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COMPANIES ACT 2013 – Impact on Private Limited Companies - By CS Makarand Joshi - [email protected]

COMPANIES ACT 2013 – Impact on Private Limited Companies - By CS Makarand Joshi - [email protected]

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COMPANIES ACT 2013 – Impact on Private Limited

Companies- By CS Makarand Joshi

- [email protected]

Change in approach of Companies Act 2013 Shift from Shareholders Protection to

stakeholders protection Corporate Governance /Investor Protection is

Mantra Lot of Disclosures Strict penalties and prosecution Liabilities of Directors / Professionals

increased Cost of Limited Liability increased Coverage of the Act increased

Change in Approach

Pushing towards more policy based functioning

Pushing towards more capitalized companies

Pushing towards financially independent companies

Pushing towards inclusive working Compliance is paramount Pushing towards LLP?

Coverage of Session

Commencement of Business Allotment of Shares / Securities Borrowings / Deposit Fixed Assets Managerial Remuneration CSR Listing compliance for Private Company? Miscallaneous

Commencement of Business Commencement of business certificate is

not required for any company Private & Public company can commence if –1. Confirmation w.r.t. receipt of share

subscription money has been filed with ROC in 180 days

2. Verification of registered office is filed with ROC within 30 days

In absence of aforesaid, company can be struck off

What is commencement of Business? Company can not enter into any contract Company can not borrow Company can not hire employees

Promoters need to be cautioned that unless, they open bank account and pay for shares subscribed, company can not start busienss

Share Capital

Share Capital

All Shares to be offered on rights basis; ELSE It is Private Placement Private Placement requires - Special Resolution

+ valuation report Private Placement offer document!!! Separate Bank account required in private

placement Funds can not be used till allotment is completed Any mis statement in Offer document can be

alleged as ‘Fraud’

Who can approve borrowing? Board of Directors can approve

borrowing Board can delegate this power to

committee or to MD If borrowing exceeds paid up capital +

free reserves, it requires prior special resolution

All the resolutions [shareholders / directors] to be filed with ROC

Charge – secured loan

Means an interest or lien created on –1. Property or2. Asset of a company or3. Any of its undertakingas a security and includes mortgage Now requires charge registration for lien

on FD or pledge of shares Charge on vehicle is also required to be

registered.

What if not complied?

If charge is not registered – secured lender is at part with unsecured lender

Penatly = 100,000 – 500,000 + imprisonment of 6 months

If borrowing made without special resolution, borrowing may be considered as ultra vires

Repayment of Deposits

Deposits as on 1 April 2014 to be repaid till 31 March 2015

Deposit under Old act or Under New Act? Penalty for non repayment = 1cr >10 cr

+ officer liable for imprisonment >7 years and fine 25 lacs>2cr

What is ‘deposit’ under acceptance of deposit rules? The major highlights of this definition are – This is an inclusive definition. It says ‘deposit’

includes any receipt of money by way of deposit or loan or any other form, by a company, but does not include.....

There are 14 exclusions from the definition of deposit

Here any other manner has to be read in the context of receipt either as deposit or loan.

Any amount received against issue of commercial paper or any other instrument issued under guidance of RBI

What are 14 exclusions?

1. Any amount received from government or from any other source whose repayment is guaranteed by central government

2. Any amount received from foreign source, so long as it is in compliance with Foreign Exchange Management Act

3. Any loan or facility received from Bank

4. Any loan or financial assistance received from public financial institutions

5. Any amount received against issue of commercial paper or any other instrument issued under guidance of RBI

What are 14 exclusions?

6. Any amount received from any other company

7. Any application money received under this act, against issue of any securities [so long as the allotment is done in 60 days of receipt of money]

8. Any amount received from Director of the Company [however the amount received should not be out of borrowed funds]

9. Any amount received against issue of secured bond or debentures OR Any amount received against issue of compulsory convertible bond or debentures [bond should be convertible into shares within a period of 5 years]

What are 14 exclusions?

10. Any security deposit received from employee of the company [not exceeding 12 months salary]. This deposit should be non interest bearing.

