Business just got simpler! Amendments to Companies Bill now in effect
The Companies (Amendment) Bill 2015, in effect from May 26 after receiving the assent of the President the previous day, makes all the right moves, removing unnecessary restrictions, clarifying ambiguous provisions of the Companies Act, 2013, and placing hefty penalties on fraud. With these amendments, companies will be able to implement the Act with greater certainty. This – together with the introduction of INC-29 filing – should go a long way toward improving ease of doing business in India.
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Here's a summary of the major amendments:
- No minimum paid-up capital
Act: The Act requires start-up founders to have a paid-up share capital worth Rs. 1 lakh. This means that shares worth this amount would have to be issued. This applies to private and one-person companies. A public company is required to issue shares worth Rs. 5 lakh.
Amendment: The Amendment has removed the minimum requirement for one-person, private and public companies. Now, this still raises questions (can you incorporate a company and issue no capital whatsoever?), but it is clear that starting a business will be cheaper. Founders can now choose to have paid-up capital of as little as Rs. 5,000.
- Common seal
Act: Every company is required to have a common seal, immediately after the incorporation certificate is received. This is a two-day process that costs under Rs. 500.
Amendment: The Amendment has taken away this requirement altogether. Documents, agreements, and power of attorney can be signed by two directors or a company secretary, if any, in case there is no common seal.
- Acceptance of deposits (new section)
Amendment: Section 76A deals with deposits accepted from the public in contravention of the Act. In this case, or in case of a failure to repay the deposit or interest, in part of full, within the time specified in the Act, there shall be a minimum fine of Rs. 1 crore and maximum of Rs. 10 crore, in addition to the deposit. Furthermore, every defaulting officer may face up to seven years' imprisonment and a fine of Rs. 25 lakh to Rs. 2 crore, and also face charges of fraud in case of wilful default.
- Transactions between related parties
Act: The Act requires special resolutions even in case of related party transactions. Also, shareholder approval is required even for transactions between holding company and its wholly owned subsidiary.
Bill: The Amendment requires only ordinary resolutions to be passed in case of related party transactions and removes the need for shareholder approval in case of a related party transaction between holding company and its wholly owned subsidiary, when consolidated accounts are submitted to shareholders for their approval.
- Board resolutions
Act: All ordinary and special resolutions filed with the Registrar of Companies are public documents.
Amendment: Board resolutions will no longer be public documents.
- No dividend unless losses set off (new proviso)
Amendment: The Amendment disallows companies from declaring dividend unless the carried-over losses and depreciation not provided in previous years are set off against current year's profits. Furthermore, all unclaimed dividend (unpaid for seven years or longer) shall be transferred to Investor Education and Protection Fund.
- Duties of auditor
Act: If the auditor believes that fraud has been committed by an employee against the company, it must be reported to the central government within a specified time period in the manner prescribed. No minimum amount is prescribed.
Amendment: For the offence to qualify as fraud, the amount involved should be of a specific amount or larger. If it isn't, the matter must only be reported to the Board or the Audit Committee; details of such fraud must be included in the Board's report.
About the author: An alumnus of National Law School, Bangalore, Hrishikesh Datar is the founder of Vakilsearch, India’s leading online legal services provider, whose key focus areas are company registration, trademark filing, business expansion, copyright and trademark protection, tax compliance and legal documentation.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)
