Key Highlights of Companies Bill, 2013

  1. —  Uniform Financial Year for all the Companies i.e from April to March. (Exception where in approval from the National Company Law Tribunal have been granted).
  2. —   A Private Company can now have maximum of 200 members.
  3. —   Concept of One person Company have been introduced. (But the Company can only be incorporated as a Private Company).
  4. —   Object Clause of Memorandum of Association need not be divided into Main, Ancillary and Other Objects Clause.
  5. —   All types of securities are governed by Bill.
  6. —   The money raised by the Company through prospectus, cannot be used for any other purpose other than the purpose for which it was raised unless a special resolution have been passed and the said proposal is published by way of an advertisement. Otherwise an exit opportunity shall be provided to the existing shareholders of the Company.
  7. —  The prospectus has to be more detailed.
  8. —  If a Company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to 50 or such higher number as may be prescribed, whether the payment for the securities has been received or not or whether the Company intends to list its securities or not on any recognized stock exchange in or outside India, the same shall be deemed to be an offer to the public and shall accordingly be governed by the provisions provided in this regard by the Securities And Exchange Board of India(SEBI). 
  9. —   There is no provision for issue of shares at a discount (other than issue of Sweat Equity Shares).
  10. —  The provisions of clause related to further issue of capital will now be applicable to all type of companies.
  11. —   Apart from existing shareholders, if the Company having share capital at any time proposes to increase its subscribed capital by issue of further shares, such shares may also be offered to employees by way of ESOP, subject to the approval of shareholders by way of Special Resolution. 
  12. —  Buyback provisions eased. Companies can buy back its shares even if it has defaulted in repayment of deposit or interest payable thereon, redemption of debentures or preference shares or payment of dividend to any shareholder or repayment of any term loan or interest payable thereon to any financial institution or bank, provided that such default has been remedied and three years have lapsed after such default ceased to subsist.  
  13. —  NBFCs not to be covered by the provisions relating to acceptance of deposits. They will be governed by the Reserve Bank of India rules on acceptance of deposits.
  14. —   Companies can accept deposits only from its members after seeking permission of its shareholders at a general meeting.  
  15. —  Certain public companies, as prescribed, can accept deposits from persons other than its members, subject to conditions such as credit rating.
  16. —   Bill provides for registering of all types of charges.
  17. —   Certification of Annual Return by practicing company secretary mandatory in case of companies with prescribed paid up capital and turnover.
  18. —   First annual general meeting of a company shall be held within nine months from the closure of its first financial year .
  19. —  Postal Ballot to be applicable on all Companies, whether listed or not.
  20. —  Every company has to follow the Secretarial Standards while preparing the minutes of board and general meeting.
  21. —   Listed companies required to file a return in a prescribed form with the Registrar regarding any change in the number of shares held by promoters and top 10 shareholders of such company, within 15 days of such change.
  22. —   Listed public companies to prepare a report, in the manner as may be prescribed, on each annual general meeting including the confirmation that meeting was convened, held and conducted as per the Act and the Rules made thereunder.
  23. —  Interim dividend declared by a Company in a current financial cannot exceed the average rate of dividend of the preceding three years if a company has incurred loss up to the end of the quarter immediately preceding the declaration of such dividend.
  24. —   Transferring of a fixed percentage of profits to reserve before declaration of dividend is not mandatory in the Bill.
  25. —   Financial Statements shall include Balance Sheet, Profit & Loss Account and Cash Flow Statement collectively.
  26. —   Provisions for re-opening or re-casting of the books of accounts of a company provided.
