Draft companies rules 2013 highlights

Limit of maximum number of members of unincorporated partnership or association for carrying on business/gain-50

No association or partnership shall be formed, consisting of more than 50 persons for the purpose of carrying on any business that has for its objects the acquisition of gain by the association or partnership or by individual members thereof, unless it is registered as a company under the Act or is formed under any other law for the time being in force.


One Person Companies

Only natural person being Indian citizen resident in India can form an OPC(Even a minor is a natural person…Can he form an OPC?).
Nominee of sole member of OPC must be an Indian citizen resident in India.
The term "resident in India" means a person who has stayed in India for a period of not less than 182 during the immediately preceding one financial year.
Where a natural person, being member in One Person Company in accordance with this rule becomes a member in another One Person Company by virtue of his being a nominee in that One Person Company, he/she shall meet the eligibility criteria specified in rule 2.1(2) within a period of one hundred and eighty days.
Limit on number of OPCs that one person can form : 5.

Compulsory to convert OPC into public company or private company if its paid-up share capital exceeds Rs.50 lakhs or average annual turnover during the relevant period exceeds Rs.2 crores or its balance sheet total exceeds Rs.1 crore

Such One Person Company shall be required to convert itself, within six months of the date on which its paid up share capital is increased beyond fifty lakh rupees or the last day of the relevant period during which its average annual turnover exceeds two crore rupees or the close of the financial year during which its balance sheet total exceeds one crore rupees, as the case may be, into either a private company with minimum of two members and two directors or a public company with minimum of seven members and three directors in accordance with the provisions of section 18 of the Act.

Rotation of auditors

Incoming auditor or audit firm should not be under the same network or operating under the same trade mark or brand as the outgoing auditor or audit firm.
If joint auditors appointed, company should follow rotation of auditors in such a manner that all joint auditors do not complete their term in the same year.

Auditor's duty to report frauds to Central Govt

Auditor shall report all material frauds to Central Govt.
Material fraud- (i)fraud occurring frequently (ii)Frauds where amount involved is 5% or more of net profit or 2% or more of turnover of immediately preceding financial year.
In case of immaterial fraud, if action not taken by company, then only report to Central Govt.

Disqualification of auditor due to indebtedness

Limit increased from Rs.1,000 to Rs.1,00,000.

Disqualification of auditor due to relative holding shares

For the purpose of proviso to sub-clause (i) of clause (d) of sub-section (3) of section 141, a relative of an auditor may hold securities of face value or interest in the company not exceeding Rs.1,00,000.

Auditor not to have any commercial transaction with auditee except permitted services

Auditor should render only professional services permitted under the Act and CA Act and Regulations.
For the purpose of clause (e) of sub-section (3) of section 141, the term "business relationship" shall construe any transaction entered into for a commercial purpose except those which are in the nature of professional services as permitted to be rendered by an auditor or audit firm under the Act and the Chartered Accountants Act and the rules and the regulations made under such Act.

Auditor to report on

disclosures of impact of pending litigation,
provision for foreseeable losses on long-term contract including derivatives and
delay in depositing amounts in IEPF.
CSR Rules

Net profit for CSR spend purposes shall be 2% of Net profit before tax excluding net profit of foreign branches.
2% CSR spending would be computed as 2% of the average net profits made by the company during every block of three years. For the purpose of First CSR reporting the Net Profit shall mean average of the annual net profit of the preceding three financial years ending on or before 31 March 2014.
Can be done by contributing to trusts/NGOs/Section 8 companies.
Only such CSR activities will be taken into consideration as are undertaken within India.
Only activities which are not exclusively for the benefit of employees of the company or their family members shall be considered as CSR activity. Spends in ordinary course of business is not CSR.
Tax treatment of CSR spend will be in accordance with the IT Act as may be notified by CBDT.

At least one Woman Director compulsory in case of

Listed companies
Unlisted companies whose paid up share capital is Rs.100 crores or more
Independent directors for unlisted public companies

One-third of total no. of directors shall be independent directors in case of unlisted public companies having paid-up share capital of Rs.100 crores or more and public companies whose outstanding aggregate loans, deposits, debentures and borrowings exceed Rs.200 crores.

Qualifications of independent director

An independent director shall possess appropriate balance of skills, experience and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the company's business.

DIN Application form shall be electronically countersigned by CA/CS/Cost Accountant in practice or CS in full time employment or MD or director

The form to be filed electronically shall be countersigned digitally by either of the following:
(i) a chartered accountant or a company secretary in practice or a cost accountant; or
(ii) a company secretary in full time employment of the company or by the managing director or director of the company in which the applicant is to be appointed a director;

Attendance of directors at meetings by video conferencing

Every director of the company shall attend, at least one Board meeting in a financial year of the company, in person.
The notice of the meeting shall inform the directors regarding the option available to them to participate through video conferencing mode or other audio visual means, and shall provide all the necessary information to enable the directors to participate through video conferencing mode or other audio visual means.
If the director intends to participate through video conferencing mode or other audio visual means, he shall send the confirmation at least three days prior to the scheduled date of the meeting unless waived-off by the Chairperson. The company secretary shall keep the records of the request and details furnished by the director, which shall be noted and recorded in the minutes of the meeting.

