ACCOUNTS OF COMPANIES - Changes as per Companies Act 2017

1.        Preparation of Financial Statements (Section 129)

       The Act has come up with a clarificatory addition of the word associate companies with the subsidiary companies while preparation of consolidated financial statements(CFS) in accordance with the applicable AS. Earlier due to absence of this term there was confusion whether to include associate companies or not while preparation of CFS.

       Also, the company should prepare AOC-1, containing the salient features of the subsidiary as well as associate companies.

2.        Reopening of Accounts of Companies

       The section 130(3) has been added to keep in consonance with Section 128(5) of the Companies Act, 2013. It has been clarified that the books of accounts shall not be re-opened for financial year preceding 8 financial years.

        Further, if any direction under Section 128(5) is received by Central Government, the books may be opened for a longer period.

3.        Board Report (Section 134)

Section 134(1) has been modified stating out few changes that CEO whether appointed as Director or not in the company has to sign the Board Report, where earlier CEO could sign only if he was appointed as Director. Also a clarificatory change has been done by insertion of words ‘if any’ after the words Managing Director as it is not compulsory for a company to have Managing Director.

Section 134(3)(a) has been revised by omitting the requirement of attaching the extract of annual return i.e. MGT-9 with Board Report with the insertion of revised proviso by placing the copy of annual return on website of the company (if any) and disclosure of the web address/ link in the Board‘s Report.

A new proviso has been inserted in the Section giving out the relaxations. It states where disclosures like loans and investments, contracts with related parties and various other disclosures if provided in the financial statements, may be referred with salient features in the Board Report instead of detailed description.

It has also been mentioned to highlight the features and any other major changes in the CSR and Nomination and Remuneration Policy in the Board Report doing away with the detailed explanation by placing the same on the weblink of the company.

Section 134(3A) has been inserted empowering the Central government to prescribe an abridged Board Report in case of OPC and small companies. This is a welcoming change which will reduce the compliance work and let them focus on growth perspectives.

4.        Corporate Social Responsibility (Section 135)

There were many differing views related to the applicability of the CSR due to the phrase used ‘during any financial year’. There was a confusion whether the current year or previous year has to be taken for its application. The amendment act has come out the clarification by replacing it with ‘immediate preceding financial year’. With this change, it has been clarified that CSR Requirement will be decided based on the net worth/turnover/net profit for the ‘immediate preceding financial year’.

A new proviso has been added which describes the composition of CSR Committee for the companies who does not come in the ambit of Section 149(4) i.e. companies who are not required to appoint independent directors can form a CSR committee with two or more directors. This change has been harmonised with the CSR rules and relaxation for private companies.

Further it is also clarified by modifying Section 135(3)(a), specifying the activities to be undertaken by a company for CSR spending should be in areas or subject specified in Schedule VII. This is a clarificatory change to the earlier interpretation.

To bring out the harmony with the CSR Section and Rules, it has been specified that for calculation of CSR spending, the net profit as per Section 198 has to be considered after deducting the sums as may be prescribed.

5.        Right of members to copies of Audited Financial Statements (Section 136)

The changes pertain to the manner in which financial statements have to be circulated to the members. MCA already issued a circular for the same earlier in 2015, but the same has now been inserted in the act. It says that the copies of the financials can be sent to the members at a shorter notice (less than 21 days) if 95% members entitled to vote at the meeting agrees to same.

Earlier every company having subsidiary had to publish separate financials of the subsidiaries on its website, but now the same has been revised and only listed companies have to comply with this requirement. Provided if listed company has any foreign subsidiary, these requirements are to be met.

The revision has also been made in Section 136(2), mandating every company having subsidiary to provide a copy of separate audited/unaudited financials to the members who asks for it.

6.        Copy of Financials to be filed with Registrar (Section 137)

Reference of Section 403 has been removed from this section, whereby due to this amendment the Companies shall be required to file the financials within 30 days of AGM/adjourned AGM. Now the additional time period of 270 days for filing the forms with the payment of additional fee has been removed from all the sub sections.

