IMPACT OF COMPANIES AMENDMENT ACT, 2017- PRIVATE LIMITED COMPANIES
IMPACT OF COMPANIES AMENDMENT ACT,
2017- PRIVATE LIMITED
COMPANIES
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 19th 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 16th 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 27th July, 2017.
The same has been passed by the Rajya Sabha
on 19th December, 2017 by voice vote.
The same assented by President on 3rd
January, 2018
The same assented by President on 3rd
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 61st 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 61st 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 31st
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 31st 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
Dear sir,
ReplyDeleteIs it not mandatory to file offer letter of private placement with ROC?