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J. Sagar Associates advocates & solicitors

CA 13. Lalit Kumar Partner June 22, 2014. J. Sagar Associates advocates & solicitors Bengaluru | Chennai | Gurgaon | Hyderabad | Mumbai | New Delhi. Outline. Key Aspects of Companies Act, 2013 Share Capital & Debentures Appointment and Remuneration of KMP Deposits.

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J. Sagar Associates advocates & solicitors

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  1. CA 13 Lalit Kumar Partner June 22, 2014 J. Sagar Associatesadvocates & solicitors Bengaluru | Chennai | Gurgaon | Hyderabad | Mumbai | New Delhi

  2. Outline • Key Aspects of Companies Act, 2013 • Share Capital & Debentures • Appointment and Remuneration of KMP • Deposits

  3. Key Aspects of CA13 • Classification of companies • Public Company • Private Company • Small Company • One Person Company • Dormant Company • Associate Company • Joint Venture Company • Modified definition of holding-subsidiary relationship • Concepts of Public Offer, Private Offer (Private Placement & Preferential Issue) • Same concept of share capital – Equity (including DVRs) & Preference Shares • Bonus Shares & Convertible Debenture provided • Issue of shares at discount not possible except as sweat equity

  4. Key Aspects of CA13 • Unease of doing business for private limited companies – contrary to expectations many exemptions withdrawn now! • Detailed regulations for acceptance of deposits from members and persons other than members • Corporate Governance & Management • Independent Director • Woman Director • Resident Director • Codified Duties of Directors • Minimum Period of Board Meeting Notice • Reason for director’s resignation • Additional matters to be approved in board meeting instead of circular resolution • Concept of Key Managerial Personnel • Entrenchment provisions in articles of association • Enhanced Disclosures in Documents, Reports & Statements

  5. Key Aspects of CA13 • Vigil Mechanism (Whistle Blower Policy) • Compulsory Secretarial Audit for certain companies • Related Party Transactions • New Committees Introduced • Restrictions on non-cash transactions involving directors • Investments, Loans & Guarantees strictly regulated • CSR • Auditor’s Rotation • Prohibition on Non-Audit Services • Setting up of National Financial Reporting Authority • Compulsory Internal Audit for certain companies • NCLT, Special Courts & Mediation and Conciliation Panel • Certain new M&A aspects like cross border merger • Modified concepts of Rehabilitation & Revival of Sick Companies

  6. Key Aspects of CA13 • Definition of Fraud and Punishment thereof • Class Action • Setting of Serious Fraud Investigation Office • Prohibition on forward dealing and insider trading • e-Voting • Concept of valuation by Registered Valuer • Specific provisions for GDRs & IDRs • Offer for Sale concept • Enforceability of transfer restrictions in public companies • Doing business in India through electronic mode • Introduction of certain policies and codes of conduct

  7. Share Capital & Debentures • By Public Company (Section 23 (1)) • Public offer through prospectus (Part I Chapter III) • Private Placement (Section 42 - Part II Chapter III, Section 62(1)(c), Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014 and Rule 13 of Companies (Share Capital and Debentures) Rules, 2014) • Rights Issue (Section 62(1)(a)) • Bonus Issue (Section 63 & Rule 14 of Companies (Share Capital and Debentures) Rules, 2014)

  8. Share Capital & Debentures • By Private Company (Section 23 (2)) • Private Placement (Section 42 - Part II Chapter III, Section 62(1)(c), Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014 and Rule 13 of Companies (Share Capital and Debentures) Rules, 2014) • Rights Issue (Section 62(1)(a)) • Bonus Issue (Section 63 & Rule 14 of Companies (Share Capital and Debentures) Rules, 2014)

  9. Share Capital & Debentures Kinds of Securities • Equity Share Capital(Section 43) • With voting rights • With differential rights as to dividend, voting or otherwise (Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014 • Preference Share Capital(Section 43) • Redeemable Preference Shares can exceed 20 years and up to 30 years for specified infrastructure projects (Refer Schedule VI) (Section 55 and Rule 9 of Companies (Share Capital and Debentures) Rules, 2014) • Convertible Preference Shares – Optionally or Compulsorily Convertible • Debentures • Non-Convertible Unsecured Debentures • Non-Convertible Secured Debentures • Convertible Debentures – Optionally Convertible or Compulsorily Convertible

  10. Share Capital & Debentures Issue of Secured Debentures (Section 71 and Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014) • The period of redemption cannot exceed 10 years except in a company engaged in the setting up of infrastructure projects for which the maximum period if 30 years • Security by creation of charge on the properties or assets of the company, having a value which is sufficient for the due repayment of the amount of debentures and interest thereon • Appointment of debenture trustee Creation of Debenture Redemption Reserve • Created out of profits of the company available for distribution of dividend • DRR equivalent to at least 50% of the amount raised through debenture • Each year on or before April 30, invest or deposit, not less than 15% of the amount of debentures maturing during the year ending on March 31 of the next year in certain prescribed methods • The remaining invested or deposited shall not at any time fall below 15% of the amount of the debentures maturing during the year ending on March 31 of that year