Further a new proviso has been added stating that if the foreign subsidiaries does not get its financials audited, then the holding Indian Company shall file such unaudited accounts along with a declaration to this effect.

Changes in Annual Return and Meetings as per Companies Amendment Act, 2017

The Companies Act 2013, came with significant changes and challenges in the Companies law in India. The Government of India in order to address the difficulties posed in the implementation of rigorous compliances, facilitate with the ease of doing business, harmonizing with the various Acts and regulations came up with the introduction of Companies (Amendment) Bill 2016 in the Lok Sabha after rectifying inconsistencies in the Act. The Bill was referred to the Standing Committee on Finance, it was further examined and renamed as Companies (Amendment) Bill 2017 after making related changes as per the suggestions received by the committee. The Bill was further reintroduced in the Lok Sabha and passed on 27^th July 2017. Then the Bill was approved by the Rajya Sabha on 19^th December 2017 and got the assent by the Honourable President Mr. Ram Nath Kovind on 3^rd January 2018.

1.      Annual Return (Section 92)

The Act has brought various changes in respect with the disclosures required to be given under this Section.

a) The disclosure as required U/s 92(1)(c) relating to indebtedness has been omitted.

b) The disclosure as required u/s 92(1)(j) has been modified and has removed the requirements of detailed description of Foreign Institutional Investors. After the amendment, the details of the shares have to be given in this respect.

c) Further to provide with the ease of business, a welcoming change has come in respect of the One Person and Small Company, thereby empowering the Central government to provide an abridged form of Annual return.

d) Another requirement prescribed U/s 92(3) has been revised and it has removed the requirement of attaching an extract of annual return (MGT-9) with the Board Report.

e)      Every company having a website has to place a copy of annual return on the website of the company, if any, and the web-link of the same has to disclosed in Board Report.

As per Section 403, the timeline of 270 days beyond the due date for filing of forms with additional fees has been removed. The act has specified the late filing fees/penalty in case of filing of financial statements and annual return after the statutory time limit. The delayed fees will be Rs. 100 per day and different amounts may be specified for different class of companies.

2.      Place of keeping and Inspection of Registers and Returns (Section 94)

The proviso of Section 94(1) has been revised and the requirement of filing of special resolution in advance in respect of keeping the registers at some other place other than registered office has been omitted.

Further a restriction has also been imposed for the purpose of confidentiality, restricting inspection on certain register and returns, as may be prescribed, shall or availing copy thereof U/s 94(2).

3.      Annual General Meeting (Section 96)

A new proviso has been added to Section 96(2) stating that an unlisted company can hold its AGM anywhere in India if the consent of all the members is received in advance through writing or by electronic means.

As per Section 121(2) the report on AGM has to be filed within 30 days and the extended timeline of 270 days as prescribed U/s 403 has been laid off.

4.      Extra Ordinary General Meeting (Section 100)

Section 100 (1) has been revised in such a manner that it gave relaxation as well as a restriction. The change says that EGM of the wholly owned subsidiary company incorporated O/s India can be held outside India which will definitely be an ease of business whereas it has also restricted other companies to hold EGM at any place in India only.

5.      Calling of general meetings at shorter notice (Section 101)

The section 101(1) has been modified bringing out the clarity for calling shorter notice. It has been bifurcated as per the nature of company and says that:

General meetings may be called at shorter notice if the consent is received in writing or by electronic means in following manner:

AGM: Consent of not less than 95% of the members entitled to vote.

Any other general meeting:

· Co having share Capital: Majority in numbers entitled to vote and not less than 95% of paid up share capital giving a right to vote at that meeting.

· Co not having share capital: Not less than 95% of total voting power exercisable at that meeting.

6.      Postal Ballot (Section 110)

A new proviso has been added in Section 110(1) giving out the relief for the companies who need to compulsorily pass certain resolutions through postal ballot only.

The act has now given the relaxation to the companies thereby allowing them to call the general meeting for the matters which required to be conducted solely through postal ballot and providing the facility to members to vote electronically(compulsory) as per Section 108.

7.      Resolutions to be filed (Section 117)

As per Section 117(1), the extended time limit of 270 days (after 30 days) for filing of resolutions with additional fee has been done away and now the company can file the same at any time after paying the additional fees as may be prescribed.

