IMPACT OF COMPANIES AMENDMENT ACT, 2017- PRIVATE LIMITED COMPANIES

IMPACT OF COMPANIES AMENDMENT ACT, 2017- PRIVATE LIMITED COMPANIES

 Series 302

SHORT SUMMARY:

In this Flash editorial, the author begins by referring the Impact of Companies Amendment Bill, 2017 on Private Limited Companies.

The Bill to amend Companies Act, 2013 was passed in Rajya Sabha on 19^th December, 2017. This is second Amendment Bill passed by the Parliament after notification of the Companies Act, 2013 i.e. within a span of 40 months. The Companies (Amendment) Bill, 2017 suggests 93 amendments to the Companies Act, 2013.

Background:

The Companies Amendment Bill, 2016 introduced in Lok Sabha on 16^th March, 2016 as the Companies (Amendment) Bill, 2016, was referred to Standing Committee. 

The government after considering the suggestions of the Committee gave notice of amendment as approved by the Cabinet to the Lok Sabha. The Lok Sabha has passed the Company (Amendment) Bill, 2017 on 27^th July, 2017. 

The same has been passed by the Rajya Sabha on 19^th December, 2017 by voice vote.

      The same assented by President on 3^rd January, 2018

The major amendments in the Amendment Act, 2017 include clarity on definitions for identifying Associate Companies, Holding & Subsidiary Companies, Related Parties etc;, simplification of the private placement procedure, removal of requirement for annual ratification of auditor, rationalization of provisions related to loan to directors, and doing away with the requirement of approval of the Central Government for managerial remuneration above prescribed Limits.

We hope you will find the same useful.

 A.  Impact on Definition

Term of Definition	Impact of the Amendment
Key Managerial Personnel	Under the definition of the term “Key Managerial Personnel”, such other officer not more than one level below the directors who is in whole time employment and designated as KMP by the Board, is added.
Net Worth	The change in the definition of net worth relates to including debit and credit balance of profit and loss account.
Public Financial Institution	The change relates to exclusion of such financial institutions under the definition of PFIs, which are established under the Act, 2013 or any other previous company law which are not government companies as per clause (B).
Small Company	Turnover should be as per profit and loss account for the immediately preceding financial year and not as per its last financial year.
Subsidiary Company	Only equity share capital shall be the basis for determining subsidiaries as it carries voting power.
Turnover	"turnover" means the gross amount of revenue recognized in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year;

B.  Liability of Member

A new Section 3A Inserted - Members severally liable certain cases

3A. If at any time the number of members of a company is reduced, in the case of a public company, below seven, in the case of a private company, below two, and the company carries on business for more than six months while the number of members is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is cognizant of the fact that it is carrying on business with less than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.

 C. Effect on incorporation of Company

I.            Alteration in Period of reservation of Name - Section 4(5)(i) - Memorandum::

As per CAA-2017, the name shall be preserved for the following period:

·         In case of Incorporation of New Company: Name shall be reserved for the 20 days from the date of approval

·         In case of Change of Name: Name shall be reserved for the 60 days from the date of approval.

II.            Affidavit by Subscriber::

At the time of incorporation of the company, declaration by each subscriber will be required to be attached instead of an affidavit, as currently provided.

III.            Registered Office::

The company shall within 30 days of its incorporation have registered office instead of current requirement to have registered office on and from the fifteenth day of its incorporation

D.  Another Impact

a)     Intimation of Shifting of Registered Office::

Notice of every change of the situation of the registered office, shall be given to the Registrar within 30 days instead of 15 days.

b)     Authentication of Documents [Section 21]::

The change permits Board to authorise any employee of the company for authentication of documents, proceedings and contracts of the company.

c)      Exemption List of Charges [Section 77]::

This section shall not apply to certain charges, as may be prescribed by the Central Government in consultation with the Reserve Bank of India.

d)     Time Period for Satisfaction of Charges [Section 82]::

Timeline for filing of satisfaction of charge is to be increased to 300 days on payment of additional fee. (same as creation of charge)

E.  Allotment of Shares::

a)     Private Placement of Shares:

The entire Section 42 has been substituted by the Amendment Act, 2017. We will discuss in detail in another write up. Please find below the major changes:

§  The requirement of filing the record of private placement with the Registrar within a period of thirty days of circulation of private placement offer letter has been omitted.

