This note is only intended as a general overview and is not to be viewed as a substitute for legal advice. Brands & Bonds shall not be liable for any actions taken or not taken on the basis of this note.

This note highlights the key changes brought out by the Companies Act, 2013 as compared with the erstwhile Act of 1956.

  • One Member Company: The Act has introduced a new form of company where in only one member is required. This form of entity is known as ‘One Man Company’. The entity requires only one shareholder, and one director and there is no requirement to hold the Annual General Meeting.
  • Number of Members of Private Company: Another pertinent change is with respect to the number of members in a private company. The maximum number of members is increased from fifty (50) to two hundred (200).
  • Number of Sections in the Act reduced. The Act has considerably reduced the number of section from 700 plus to 470 sections and VII schedules.
  • Dormant company: The Act specifies that if a company is formed and registered for undertaking a future project or to hold an asset or intellectual property and has no significant accounting transaction, then it can be classified as a Dormant Company.
  • National Company Law Tribunal (NCLT): The act has provisions for the constitution of NCLT for handing company law matters. Primarily company law matters have to be dealt by tribunals and appeals from the Tribunal shall lie with the NCLT.
  • Improved Corporate Governance: Improved corporate governance is aimed to be achieved by tightened provisions with respect to disclosure provisions of the concern or interest of every director, manager, any other key managerial personnel and relatives of such a director, manager or any other key managerial personnel and further reduction of the threshold % of disclosure from 20 to 2. The term ‘key managerial personnel’ is defined to include chief executive officer, managing director, manager, company secretary, whole-time director, chief financial officer and any such other officer as may be prescribed.
  • Woman Director: Every Listed Company /Public Company having a paid up capital of Rs 100 Crores or more, or Public Company with turnover of Rs 300 Crores or more needs to have at least one Woman Director.
  • Resident Director: Every Company must have a resident director and resident means a person who has stayed in India for more than 182 days or more in previous calendar year.
  • Number of directorship: Individual directorship increased from 12 to 15.
  • Independent Directors: The Act requires every listed public company to have at least one-third of the total number of directors as independent directors.
  • Managerial Remuneration: The provisions for appointment of managing director, whole time director or manager are applicable to private companies too.
  • Loan to director- banned: The Act prohibits any form of advances loan / guarantee / security to any director or director of holding company or his partner or his relative, or firm in which he or his relative is partner, or private limited company in which he is director or member or any body corporate whose 25% or more of total voting power or board of Directors is controlled by such director.
  • Restrictions on Acceptance of deposits: The Act mandates that only those companies which meet such net worth or turnover criteria as may be prescribed will be eligible to accept deposits from individuals other than its members.
  • Flexibility in declaration of dividend: Mandatory percentage of transfer to free reserves is no longer required. The companies will be free to transfer any or no amount to its reserves.
  • Corporate social responsibility (CSR): The Act introduces the culture of corporate social responsibility in Indian corporates by requiring companies to formulate a corporate social responsibility policy and expend a bare minimum figure on social activities.
  • Concept of Reverse Merger: The Act introduced provisions for merger of foreign companies with Indian companies commonly known as reverse mergers and squeeze-out provisions.
  • Class Action Suits: This is a new concept wherein class action suits can be initiated by shareholders against the company and auditors.
  • Insider trading and prohibition on forward dealings: The Act defines ‘insider trading and price-sensitive information and prohibits any person including the director or key managerial person from entering into insider trading.
  • Prohibition on issue of shares at a discount Companies would no longer be permitted to issue shares at a discount. The only shares that could be issued at a discount are sweat equity wherein shares are issued to employees in lieu of their services.
  • Bonus shares: The 2013 Act includes a new section that provides for issue of fully paid-up bonus shares out of its free reserves or the securities premium account or the capital redemption reserve account, subject to the compliance with certain conditions such as authorisation by the articles, approval in the general meeting and so on .

Author - Vineed Abraham

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