various relaxations in terms of reporting requirement, board meetings and procedure for mergers/ amalgamations have been introduced. Small Companies have been defined to mean a Company, other than a public Company – (a) Having paid-up share capital not exceeds fifty lakh rupees or such amount, not exceeding rupees five crores, as may be prescribed; (b) Having turnover not exceeding rupees two crores or such amount, not exceeding rupees twenty crores, as may be prescribed, as per its last profit and loss account. 3) Private Company Number of permissible members in a Private Company has been raised to 200 from 50 by vitue of clause 2 (68) (ii). This allows companies access to large pool of capital without going public. Provisions for offer or invitation for subscription of securities on private placement basics have been revised to ensure more transparency and accountability. 4) Associate Company Means a company said to be associate company which is have a Significant Influence over such company (not being subsidiary) or it is joint venture. Significant Influence means control of atleast 20% of otal share capital of the company or taking business decisions power under an agreement. 5) Subsidiary Company Means a company in which the holding company controls more than the half of the total share capital either of its own or via with one or more its subsidiary companies. 6) Key Managerial Personnel in relation to the company means : Ø CEO or MD or Manager Ø Company secretary Ø WTD Ø CFO and such other office as may be prescribed. 7) Related Party Elaborate definition is given in Companies Bill, 2012. 8) Memorandum of Association (MOA) · Bifurcation between main, ancillary objects is not required. · Objects to be pursued by Company on incorporation & Incidental Objects need to mention. 9) Alteration of AOA · May contain entrenchment provisions, which may be altered by Special Resolution. · Applicable to all the Companies Private and Public Companies. · To be filed with ROC within 15 days. 10) Registered Office of the Company · On and from 15th day of incorporation. · Shift from one state to another -Central Government shall dispose of application with 60 days. 11) Certificate of Incorporation Not conclusive Evidence. 12) Certificate of Commencement of Business · Provision of receiving the certificate for commencement of business is done away with · Applicable to both public and private companies. · Only declaration needs to be filled to ROC within 180 days from the date of Incorporation of the Company with the following documents: 1. Declaration by Directors of payment of money by subscribers of MOA 2. Verification of Registered office filed with ROC 13) Issue of Securities in Dematerialized Form: Mandatory for: · Companies Making public offer · Certain Companies as may be specified. 14) Provisions of Rights Issue Applicable to both Private and Public Companies. 15) Issue of preference Shares for infrastructural projects Redeemable preference shares with a term of more than 20 years can be issued by a company limited by shares. 16) Statutory Meeting · Companies are required to conduct Statutory Meeting 17) Notice of alteration of share capital Company shall file a notice in the prescribed form with the Registrar within a period of thirty days of alteration in share capital. 18) Meetings a. Board Meeting Every company shall hold the first meeting of the Board of Directors within thirty days of the date of its incorporation. Mode: • In Person • Video conference Notice: Not less than 7 days, through post, hand delivery or electronic means Number: 4 meetings in every year, 120 days gap between meetings. b. Annual General Meeting First AGM within 9 Months from closure of financial year. AGM cannot be on: National holidays Outside Business Hours (9am to 6pm). Mode of Notice: Either in writing or electronic mode Shorter Notice: Consent of not less than 95 % of members entitled to vote at that meeting required Quorum: In case of Public Co.: • 5 members where no. members is < 1000 • 15 members where no. of members is 1000 >≤ 5000 • 30 members where no. of members is > 5000 In case of Private Company: 2 members personally present Participation through Video Conference: permitted for Board Meeting and General Meeting. Secretarial Standards: While maintaining the Minutes SS shall be followed. 19) Share Capital The Bill provides that the securities of a public company shall be freely transferable subject to the provisions that any contract or arrangement between two or more persons shall be enforceable as contract. By virtue of clause 53, companies are prohibited from issuing shares at discount except in case of issue of sweat equity shares. Clause 66 deals with reduction of share capital. It mandates approval of National Company Law Tribunal (NCLT) for the same. Further, in case of listed companies, NCLT will give notice of every application made to it for reduction of share capital to the Central Government, Registrar, SEBI and creditors of the company for taking into consideration any representation on the proposed reduction. 