The Companies Act, 2013 (“the Act”) is set to be amended for the second time in almost four years since it was first enforced in September 2013. The first amendment Act was passed in 2015.
This year the Lok Sabha passed the Companies (Amendment) Bill, 2017 (“the Bill”) on 27th
July 2017. The Rajya Sabha cleared the Bill on 19th
December 2017. It proposes about hundred odd amendments to the Act and now awaits the President’s assent. The changes are expected to come into effect next year.
This article gives a brief overview of the objects and highlights of the Bill.
Why the need for a Second Amendment?
The Companies Act, 2013 in its current form has been criticized for various reasons; lacuna in drafting, stringent requirements for small companies and procedural hassles being the most predominant ones.
The Bill seeks to address these issues of interpretation, drafting, stringent compliance requirements and cumbersome procedures. Broadly, the objectives of the Bill are:-
Highlights of the Bill
- Improving ease of doing business
- Strengthening corporate governance standards
- Strict penalty on defaulting companies
- Changes addressing errors and omissions
- Bringing provisions of the Act in line with other statutory regulations viz., SEBI regulations, RBI regulations and Accounting Standards
The Bill contains more than hundred amendments. It impacts major provisions relating to raising capital through private placement, issuing shares at discount, penalty for default etc.
Below are some important highlights of the Bill:-
1. Alteration in definitions
2. Reservation of Name during Incorporation
- Associate Company- significant influence will mean ‘control of at least 20% of voting power or control or participation in business decisions under an agreement’. Presently, it is ‘20% of share capital’ or control under agreement.
- Financial Year- associate company can also apply to the NCLT for adopting a different financial year. Currently, only Indian holding or subsidiary companies of a foreign company can apply.
- Holding Company- Body corporate to be considered as ‘holding company’. This will affect the corporate structure and compliance requirements.
- Key Managerial Personnel- whole-time employees one level below the Board to be included in the definition
- Related Party- ‘any company’ is replaced by ‘any Body Corporate’. Investing companies and entities have also been included.
- Turnover- to mean gross revenue recognized in profit and loss account.
- Clarification in the definition of cost accountant, interested director, net worth, public company, subsidiary company etc
Name reserved shall be valid for 20 days from approval. Currently, it is 20 days from ‘application’.
3. Time limit for having registered office increased from the present 15 days to 30 days of incorporation.
4. Authentication of documents, proceedings and contracts can be done by an employee of the company. Currently, only KMP or officer of the Company is authorized.
5. Relief for directors from civil liability for misstatement in prospectus. This is subject to certain conditions.
6. Substitution of entire section on private placement of shares
7. Number of changes in provisions on Financial Statement and Board’s Report. Noteworthy among them is that, now the CEO must also sign the financials and Board’s Report whether or not he is a director.
8. Loans to Directors
The entire section is to be replaced with some allowances and restrictions as compared to existing provisions
9. Related Party Transactions
Restriction on voting by relatives in case of closely-held family companies has been lifted. If 90% members (in number) are relatives of promoters or related parties, then the restriction on voting will not apply.
10. ‘Pecuniary interest’ of Independent Directors to be replaced with ‘pecuniary relationship’
11. Managerial Remuneration
Central Government approval for payment of managerial remuneration in excess of prescribed limits has been removed. Now, it is sufficient to pass a special resolution. However, in case of default in payment of dues, approval of bank/ non-convertible debenture holder/ secured creditor will be required before passing special resolution.
12. Fee payable for late filing
The existing structure of late fee payable for e-forms is set to be revamped. Staggered timelines for delay will go. Late fee will be calculated on daily basis just like for LLPs.
The full text of the Bill is given here Companies (Amendment) Bill, 2017
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