Matters not to be dealt with at Board meetings by video conferencing

(i) to approve the annual financial statements; and
(ii) to approve the Board's report.

Passing of resolution by circulation

Resolution in draft with necessary papers may be sent to directors by electronic means which may include E-mail or fax.

Unlisted public companies required to constitute audit committee/Nomination & Remuneration Committee if

(i) paid up capital is Rs.100 crores or more;
(ii) aggregate outstanding loans or borrowings or debentures or deposits exceeds Rs.200 crores.

Establishment of vigil mechanism obligatory for

(i) listed companies
(ii) Companies which accept deposits from the public
(iii) Companies which have borrowed money from banks and public financial institutions in excess of Rs. 50 crores
Powers of Board to be exercised only by Board Resolution and not by circular resolution

(1) to make political contributions;
(2) to fill a casual vacancy in the Board;
(3) to enter into a joint venture or technical or financial collaboration or any collaboration agreement;
(4) to commence a new business;
(5) to shift the location of a plant or factory or the registered office;
(6) to appoint or remove key managerial personnel (KMP) and senior management personnel one level below the KMP;
(7) to appoint internal auditors;
(8) to adopt common seal;
(9) to take note of the disclosure of director's interest and shareholding;
(10) to sell investments held by the company (other than trade investments), constituting 5% or more of the paid – up share capital and free reserves of the investee company;
(11) to accept public deposits and related matters and;
(12) to approve quarterly, half yearly and annual financial statements.

Circumstances in which Related party transactions requires the prior approval of the company by a special resolution

(i) Paid -up share capital of company entering into a contract or arrangement with any related party is Rs.1 crore or more
(ii) Where the transaction or transactions to be entered into
(a) individually or taken together with previous transactions during a financial year, exceeds 5% of the annual turnover or 20% of the net worth of the company as per the last audited financial statements of the company, whichever is higher, for contracts or arrangements as mentioned in clauses (a) to (e) of sub-section (1) of section 188; or
(b) relates to appointment to any office or place of profit in the company, its subsidiary company or associate company at a monthly remuneration exceeding one lakh rupees as mentioned in clause (f) of sub-section (1) of section 188; or
(c) is for a remuneration for underwriting the subscription of any securities or derivatives thereof of the company exceeding ten lakh rupees as mentioned in clause (g) of sub-section (1) of section 188;
In case of wholly owned subsidiary, the special resolution passed by the holding company shall be sufficient for the purpose of entering into the transactions between wholly owned subsidiary and holding company.

Number of members or depositors who can file an application for class action

(a) For the purposes of sub-clause (a) of clause (i) of sub-section (3) of section 245, the number of members that may file an application for class action as provided in sub-section (1) shall be, in the case of a company having share capital, not less than one 100 members of the company or not less than 10% of the total number of its members, whichever is less, or any member or members singly or jointly holding not less than 10% of the issued share capital of the company, subject to the condition that the applicant or applicants have paid all calls and other sums due on his or their shares.
(b) For the purposes of sub-clause (ii) of sub-section (3) of section 245, the number of depositors that may file an application for class action as provided in sub-section(1) shall be not less than 100 depositors or not less than 10% of the total number of depositors, whichever is less or any depositor or depositors singly or jointly holding not less than 10% of the total value of outstanding deposits of the company.

Companies whose name cannot be removed from register of members by ROC

(i) Listed companies;
(ii) Companies that have been delisted due to non-compliance of listing agreement or any other statutory laws;
(iii) Vanishing companies;
  "Vanishing company" means a company, registered under the Companies Act and listed with Stock Exchange which, has failed to file its returns with Registrar of Companies and Stock Exchange for a consecutive period of two years, and is not maintaining its registered office at the address notified with the Registrar of Companies or Stock Exchange and none of its Directors are traceable.
(iv) Companies where inspection or investigation is ordered and being carried out or yet to be taken up or where completed prosecutions arising out of such inspection or investigation or pending in the Court;
(v) Companies where notice under section 206 of the Act has been issued by the Registrar and reply thereto is pending or where prosecution if any, is pending with the court;
(vi) Companies against which prosecution for non-compoundable offence is pending in Court;
(vii) Companies accepted Public Deposits which are either outstanding or the company is in default in repayment of the same;
(viii) Company having secured loan.

Minimum number of directors for dormant company

A dormant company shall have a minimum number of three directors in case of a public company, two directors in case of a private company and one director in case of a One Person Company:

The provisions of the Act in relation to the rotation of directors shall not apply on dormant companies.
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