20) Directors Every Company shall have a Board of Directors with a minimum number of three Directors in the case of a Public Company, two Directors in the case of a Private Company, and one Director in the case of a One Person Company; Maximum no. of directors in a company increased from 12 to 15 which can be increased further by special resolution. Maximum no. of Directorship increased from 15 to 20 (with maximum 10 public companies). Introduction of a Class of Companies (to be specified by the Central Government) where at least One Woman Director to be there on the Board. Every Company shall have at least One Director as Resident i.e., who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year. Every listed public company shall have at least one-third of the total number of Directors as Independent Directors and the Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies. Duties of the Directors towards a company are prescribed in the Bill under clause 166. Vacation of office of a Director-he/she absents himself from all the meetings of the Board of Directors held during a period of twelve months with or without seeking leave of absence of the Board. Resignation of a Director- Director to send copy of resignation letter and detailed reasons for resignation to Registrar within 30 days of resignation. Disclosure in Board’s Report-Additional Disclosures proposed by the bill, namely, Extract of Annual Return, Number of board meetings, CSR initiatives and policy, particulars of loans, guarantees, investments etc. Disclosure in Directors Responsibility Statement-Additional clauses proposed by the bill in respect of “Internal Financial Controls” and “Systems to ensure compliance with laws”. 21) Independent Directors The Bill has introduced the concept of Independent Director and is defined in Clause 2(47). Clause 149 lays down that every listed public company shall have at least one-third of the total number of directors as independent directors and the Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies. The company and independent director are required to abide by the provisions specified in Schedule IV. The clause seeks to provide that an independent director shall not be entitled to any remuneration, other than sitting fee, reimbursement of expenses for participation in Board meeting and profit related commission as approved by the members. The clause further provides for the provisions of rotation of independent director. An independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for re- appointment on passing of a special resolution by the company. 22) Committees of Board of Directors The Board of Directors is required to constitute an Audit Committee (Clause 177), Nomination and Remuneration Committee [Clause 178 (a)] and Stakeholders Relationship Committee [Clause 178 (5)]. These committees shall have Independent Directors/non-executive directors to bring more independence in the functioning of the Board and for protection of interests of minority shareholders. 23) Auditors The Bill provides for mandatory rotation of auditors every five years. Clause 139 (2) prescribes that no listed company shall (a) appoint an individual as auditor for more than one term of five consecutive years and (b) an audit firm as auditor for more than two terms of five consecutive years. Clause 139 (3) empowers members of the company to decide by resolution that the auditing partner and his team (of an audit firm appointed by the company) shall be rotated every year or that audit shall be conducted by more than one auditor. Auditor to be appointed within 30 days of incorporation in a Board Meeting else within 90 days in an EGM. Company to file intimation of appointment of auditor with Registrar within 15 days of meeting in which appointed. On resignation, auditor to file statement with company and Registrar within 30 days. Auditors to attend all general meetings unless specifically exempted by the company. Financial statements can be signed by Chairman alone if so authorised by the Board. 24) Corporate Social Responsibility Every company having net worth of Rs.500 crore or more, or turnover of Rs.1000 crore or more or a net profit of Rs.5 crore or more during any financial year is required to constitute a Corporate Social Responsibility Committee. The Corporate Social Responsibility Committee will formulate a Corporate Social Responsibility Policy. Such a company is required to spend at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. If the company fails to spend such amount the Board shall give in its report the reasons for the same making it a binding obligation on the Board. 25) Serious Fraud Investigation Office The provision for establishment of Serious Fraud Investigation Office (SFIO) by the Central Government is another significant feature of the Bill. Clause 212 empowers the Central Government to assign the investigation into the affairs of the said company to the SFIO. 26) Registered Valuers The concept of Registered Valuers has been introduced. Where any valuation is required to be made of any property, stocks, shares, debentures, securities or goodwill or any other assets (herein referred to as the assets) or net worth of a company or its liabilities under the provision of this Act, it shall be valued by a person having such qualifications and experience and registered as a Valuer in such manner, on such terms and conditions as may be prescribed and appointed by the audit committee or in its absence by the Board of Directors of that company. 