Highlights of New Companies Act, 2013
The age old Companies Act, 1956 was brought into force during 50s’ with a view to control few thousand companies that existed that time, as decades passed, although the old act was amended from time to time, still many of the existing provisions are either outdated or irrelevant or inadequate.
The corporate field which has seen huge changes over past few decades and even at a greater pace in the last decade, the stakeholders had lot to ask for than those few bits and pieces of amendments and hence a need arose for re-structuring of the act. Lawmakers had lot of issues to address right from the ease of incorporating a business, the corporate role in social responsibility, problems of bogus business entities, appointment, duties & rights of the auditors of the company, to a need of a one-man company. Although there are lot of areas which are still left untouched, most of the questions have been addressed and accordingly relevant & adequate provisions were included in the New Companies Act, 2013 which got ratified at the upper house on 08th August, 2013, and subsequently was notified by President Mr Pranab Mukherjee in the official Gazette 30th August 2013. The Corporate Affairs Minister Mr. Sachin Pilot has termed it “Historic feat“.
Let us have a look at some of the highlights of the new Companies Act, 2013:
Yes you heard it right, a One-Person Company which has one person as a member. This would help the new age entrepreneurs to use the facilities and enjoy the advantages a company has in credit processing, project approvals, etc.
Few insights into a “One-Person Company” under this new act:
- It will be formed as a private limited company.
- Words One Person Company Should be mentioned at the bottom of the name of the company.
- Nominee has to be mentioned to continue the company’s existence in the event of death
- Minimum 1 Director required
- No Annual General Meeting is required
- No Board meeting is required in case of a single director
- Financial statements can be signed by single director alone
- Annual Returns should be signed by the Company Secretary appointed, if not appointed director can sign the same
Section 135 made it an obligation for a company which has a
- Net worth of rupees Rs. 500 crore or more (or)
- Turnover of Rs. 1000 crore or more (or)
- a Net profit of Rs. 5 crore or more
to spend at least an amount equivalent to 2% of average net profits of 3 immediately preceding financial years.
Though this is not quite understood whether the same is mandatory to spend or the same is about reporting. The CSR part is subjected to lot of interpretations since the section has left lot of ambiguity, so we will wait and watch what the ministry intended in this regard and how the corporate world is gonna react to the same.
My personal view is that although philanthropy is expected from everyone, but you cannot force it. As many corporates find n-number of ways to evade taxes, over a period of time, making CSR mandatory will only make corporates think of possible ways to evade the CSR obligation and for the records they will still have something to show up in their financial statements. Anyway they made it mandatory, so they may have to get themselves prepared for a sequence of amendments, clarifications, closing the loopholes if any and few court cases to follow on this issue as they will find some resistance from few sections of the corporate india to adhere with this new rule.
You can also expect Income Tax Department to provide for a weighted deduction on CSR spendings to encourage corporates.
In the backdrop of satyam scandal, there required a reconsideration on appointment, rights & duties and related provisions. As required, the same have been answered in the new act by reducing the tenure of an auditor to a maximum of 5 consecutive years for Individual Auditor and 10 years for an Audit Firm.
Another clarification from MCA on the clause related to Audit and Auditors:
In case of Material Fraud being found in a company, the Auditor has to inform the same to the govt within 30 days. Material in this case is fraud involved is not less than 5% net profit or 2% turnover for preceding financial year.
No listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or reappoint—
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years:
(i) an individual auditor who has completed his term under clause (a) shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term;
(ii) an audit firm which has completed its term under clause (b), shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term
More Highlights Coming Soon… bookmark this page
Would like to know what you think about the new act and in your opinion what all areas you think need some changes? your opinion matters!
Meanwhile Download the New Companies Act 2013 in Full
+Dilip Kumar (Author and Editor of The Tax Info) is a CA Student from Hyderabad, Loves Blogging on Tax related matter.
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