11. Any non interest bearing amount received or held in trust [by the company]

12. Any amount received in the course of and for the purpose of business of the company –

as an advance for the supply of goods or provisions of services accounted for in the manner, provided that such advance is appropriated against supply of goods or services within a period of 365 days from acceptance of deposit

What are 14 exclusions?

as advance accounted for in any manner, received in connection with consideration for property

as security deposit for performance of contract for supply of goods or services

as advance under long term projects for supply of capital goods

13.any amount brought by promoters in pursuance of stipulation imposed by the lending institution

14.any amount accepted by a Nidhi Company in accordance with section 406 of the Companies Act 2013.

Acceptance of Deposit

Private Company can take deposit only upto 25% of paid up capital + free reserves, if –

1. Credit rating is obtained

2. deposit insurance is obtained

3. Special Resolution is passed Only Public companies with min. networth of

Rs.100 Cr or turnover of Rs.500 can accept Public Deposit [other than shareholders]

Limits may be relaxed to 100% of paid up capital for private companies!!

Assets

All ‘investments’ in assets should be made in company’s name

1. Motor Car?2. Agricultural Land? Depreciation to be changed on useful life

from next financial year

Disposal of Assets

Any disposal/ lease / sell of undertaking OR substantial undertaking of the Company requires Special Resolution

Undertaking includes – property / investment / business undertaking

Undertaking = undertaking in which investment of the company exceeds 20% of its net worth OR

Undertaking which generates 20% of total income of the Company as per last financial year

This section does not apply to company, where selling and leasing property is an Ordinary Course of Business

What if special resolution is not

obtained?

Disposal of Assets

Buyer will not be impacted if he proves that he acted in good faith

If buyer is aware about this non compliance, title will be faulty

It is subject to litigation If you are acquiring property from the

Company, get this special resolution passed and filed with ROC

What is Investment?

Laying of money in such a manner that it would produce some revenue

It may include following –1. Shares, 2. Debentures3. Property [which is not purchased for

business]4. Fixed Deposit is investment? – Yes, it can be

said as Investment for the purpose of section 179

Corporate Social Responsibility

Who is covered under CSR?

Every company having: Net worth of Rs. 500 crore or more, or Turnover of Rs. 1000 crore of more, or Net profit of Rs. 5 crore or more

during 3 previous financial year Foreign company havg branch

office or project office are also included

How much to be spend?

At least 2 % of the average net profits of the company made during the three immediately preceding financial years

Profit to be calculated as prescribed under section 198 of the Act

What if not spend?

The reason for same shall be mentioned in Board report

Section 450? Duties of Director

Monitoring and Reporting of CSR Spending MONITORING - CSR Committee to

formulate and recommend CSR Policy, recommend amount to be spent and monitor the CSR policy

REPORTING: In Board report as per prescribed format In case of foreign company, the balance

sheet to contain as annexure

Remuneration

Board and Shareholder approval essential Require compliance of schedule V No remuneration restriction on private

company, if –no default in payment of debts Disclosure is required in the annual report Interested Directors should not vote [section

166] Related Shareholders can vote [Se. 188 does

not cover these transactions]

Liabilities

Every working Director/ KMP is officer in default

Director made accountable is officer in default

If there is no working Director, all Directors will be officer in default

Non executive / independent Directors are liable for acts / omissions occurred with his knowledge attributable through broad process

Actions Required for Pvt. Co.

Actionable for Private company Printing of CIN, website, mail id, phone, fax,

registered office on letterhead and official publication

Induction of new directors Appointment of CS (?)/ MD / WTD Appointment of Internal Auditor Policy for related party transaction Articles of Association needs revision Borrowing in excess of paid up capital + reserves

require special resolution to be filed with ROC Repayment of deposit in 1 year

Actionable for Private company Every borrowing / loan / investment requires prior board

resolution and interest to be charged Private Company can not give loan/ guarantee / security

to another entity in which Director is interested Minutes/ Registers / Share Certificates to be maintained Statutory Registers to be maintained in new format [since

incorporation] ROC filing to be maintained up to date without any delay Every Director to mention his DIN / Address etc in

correspondence Constitute CSR Policy and Spend 2% of avg. profits

THANK YOU.Lets help industry to be better governed