  27. —  The National Advisory Committee on Accounting Standards renamed as The National Financial Reporting Authority.
  28. —  The authority to advise on Auditing Standards and Accounting Standards.
  29. —  Every company is required at its first annual general meeting (AGM) to appoint an individual or a firm as an auditor. The auditor shall hold office from the conclusion of that meeting till the conclusion of its sixth AGM and thereafter till the conclusion of every sixth meeting. The appointment of the auditor is to be ratified at every AGM.
  30. —  Individual auditors are to be compulsorily rotated every 5 years and audit firm every 10 years in listed companies & certain other classes of companies, as may be prescribed.
  31. —   Prescribed class or classes of companies to have atleast one woman director.
  32. —   At least one director should be a person who has stayed in India for a total period of not less than 182 days in the previous calendar year.
  33. —  At least one-third of the total number of directors of a listed public company should be independent directors. Existing companies to get a transition period of one year to comply.
  34. —   Companies can have maximum of 15 directors.
  35. —  A person can hold directorship of up to 20 companies, of which not more than 10 can be public companies. The number 20 to include Private Companies aswell.
  36. —   A director can participate in a board meeting through video conferencing or other audio visual mode as may be prescribed.
  37. —  A notice of not less than 7 days in writing is required to call a board meeting. The notice of meeting to be given to all directors, whether he is in India or outside India by hand delivery post or electronic means.
  38. —   Every company with more than 1,000 shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who is a non-executive director and such other members as may be decided by the board.
  39. —  In a private company, an interested director cannot vote or take part in the discussion relating to any matter in which he is interested.
  40. —  The provisions related to inter-corporate loans and investments (section 372A of Companies Act, 1956) has been extended to include loans and investments to any person. 
  41. —  Loans can be given to a Director without seeking permission of the Central Government.
  42. —   No central government approval required for entering into any related party transactions.
  43. —   No approval of the central government required for appointment of any director or any other person to any office or place of profit in the company or its subsidiary.
  44. —  The Bill prohibits insider trading in the company. 
  45. —  The Bill provides provisions related to Corporate Social Responsibility (CSR).
  46. —  Provisions relating to the appointment of managing director/whole time director/manger to apply to a private company.
  47. —   The Bill provides for provision related to secretarial audit in certain prescribed class or classes of companies.
  48. —  The Bill prescribes the functions of a company secretary.
  49. —   The conditions under which the Registrar can remove the name of a company from his record have been changed.
  50. —  The Registrar of Companies has been empowered to file an application with the Tribunal for restoration of the name of a company where the company was struck off inadvertently or on the basis of the incorrect information.
  51. —  The manner of declaring a company sick and process of its revival and rehabilitation has been completely rationalized.
  52. —   Any document or returns required to be filed under this Bill, if not filed within prescribed time, have to be filed within a period of 270 days on payment of such additional fees as may be prescribed.
  53. —   New definition of Nidhi Company prescribed.
  54. —   The person to be appointed as President of the Tribunal shall be the judge of the High Court for atleast 5 years, as opposed to the Companies Act 1956, where no term has been prescribed for High Court Judge to be appointed as President; the only condition was that the person should be qualified for being a judge of high court.
  55. —  The National Company Law Appellate Tribunal shall now consist of a combination of technical and judicial members not exceeding 11, instead of 2 as provided in the Companies Act 1956.
  56. —  The Bill makes provision for cross border amalgamations between Indian companies and companies incorporated in the jurisdictions of such countries as may be notified from time to time by the central government.