Another major change relates to the decrease in penalty for non-filing of forms within specified time period. The minimum penalty for the company and officer in default has been reduced from Rs. 5 lakhs to 1 lakhs and from Rs. 1 lakhs to 50 thousand respectively. (Section 117(2))

Clause (e) of sub-section (3) of Section 117 has been omitted which dealt with the filing of resolutions U/s 180 (a) and 180(c) with registrar however the same has to be filed U/s 117(3)(a) with regards to special resolutions.

An exemption has been provided to the banking companies in respect of filing of resolution U/s 179(3)(f) under ordinary course of business which relates to grant loans or give guarantee or provide security in respect of loans.

Private Placement Process as per Companies Amendment Act 2017

The Private Placement section 42 has been completely substituted by the Amendment Act, 2017. The summary of the changes is categorized below:

A Proviso enabling the companies to make more than one issue at any time to such identified persons have been inserted; though the term Private Placement means Issuance of Shares to Persons who have been identified by the board of directors.

A new proviso barring any right of renunciation being attached to the private placement offer letter and application has been inserted;

Return of Allotment (Form PAS-3) needs to be filed within 15 days of allotment which was previously within 30 days;

Restriction on utilizing the money till allotment has been extended further to filing of return of allotment with Registrar have been provided;

The penalty for any contravention of section 42 has been lowered to Rs. 2 crores i.e. it shall be extended to the amount raised through the private placement or two crore rupees, whichever is lower.

A brief process for private placement of securities is as under:

Private placement is of securities by any offer or invitation to a select group of persons or Identified Persons whose names and addresses are recorded by the company to subscribe or issue of securities (other than by way of public offer) by offer-cum-application.

Securities shall be issued only to Max 50 persons at a time or such higher number as may be prescribed (Persons exclude in the above calculation: qualified institutional buyers and employees of the company whom already shares are issued under ESOP.)

Offer of securities to more than 50 persons, whether the payment for the securities has been received or not the same shall be deemed to be a public offer.

No company issuing securities under this section shall release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an issue.

No fresh offer or invitation under this section shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company.

Subscription money shall be made through cheque, demand draft or any other banking channel, not by cash.

A Company shall make allotment within 60 days from the date of receipt of application money and if Company fails to allot securities within time then it shall repay the application money within 15 days and after 15 days interest shall be paid @12% p.a from the expiry of sixtieth day.

Provided that a separate bank account has to be opened for private placement and application money should be submitted in that account only and that money should be used only for 2 purposes:

a) For allotment of securities.

b) For repayment of money if company is unable to allot securities

Company shall not utilise monies raised through private placement UNLESS allotment is made and the return of allotment is filed with the Registrar in Form PAS – 3.

Return of allotment in Form PAS 3 to be filed with ROC within 15 days of allotment. The format of Offer letter and application form are likely to be introduced by the department with the new Rules.

IMPACT ON INCORPORATION OF COMPANY DUE TO CO. AMENDMENT ACT 2017

INTRODUCTION

The Companies Act 2013, came with significant changes and challenges in the Companies law in India. The Government of India in order to address the difficulties posed in the implementation of rigorous compliances, facilitate with the ease of doing business, harmonizing with the various Acts and regulations came up with the introduction of Companies (Amendment) Bill 2016 in the Lok Sabha after rectifying inconsistencies in the Act. The Bill was referred to the Standing Committee on Finance, it was further examined and renamed as Companies (Amendment) Bill 2017 after making related changes as per the suggestions received by the committee. The Bill was further reintroduced in the Lok Sabha and passed on 27^th July 2017. Then the Bill was approved by the Rajya Sabha on 19^th December 2017 and got the assent by the Honourable President Mr. Ram Nath Kovind on 3^rd January 2018.

IMPACT ON INCORPORATION OF COMPANY

1.      Change in Timeline for Reservation of Name (Section 4(5)(i))

With the amendment, the period for reservation of name at the time of incorporation has been substituted from sixty days from the date of application to “twenty days from the approval” of name. It is important to notice here that now the time period will be counted from the date when the name gets approved from the concerned authority.