§  The return of allotment is required to be filed within 15 days of allotment.

§  The company is not to authorize utilize the money raised through private placement unless allotment has been made and return of allotment has been filed with the Registrar.

b)     Allotment of Share at Discount:

Issuance of shares at discount allowed, subject to the same is issued to creditors when debt is converted into shares in the prescribed manner.

c)      Issue of Sweat Equity Shares:

It is allowed issue of sweat equity shares at any time after registration of the Company.

d)     Right Issue of Shares:

The change in the provision relates to the mode of sending the notice for rights offer. Section 62(2) has been relaxed to include courier or other modes of delivery capable of providing proof of delivery.

  

       F.  Penal Provisions:

a)     Section76A–Punishment for contravention in section 73-76:

Non compoundable Offence:  By CAA-2017 “every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years AND with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees,

Now the word “OR” between fine and imprisonment substituted by the word “AND” due to which this offence under section 73-76 are non-compoundable .

G.  Annual Return:

§  The requirement of extract of annual return to the board‘s report in Form MGT-9 has been omitted

§  Sufficient that the web-link of the annual return be disclosed in the board‘s report.

§  Changed in the particular of Annual Return.

§  The Central Government may prescribe abridged form of annual return for One Person Company (‘OPC’), Small Company and such other class or classes of companies as may be prescribe.

§  Removal of reference of Section 403: Due to this amendment Companies shall be required to file the Annual Return within 60 day of AGM from 61^st day it shall be considered as default. Now the additional time period of 270 days removed from this sub section.

In case of company fails to file Annual return within 60 days of AGM Company and the officer shall be liable to fine from the 61^st day itself.

H.  Impact of Removal of 403 from Many Places:

Section	Language of the Act, 2013
89	Declaration in respect of beneficial interest in any share
92 (4)	Annual Return
117 (1)	Resolution & agreement to be filed
121 (2) (3)	Report of Annual General Meeting
137 (1), (2)	Copy of financial statement to be filed with Registrar
157(1) (2)	Company to inform DIN to Registrar

Major Impact of this Act is relating to removal of reference of Section 403 from the above mentioned all the section, effect of which Companies have to file the forms with registrar within time period mentioned in particular section.

I.    General Meeting:

Annual General Meeting:

Annual General Meeting (‘AGM’) of unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all the members in advance.

Extra- Ordinary General Meeting:

Extraordinary General Meeting (‘EGM’) of wholly owned subsidiary of a company incorporated outside India can be held outside India. The same is of no relevance for companies which are WOS of company incorporated in India

Convening of general meetings at a shorter notice i.e.

§  In case of an annual general meeting with the consent of atleast ninety five percent of the members entitled to vote thereat and

§  In case any other general meeting with the consent of atleast majority in number and ninety five percent of such part of the paid up share capital of the company giving a right to vote at such a meeting.

J.   Director Report:

§  The requirement of the extract of the annual return in Form MGT-9 to be included in the board‘s report has been omitted, instead web address of the same to be provided in this regard

§  Disclosures which have been provided in the financial statement shall not be required to be reproduced in the report again

§  Instead of exact text of the policies, key feature of policies along with its web link shall be disclosed in Board report

§  Abridge Board Report for Small Companies and OPC

K.  Financial Statement:

§  Allowed the filing of unaudited financial statements of foreign subsidiary which is not required to get its accounts audited along with a declaration to that effect

§  Removal of reference of Section 403:Due to this amendment Companies shall be required to file the Financial Statement within 30 day of AGM from 31^st day it shall be considered as default. Now the additional time period of 270 days removed from this sub section.