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Setting up of operations in India by Overseas Company/ Non-Resident

A foreign company or a non-resident planning to set up business operations in India can do so in the following manner:

  • As a foreign company through a Liaison Office/ Representative Office, Project Office or a Branch Office; or
  • As an Indian company through a Joint Venture or a Wholly Owned Subsidiary.

A foreign company is one that has been incorporated outside India and conducts business in India. These companies are required to comply with the provisions of Co Act.

Liaison Office/ Representative Office

A liaison office is not allowed to undertake any business activity in India and earn any income in India. The role of liaison office is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers.

The Foreign Exchange Management Act (“FEMA”) regulates the opening and operation of liaison offices. Prior approval of Reserve Bank of India (“RBI”) is required for opening of such offices. Permission for such offices is typically granted for a period of three years initially and may be extended from time to time. These offices have to ensure compliance with the following conditions:

  • Expenses are met entirely through inward remittances of foreign exchange from Head Office abroad.
  • These offices do not undertake any trading or commercial activities. Activities should be limited to collecting and transmitting information between overseas Head Office and potential Indian customers.
  • Such offices should not charge any commission or receive other income from Indian customers for provision of liaison services.

A person resident outside India permitted by RBI to establish a liaison office in India may carry out the following activities:

  • Represent in India the parent company/ group companies.
  • Promote export import from/ to India.
  • Promote technical/ financial collaborations between parent/ group companies and companies in India.
  • Act as a communication channel between the parent company and the Indian companies.

Further, liaison/ representative offices are required to furnish an annual compliance certificate, from their auditors, with the RBI.

Project Office

Foreign companies planning to execute specific projects in India can set up temporary project/ site offices in India. Under the earlier provisions of FEMA, specific approval was required to be obtained from RBI for establishment of a Project Office. Recently, the RBI has accorded general permission to foreign companies for establishment of Project Offices in India subject to following conditions:

  • It has secured from an Indian company a contract to execute a project in India;
  • The project is funded by inward remittance from abroad or bilateral/ multilateral International Finance Agency or the project has been cleared by an appropriate authority or the contracting entity has been granted term loan by a Public Financial Institution or a bank in India for the project; and
  • Intimation is required to be filed with the regional office of RBI in the prescribed manner.

Further, until recently an approval from the RBI was required for:

  • opening of foreign currency accounts by Project Offices in India; and/ or
  • Intermittent remittances to be made by such Project Offices.

In order to further liberalize the procedure for Project Offices, the Authorized Dealers (bankers) have been empowered to open foreign currency accounts for the Project Offices as well as permit intermittent remittances by Project Offices without an approval from the RBI, subject to fulfillment of certain conditions.

Branch Office

Foreign companies may set up Branch Offices in India, with prior permission of RBI, for the following purposes:

  • To represent parent company/ other foreign companies in various matters in India e.g. acting as buying/ selling agents in India.
  • To conduct research work in the area in which parent company is engaged.
  • To undertake export and import.
  • To promote possible technical and financial collaborations between Indian companies and parent/ overseas group companies.
  • To render professional or consultancy services.
  • To render services in Information Technology and development of software in India.
  • To render technical support to products supplied by the parent/ overseas group companies.

A Branch Office is not permitted to carry out manufacturing activities on its own. A Branch Office is required to file an annual compliance letter, from their auditors, with the RBI. Remittance of profits of the Branch Office is permissible by furnishing requisite documents with an authorized dealer.

Further, RBI has granted general permission to foreign companies to establish Branch Offices/ units in SEZs to undertake manufacturing/ service activities subject to the following conditions:

  • such units function in those sectors where 100 percent FDI is permitted;
  • such units comply with prescribed requirements of the Co Act;
  • such units function on a stand-alone basis; and
  • in the event of winding-up of business and for remittance of winding-up proceeds the branch/ unit shall approach an Authorized Dealer with the prescribed documents.

As an Indian Company

A foreign company can commence operations in India through incorporation of a company under the provisions of Co Act. Foreign equity in such Indian companies can be up to 100 percent depending upon the business plan of the foreign investor, prevailing foreign investment policies of the Government and receipt of requisite approvals.

Joint Venture with an Indian Partner

Foreign companies can set up their operations in India by forming strategic alliances with Indian partners. Setting up of operations through Joint Venture may entail the following advantages to a foreign investor:

  • Already established distribution/ marketing set up of the Indian partner.
  • Available financial resources of the Indian partner.
  • Already established contacts of the Indian partner that help smoothen the process of setting up operations.

Foreign investments are approved through two routes as under:

  • Automatic Route: Approvals for foreign equity up to 26 percent, 50 percent, 51 percent, 74 percent and 100 percent are given on an automatic basis subject to fulfillment of prescribed parameters in certain industries as specified by the Government. RBI accords automatic approval to all such cases.
  • Government Approval: Approval in all other cases where the proposed foreign equity exceeds 26 percent, 50 percent, 51 percent or 74 percent in the specified industries or if the industry is not in the specified list, it requires prior specific approval from Foreign Investment Promotion Board (“FIPB”).