A new proviso has been added to bring out the clarity on the concept of application/reservation of name by the exiting companies for alteration of name, thereby giving them period of 60 days for reservation of name from the date of approval.

This section has been notified by the Central Government as on 26^th January, 2018 by launching new web service (RUN) for reservation of name while incorporating or altering the name of existing company. This service can be used without the use of any DIN/DSC.

2.     Declaration by Subscribers and Directors (Section 7(1)(c)) (Not notified)

To provide an ease in documentation at the time of incorporation the requirement of furnishing affidavit by the first subscribers and directors has been replaced by a ‘self declaration’. 

3.    Registered Office of Company (Section 12(1) & 12(4)) (Not notified)

A company can now have its registered office from the day of its inception or within 30 days of the same. The earlier provision restricted a company to have its office on and from the fifteenth day of incorporation. This ambiguity has been resolved as a company can have its registered office from the day of incorporation also.

Further, relaxation has been provided with the amendment that the time period for giving notice of change of registered office has been increased from 15 to 30 days. This is a welcoming change as the companies had to face various difficulties in paper work and taking various approvals from the authorities for change in office. Now as the time period has been relaxed these issues will come to rest.

4.    Authentication of documents (Section 21)

The amendment now allows Board to authorize an officer or employee of the company to carry out any proceedings, contracts or any documents on behalf of the company. This will reduce the burden on KMPs’ and allow them to take various other major decisions. This section has been notified on 9th February, 2018.

Amendments in Definitions as per Companies Act 2017

INTRODUCTION

The Companies Act 2013, came with significant changes and challenges in the Companies law in India. The Government of India in order to address the difficulties posed in the implementation of rigorous compliances, facilitate with the ease of doing business, harmonizing with the various Acts and regulations came up with the introduction of Companies (Amendment) Bill 2016 in the Lok Sabha after rectifying inconsistencies in the Act. The Bill was referred to the Standing Committee on Finance, it was further examined and renamed as Companies (Amendment) Bill 2017 after making related changes as per the suggestions received by the committee. The Bill was further reintroduced in the Lok Sabha and passed on 27^th July 2017. Then the Bill was approved by the Rajya Sabha on 19^th December 2017 and got the assent by the Honourable President Mr. Ram Nath Kovind on 3^rd January 2018.

