Highlights of Companies Bill 2012

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The Companies Bill 2012 will replace the legendary 56 year old Companies Act 1956. The Companies Bill 2012 was passed in Lok Sabha on 18th December 2012 and now in Rajya Sabha on 8th August 2013. To quote Sachin Pilot, ‘The focus of the bill is to enhance transparency and ensure fewer regulations, self-reporting and disclosure… It will outline the positivity in the economy’

As of now the Companies Bill 2012 lays down the basic framework of the Law and the procedures will be notified by the Central Government through prescribed rules from time to time.

What’s New!

One Person Company (OPC):

The new concept of One Person Company has been introduced in clause 2(62). For the formation of the Company only one member is required. The provision relating to holding of AGM is not mandatory for OPCs’. For the purpose of memorandum of an OPC the nominee director has to be decided in advance (in case of death) and written consent from him to be filed with registrar at the time of registration.

Small Company:

 A Small Company is a company whose:

  1. paid up share capital does not exceed 50 Lakh rupees or such higher amount as may be prescribed (which shall not be more than 5 Crore Rupees); OR
  2. Turnover of which as per last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees;

Provided that this would not apply to: i) a holding company or a subsidiary company, ii) a company registered under sections 8; or iii) a company or a body corporate governed by a special Act;

Various relaxations in terms of reporting requirement, board meetings and procedure for mergers/amalgamations have been introduced. The merger between them can be processed without requirement of Court Process.

Independent Directors:

All listed companies are required to appoint 1/3rd of the board as independent directors. The manner of selection of independent directors shall be prescribed by the Central Government. The independent director would be appointed for a period of 5 years and is eligible of re-appointment for the following consecutive term. However a director cannot hold for more than two consecutive terms (i.e. 10 years).

Dormant Company:

A company can get its removed from the Register of Companies by obtaining a status of a dormant company under section 455. A company not carrying on any business or operation for a period of two years immediately preceding financial year and has not made any application within such period, make an application to the Registrar.

Corporate Social Responsibility:

Every company whose net worth exceeds Rs. 500 crores or turnover of Rs 1000 crore or more or net profit of rupees Rs. 5 crore or more during any financial year shall constitute Corporate Social Responsibility Committee under section 135 to spend at least 2% of the average net profits of the company made during three immediately preceding financial year.

Secretarial Audit:

Every Listed company and such companies as may be prescribed shall annex with its Board’s report under section 134, a SECRETARIAL AUDIT Report, given by a company secretary in practice, following the Secretarial Standards issued by ICSI, as per section 204.

Rotation/ Appointment / Re-Appointment of Auditors:

 As per section 139, every company shall appoint (includes re-appointment) an individual or a firm as an auditor who shall hold office form the conclusion of that meeting till the conclusion of its 6th AGM and thereafter till the conclusion of every 6th meeting. However no LISTED Company or such class or classes of companies as may be prescribed, shall appoint or reappoint-

  1. An individual as auditor for more than one term of five consecutive years; and
  2. An audit firm as auditor for more than two terms of five consecutive years

What’s Altered!

Financial year:

Previously the financial year which was not to exceed 15 months has now been restricted to 31st March (i.e April to March) for all companies. No question of extension of financial year. Also as per section 2(41) all existing companies shall within a period of two years align it financial year as per the provisions.

Number of members:

The maximum numbers of members in case of private limited companies has been increased to 200 from 50.

Object Clause :

The Objects Clause of memorandum has been relieved. As per section 4 (1) (c) object clause to contain ‘objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof’ (i.e. no bifurcation of objects required)

Notice for change of registered office:

Notice of Change of Registered office to be given to Registrar has been cut down to within 15 days from 30 days of the change.

Printing of CIN (Corporate Identity Number):

As per sections 12 (3), every company shall have to from now paint or affix its name (provided that where a company has changed its name within last two years, shall get its name printed on along with former name(s) changed within last two years), registered office and Corporate Identity Number (CIN) along with telephone number, fax number, if any, e-mail and website address in all the business letters, billheads, letter papers and in all its notices and other official publications.

Also in case of an One Person Company the words One Person Company shall be mentioned in brackets below the name of such company, wherever its name if printed, affixed or engraved.

Directors:

  1. Every company can have a maximum of 15 directors, which can be increased further after passing a special resolution.
  2. Provided further that such class of classed of companies as may be prescribed, shall have at least one woman director. (Section 149 (1))
  3. Every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous CALENDAR year.
  4. No person shall hold office as a director including any alternate directorship, in more than 20 companies at the same time. (inclusive of maximum number of public companies in which a person can be appointed as the director shall not exceed 10) – section 165 (1)
  5. First meeting of Board of Directors to be held in 30 days of the date of incorporation. (Previously no time limit was mentioned)
  6. Time GAP between two board meeting should not exceed 120 days. (at least one meeting in a quarter)

Commencement of business:

 A company having a share capital shall not commence business or exercise any borrowing powers unless a declaration is filed with Registrar by a director verified in the manner as may be prescribed that:

  1. every subscriber to the memorandum has paid the value of shares agreed to be taken by him;
  2. Paid-up capital is not less than Rs. five lakhs in the case of public company and one lakh in case of a private company.
  3. The company has filed with the Registrar the verification of its registered office.

Annual General Meeting:

  1. The first Annual General Meeting is to be to be held within 9 months (i.e 31st December) from closure of its first financial year (i.e 31st March) which previously was 18 months from incorporation.
  2. In other cases, the existing, 6 months continue.
  3. AGMs’ to be held between 9AM to 6PM (business hours) on any day except, a National Holiday (Public Holiday).

Quorum:

Quorum for Private Companies stay 2 members but for Public Companies it has been changed to:

  1. 5 members (for total members not exceeding 1000)
  2. 15 members (for total members between 1000 to 5000)
  3. 30 members (for total members exceeding 5000)

Auditors:

 First auditors to be appointed in a board meeting within 30 days of incorporation or within 90 days of an Extra-ordinary general meeting.

  1. Company to intimate auditor within 15 days (7 days) of appointment.
  2. Auditor’s limit cut down to 20 Companies: As per 141 (3)(g) an individual or an audit firm holding appointment as audit should not hold appointment as auditor of more than 20 companies;

The Companies Bill 2012 has been passed by both the Upper and Lower Houses of Parliament and is awaiting for President’s assent. Once the Bill became the Act the government will notify the date from which it would come into force.

Download the above in PDF format -> Highlights of Companies Bill 2012.

Download the Companies Bill 2012 -> Companies Bill 2012

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