  11. Share Capital & Debentures • Voting rights in respect of preference shares – no distinction between cumulative and non-cumulative preference shares (Section 47) • Bonus issuance specifically provided – certain conditions imposed – cannot be issued from revaluation reserve and in lieu of dividend (Section 63)– Offer once made cannot be withdrawn Rule 14 of Companies (Share Capital and Debentures) Rules, 2014) • Prohibition of issue of shares at discount - issue at discount to be void (Section 53) • Issue of sweat equity shares permitted (Section 54 & Rule 8 of Companies (Share Capital and Debentures) Rules, 2014) • Preferential issue value to be determined by registered valuer (Section 62 and Rule 13 of Companies (Share Capital and Debentures) Rules, 2014) • Specific mention of issue of convertible debentures subject to shareholders’ resolution (Section 71)

  12. Share Capital & Debentures • In Private Placement monies payable shall be paid through cheque or demand draft of other banking channels but not by cash (Section 42 (5)) • Allotment of Securities within 60 days from the date of receipt of application money (Section 42 (6)) • Money received on application shall be kept in a separate bank account and shall not be utilised for any purpose except (Section 42 (6)) • For adjustment against allotment of securities • For repayment of monies where the company is unable to allot securities • Certificate for the allotted securities to be issued • Within 2 months from the date of allotment of shares • Within 6 months from the date of allotment of debentures

  13. KMP (Section 2 (51), Section 203) • CEO or Managing Director or Manager • Whole-time Director • CFO • Company Secretary - Such other officer as may be prescribed • Listed companies and public companies having a paid-up share capital of Rs. 10 crores or more shall have a whole-time KMP • All companies having a paid paid-up share capital of Rs. 5 crores or more shall have a whole-time Company Secretary • Appointment of whole-time KMP by board of directors’ resolution containing terms and conditions including the remuneration • Separation of office of chairman and managing director or CEO Interesting Issues! • Whether one person can be the CFO and CS? • Whether one person can be all three – CFO, CS and Director as a whole time KMP

  14. KMP • Nature of concern or interest, financial or otherwise, of every KMP to be disclosed in the explanatory statement • Any item of “special business” relates to or affects any other company, the extent of shareholding (2% or more) of KMP to be mentioned in the explanatory statement • Section 177(7) – As a KMP, CFO has a right to be heard in the meetings of the audit committee when it considers the auditor’s report but shall not have any right to vote • Section 189(2) – Disclosure of interest at the time of appointment or relinquishment of office • Section 203 (3) – Whole-Time KMP cannot hold office in more than one company except in its subsidiary company at the same time – But can be a director in any company with the permission of the board of directors • KMP is a related party under Section 2(76). Relatives of KMP also related parties

  15. KMP • Vacancy in the office of any whole-time KMP shall be filled-up by the board at a meeting of the board within 6 months • KMP will also qualify as an “officer” and “officer who is in default” under Section 2(59) & 2(60) • Section 194 – Prohibition on Forward Dealing • Section 195 – Prohibition on Insider Trading of Securities • Is liable to compensate the company to the extent of the benefit received arising from non-disclosure or insufficient disclosure in the explanatory statement • Section 224(5) – Disgorgement provisions

  16. Deposits (Chapter V, Sections 73-76 and Companies (Acceptance of Deposits Rules), 2014) • Allows acceptance of deposits from members and public • Private company can accept only from members and directors • Resolution of shareholders required • Issuance of circular to members with statement of financial position, credit rating obtained, outstanding amount of previous deposits • Deposit Repayment Reserve Account in a separate bank account– 15% of the amount of deposits maturing during a financial year and financial year next following • Amount of deposit or any part thereof or any interest due thereon remains unpaid on the commencement of the Act or becomes due thereafter – file of statement with RoC and repay within one year

  17. Deposits • Deposit Repayment Reserve Account shall be used only for repayment of deposit, no other purpose • Public company can accept deposits from public • Provided it has “net worth” of not less than Rs. 100 crores or “turnover” of not less than Rs. 500 crores and has obtained prior approval of shareholders by special resolution and filed the resolution with RoC before making any invitation to public for acceptance of deposits • Banking company and NBFCs exempted • Stringent penalties provided - Unlimited liability of officers responsible of accepting deposit with intent to defraud

  18. Questions?

  19. Thank You lalit@jsalaw.com

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