27) Winding Up Changes have also been made to the grounds for winding up a company. 28) Class Action Suits The concept of class action suits has been introduced by Clause 245. The said clause empowers the shareholders or depositors or any class of them to file an application before NCLT if they are of the opinion that that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors. The clause also provides the number of such members or depositors required to file such suit. 29) Auditor Auditor appointed shall continue to hold office up till the conclusion of 6th meeting. Also, in case of listed companies and certain other class of companies as may be prescribed, compulsory rotation of individual auditors in every five years and of audit firm every 10 years has been provided. Limited Liability Partnership is allowed to be appointed as auditor 30) National Company Law Tribunal and National Company Law Appellate Tribunal The bill provides for constitution of a National Company Law Tribunal and National Company Law Appellate Tribunal consisting of combination of technical and judicial members. 31) Buyback Time gap between 2 buy-backs of an unlisted company shall be minimum of 1 year whether approved by board of Directors or Shareholders. 32) Concept of Fast Track Merger introduced Concept of fast track merger without the requirement of a Court Process introduced to facilitate merger between 2 or more “Small Companies” or between holding Company and its wholly owned subsidiary. 33) Consolidation of Financial Statements Consolidation of financial statements mandatory in case a Company has one or more subsidiaries. 34) Dividends Mandatory transfer of profits to reserves for dividend declaration out of profits seems to have been done away with. Further, declaration of interim dividend can be out of surplus profits or out of current year’s profits. However, in case the Company has incurred loss up to preceding quarter during the year, the interim dividend cannot be declared out at a rate higher than the average dividend declared by the Company during immediately preceding three Financial Year. 35) Inter-Corporate Loans / Investment Rate of interest on inter corporate loans will be the prevailing rate of interest on dated Government Securities. Further, exemption to Private companies from restrictions /conditions contained under section 372A of the exiting Companies Act, 1956 is now done away with. Hence, private companies shall be required to be bound by the above restrictions i.e., private companies may not be able to grant interest free Loans. 36) Merger of listed Company with Unlisted Company Under existing provisions of the Act, merger of listed company with unlisted company entails listing of the unlisted company. However, under the Bill, the unlisted company has an option to continue as unlisted company subject to payment of cash to existing shareholders of listed transferor company in accordance with determined valuation. 37) Issue of differential Equity Shares Issue of equity shares with differential rights would have to be in accordance with such rules as may be prescribed. This has been made applicable to even private companies now. 38) Sale or Lease of Undertaking by the Company · A Public Company proposing to dispose of its Business Undertaking or substantially the whole of such undertaking is required to seek approval of its shareholders by passing a Special Resolution. · It’s applicable to all the Companies i.e., Private Companies are also under the purview now. · Definition of Undertaking or substantially the whole of such undertaking is also defined in the Bill. 39) Restriction on number of Investment Companies Investment through more than two layers of investment companies is not permitted. 40) Cross Border Mergers A merger between Indian Companies and Foreign Companies with prior approval of the RBI is permissible. 41) Transfer Restrictions on Inter-Se Shareholders ‘Right of First Refusal’ will be enforceable. This would clear existing ambiguity on legal enforceability on transfer restrictions under JV/shareholder agreements. 42) Secretarial Standards Introduced · For the first time, the Secretarial Standards has been introduced and provided statutory recognition. · Every company shall observe Secretarial Standards with respect General and Board Meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 and approved by the Central Government. · Clause 205 casts duty on the Company Secretary to ensure that the Company complies with the applicable Secretarial Standards. 43) Secretarial Audit Mandatory for: · All Listed Companies · Such Class of Companies as may be prescribed.
Posted on: Sat, 10 Aug 2013 14:45:59 +0000
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