The Ministry of Corporate Affairs has appointed 9th February, 2018 as the date on which the following provisions 7 shall come into force, vide notification dated 9th February, 2018.  1.      Associate Company (Section 2(6)) (Not notified) The amendment has brought changes in the explanation of the term “significant influence” in the definition of associate company. The explanation describes that control of atleast 20% of the total voting power by replacing the word total share capital or control of or participation in business decision agreement will cause a company to be an associate company.  The term total voting power as described under Section 2(89) of The Companies Act, 2013 says that “the total number of votes which may be cast in regard to that matter on a poll at a meeting of a company if all the members thereof or their proxies having a right to vote on that matter are present at the meeting and cast their votes.” This concept will make the equity share capital with voting rights the sole basis for determining the associate company. This change will remove the ambiguity of considering Preference share capital to check status as Associate. The next addition is the word “control of” the business decision agreement which can be understood with its own definition described under Section 2(27) of the Companies Act, 2013. This makes it very clear that, in order to check the same one has to go through the shareholder’s or voting agreements and their control on the management affairs. The expression “Joint Venture” has also been explained which says that a JV is a joint arrangement whereby the parties that have joint control of the arrangement, have rights to the net assets of the arrangement. This will lead to increase in associate companies thereby leading to more compliance risk and consolidation of accounts. 2.      Debenture (Section 2(30)) A new proviso has been added to the definition of debenture which states its exceptions (not to be treated as debenture). It says that the instruments referred to in Chapter III-D of the Reserve Bank of India Act 1934 and such other instruments prescribed by the Central Government in consultation with the RBI shall not be considered as debenture.  Chapter III-D regulates the transactions dealt in derivatives, money market instruments and securities. It basically includes short term instruments like commercial paper, certificate of deposit, term money. 3.      Financial year (Section 2(41)) The proviso of this definition has been revamped and has allowed the associate company of a company incorporated outside India to apply to Tribunal for a different financial year. 4.      Holding Company (Section 2(46)) An explanation has been added which clarifies that the “company” expression used in the definition includes any body corporate. 5.      Key Managerial Personnel(KMP) (Section 2(51)) The scope of the definition has been extended by including an officer not more than one level below the directors who is in whole time employment and designated as KMP by the Board. This will allow companies to develop their own policies for assigning officials as KMP. 6.      Net worth (Section 2(57)) The earlier definition created a debate in the mind due to lack of clarity. The amended act has addressed this issue by including the term “the debit or credit balance of profit and loss account” in the definition of net worth. 7.      Related Party (Section 2(76)(viii)) The amendment act expands the scope of definition by including “an investing company or the venture of the company” as related party. Also, explanation has been given to the above term stating that a body corporate whose investment in the company would result in the company becoming an associate company in the body corporate. Earlier only an associate company was treated as related party but with this amendment the converse relationship has come into existence. 8.      Small Company (Section 2(85)) The act has brought some changes with regards to the criteria of determining the small company.  The maximum paid-up share capital has been increased from five crore rupees to ten crore rupees and turnover from twenty crore rupees to one hundred crore rupees. Further, turnover should be as per profit and loss account for the immediately preceding financial year and not as per its last profit and loss account. 9.      Subsidiary Company (Section 2(87)(ii)) (Not notified) The change has been brought in by revising the criteria of determining a subsidiary company. The definition now says that “A subsidiary company or subsidiary – in relation to any other company (the holding company) – means a company where the holding company controls the composition of the Board of Directors or exercises or controls more than one-half of the total voting power(replaced by total share capital) either on its own or together with one or more of its subsidiary companies.”   This concept will make the equity share capital with voting rights the sole basis for determining the subsidiary company. This change will remove the ambiguity of considering Preference share capital to check status as subsidiary. 10.  Turnover (Section 2(91)) The act has substituted a new definition which has answered to various issues like, indirect taxes should be a part of turnover or not. Now with the new definition turnover will be considered as recognised in P&L Account.

Turnover means the gross amount of revenue recognised 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

 

Newly Inserted Sections as per Companies Amendment Act, 2017

INTRODUCTION

The Companies Act 2013, came with significant changes and challenges in the Companies law in India. The Government of India in order to address the difficulties posed in the implementation of rigorous compliances, facilitate with the ease of doing business, harmonizing with the various Acts and regulations came up with the introduction of Companies (Amendment) Bill 2016 in the Lok Sabha after rectifying inconsistencies in the Act. The Bill was referred to the Standing Committee on Finance, it was further examined and renamed as Companies (Amendment) Bill 2017 after making related changes as per the suggestions received by the committee. The Bill was further reintroduced in the Lok Sabha and passed on 27^th July 2017. Then the Bill was approved by the Rajya Sabha on 19^th December 2017 and got the assent by the Honourable President Mr. Ram Nath Kovind on 3^rd January 2018.

The Ministry has appointed 9th February 2018 as the date on which these sections will come into force.  Sections Newly Inserted 1.       Members severally liable in certain cases (Section 3A)

This section has been newly inserted which says that 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, every person who is a member of the company during the time that it so carries on business, after those six months shall be severally liable for the payment of the whole debts of the company contracted during that time.

2. Factors for determining level of punishment (Section 446 A)

This section prescribes different factors (size, nature of business of the company and the type of default and injury to the public) to courts for determining the level of punishment. This change will give due justice according to the default done by the companies.

3.Lesser Penalties for OPC and small companies (Section 446 B)

This section provides a relaxation to OPC and small companies with regards to penalties occurred in non-compliance of filing annual returns, financials and resolution.

If any such default occurs, then the company and any officer in default shall be punishable with fine or/and imprisonment which shall not be more than one-half of the fine or/and imprisonment of the minimum or maximum fine or/and imprisonment specified in such sections.