In case of company fails to file Financial Statement within 30 days of AGM Company and the officer shall be liable to fine from the 31^st day itself.

L.  Statutory Auditor:

§  The requirement related to annual ratification of appointment of auditor by members is omitted.

§  Auditors of holding company can have access records of associate companies also along with subsidiaries Companies.

§  There are some changes relates to language of Auditors Report.

§  Changes in Penal Provisions for the Auditor Chapter.

M. Director:

§  For the purpose of Resident Director 182 days to be computed with reference to Financial Year.

§  In case of New Companies requirement of 182 days shall apply proportionately at the end of the financial year.

§  The requirement of deposit of rupees one lakh with respect to nomination of directors shall not be applicable in case of appointment of independent directors or directors nominated by nomination and remuneration committee or a director recommended by the Board of Directors of the Company, in the case of a company not required to constitute Nomination and Remuneration Committee.

§  Directorship in the Dormant Company shall not be including in the limit of 20 Companies.

§  Filing of e-form DIR-11 by retiring Director is Optional.

Disqualification of Director;:

When a director is appointed in company which is in default of filing of financial statements or annual return or repayment of deposits or pay interest or redemption of debentures or payment of interest thereon or payment of dividend then such director shall not incur the disqualification for a period of six months from the date of his appointment

In case a director incurs any of disqualifications under section 164 (2) due to default of filing of financial statements or annual return or repayment of deposits or pay interest or redemption of debentures or payment of interest thereon or payment of dividend, then he shall vacate office in all the companies other than the company which is in default.

N.  Board Meeting:

Presence through video Conferencing:

Where there is quorum in a meeting through physical presence of directors, any other director may participate through video conferencing or other audio visual means in such meeting on any matter specified under the first proviso (i.e. restricted matters).

Audit Committee: Only Every Listed Public Company shall constitute Audit Committee. Companies listed due to debenture listing not required Audit Committee.

Nomination & Remuneration Committee: Only Every Listed Public Company shall constitute Nomination & Remuneration Committee. Companies listed due to debenture listing not required Nomination & Remuneration Committee.

O. Loan to Employees:

Section 186:

For the purpose of this section excludes employees so that loan given to them part of condition of service are not covered under this section.

Wholly own Subsidiary:

No need to pass Special Resolution in case of Loan/ Guarantee/ Security provides by a Company to its Wholly Own Subsidiary Company.

A.     Additional Late Filing Fees: in sub-section (1), for the first and second provisos, the following provisos shall be substituted:

Effect of new proviso:

·         If Company fails to file Annual Return u/s 92 and Financial statement u/s 137 within time prescribed under their specific sections “without prejudice to any other legal action or liability under this act,” it may be submitted by payment of additional fees “which shall not be less than INR 100/- (Rupees Hundred) per day” and different amount may be prescribed for different classes of Companies.

·         If company fails to file any other documents, facts, information etc other than section 92 and 137 “without prejudice to any other legal action or liability under this act,” it may be submitted by payment of additional fees as may be prescribed.

HIGHER ADDITIONAL FEES: New concept of higher additional fees has been introduced. As per this proviso

-          Where there is default on Two or More occasions in submitting, filling, registering, recorded of documents,

-          without prejudice to any other legal action or liability under this act,

-          may be file with “Higher Addition Fees”

-          as may be prescribed and

-          which shall not be lesser than “twice the additional fee provided under first and second proviso”

-           

Due to above mention proviso if company fails to file any form with in time prescribed under its specific section and company made the default TWO or “MORE OCCASION” then additional fees for filing of from shall be “TWICE of ADDITIONAL FEES

There is changes in Section 194, 195, 196,197 but they doesn’t impact the private limited Companies

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION