Brief Comparison between Companies Act 1956 VS Companies Act 2013.

1. Welcome

2. THE COMPANIES ACT, 2013
Presented by
JAYESH ALWANI
New rules of the game

3.  This Presentation is prepared keeping the provisions of
the 2013 Act and does not capture provisions of the
Rules as the same are in Draft stage and are subject to
change once the feedback of the stakeholders is received by
MCA and incorporated in the final Rules.
 "Prescribed" or "as prescribed" or "as may be prescribed"
used in this Presentation means the Rules as may be
finalized by the CG.

4. TODAY’S OVERVIEW

5. SALIENT FEATURES
COMPANIES ACT 1956 COMPANIES ACT 2013
13 Parts 29 Chapters
658 Sections 470 Sections
15 Schedules 7 Schedules
The entire act has been divided into 29 chapters.

6.  Passed in Lok Sabha on 18th December,
2012 (Bill no. 121 of 2011)
 Passed in Rajya Sabha on 8th August,
2013 (Bill no. 121 of 2011)
 Received Ascent of President 29th
August, 2013
HIGHLIGHTS OF THE COMPANIES ACT,
2013

7. NEW CHAPTERS INCLUDED IN
COMPANIES ACT 2013
Chapter Description Chapter Number
Registered Valuers Chapter 17
Government Companies Chapter 23
Companies to Furnish Information or
Statistics
Chapter 25
Nidhis Chapter 26
National Company Law Tribunal &
Appellate Tribunal
Chapter 27
Special Courts Chapter 28

8. CHANGES REGARDING INCORPORATION
RELATING MATTERS
Sr
no
Particular Provisions under
Companies Act 1956
Provisions under
Companies Act
2013
1 Types of Companies Public company
Private company
Public company
Private company
One Person company
2 Maximum no of
members for private
companies
A private company can
have maximum of 50
members
A private company can
have maximum of 200
members
3 One person
company
No provision for OPC New Concept
Introduced
4 Commencement of
business
Provisions applicable to
public limited company
only
Now applicable to all
companies having
share capital

9.  The concept of “One Person Company” has been
introduced and the said company will be formed as a
private limited company. This will be called as “OPC
Limited” [Section 2(62)].
 A Company may be an OPC having a sole member.
 The memorandum of such OPC is required to indicate
the name of the person who shall become member in the
event of death or incapacity of the sole member.
 OPC is required to specifically mention the word “one
person company” below the name wherever it is used.
INCORPORATION OF COMPANIES
Continued….

10. Continued….
 2013 Act provides additional flexibility to OPC. Some of
the relaxations provided to OPC are as under:
– Cash flow statement is not required.
– Annual Return can be signed by CS or one director if
there is no CS.
– Provisions of board meeting, quorum and interested
director shall not apply to OPC.
– OPC should have minimum 1 director.
– OPC need not hold an AGM.
– Financial Statements can be signed by only one director.

11. OBJECT CLAUSE OF MOA
Provisions under Companies Act
1956
Provisions under Companies Act
2013
Object Clause is bifurcated
into –
 Main Objects,
 Incidental or Ancillary
Objects and
 Other Objects.
MOA to contain the objects for
which the company is
proposed to be incorporated
and any matter considered
necessary in furtherance
thereof.

12. FINANCIAL YEAR
 Financial Year in relation to any
company or body corporate, means the
period ending on the 31st day of March
every year in order to align with the
provisions of the income tax act.
(Section 2(41))

13. KEY MANAGERIAL PERSON (KMP)
Companies Act
1956
Companies Act
2013
No provision
except in AS 18
Related Party
Disclosures
Includes:
 CEO or MD or Manager;
 Company Secretary;
 WTD;
 CFO; and
 Such other officer as may be prescribed
[Section 51]

14. APPOINTMENT OF WHOLE TIME
KMP
Companies Act, 1956 Companies Act, 2013
Public Company having
paid-up capital of Rs.5
Crore or more to have
WTD or MD And Company Secretary
Every Company
belonging to class or
classes of companies as
may be prescribed shall
have KMPs
– MD or CEO or Manager
and in absence of a WTD
– Company Secretary
– Chief Financial Officer
(Sec. 269) (Section 203)

15. DIVIDEND TRANSFER TO RESERVES
Companies Act 1956 Companies Act 2013
No Dividend can be
declared more than 10%
for any F.Y out of the
profits of the company for
that F.Y, except after the
transfer of profit to the
reserves such portion of
profits of the company for
that F.Y, not exceeding
10% of its profits.
A company to transfer
voluntarily a portion of its
profits to the reserves as
consider appropriate,
before declaration of any
dividend. Mandatory
transfer to reserve done
away.
[section 205A(3)] [Section 123
(1)]

16. REGISTERED VALUER
Companies Act 1956 Companies Act 2013
No provision provided for
registered valuer.
When valuation is required to be made
under the Act, in respect of any property,
stocks, shares, debentures, securities or
goodwill or other assets or net worth of
company or its liabilities, such valuation
shall be done by a registered valuer.
[Section 247]
The Central Government shall maintain a
register of valuers.

17. CHANGES REGARDING ISSUE OF SHARES
CAPITAL
Sr
No
Particular Provisions under
Companies Act 1956
Provisions under
Companies Act 2013
1 Issue of Shares
at a discount
Section 79 permits issue of
shares at discount subject
to compliance with
conditions.
Shares, other than sweat
equity shares, cannot be
issued at a discount.
2 Issue of
preference
shares for
more than 20
years
Section 80 prohibits issueof
irredeemable preference
shares and preference
shares Redeemable after 20
years.
Preference shares have to
be redeemed within 20
years of issue except for the
shares issued for prescribed
infrastructure projects,
provided a certain
percentage of shares are
redeemed annually at the
option of shareholders
Continued……..

18. CONTINUED…
Sr
No
Particular Provisions under
Companies Act 1956
Provisions under
Companies Act 2013
4 Notice of
alteration of share
capital
Notice of redemption of
preference shares is not
required to be filed with
ROC.
Company shall file a
notice in the prescribed
form with the Registrar
within a period of thirty
days of redemption of
redeemable preference
shares.
5 Consolidation and
division of shares
Company permitted to
consolidated or sub
divide its shares by
passing
resolution in general
meeting
Consolidation and
division which results in
changes in the voting
percentage of
shareholders shall require
approval of the Tribunal
to be effective.

19. AUDIT
AND
AUDITORS

20. SCOPE OF AUDIT
 Scope of auditor enhanced to report on additional
matters such as :
‒the existence and operating effectiveness of internal
financial controls
‒any qualification, reservation and adverse remark relating
to the maintenance of accounts
‒any fraud by officers or employees on the Company
(immediate reporting to CG): is being or has been
committed
 Does not provide for audit qualifications to be in
thick/bold or italics

21. AUDITORS
 Every company is required at its first annual general meeting
(AGM) to appoint an individual or a firm as an auditor. The auditor
shall hold office from the conclusion of that meeting till
the conclusion of its 6th AGM and thereafter till the
conclusion of every 6th meeting
 The appointment of auditor is to be ratified at every AGM.
 Individual Auditors are to be compulsorily rotated every 5
years and audit firm every 10 years in listed companies & certain
other classes of companies, as may be prescribed.
 Transition period of 3 years provided to the companies to comply
with the mandatory rotation of auditor requirement.
Continued…

22. Continued…
• Internal audit may be made mandatory for prescribed
companies.
• Auditors are restricted from rendering other services
like bookkeeping, accounting etc. directly or indirectly
to the company or its holding company or subsidiary
company.
• The Act provides for new disqualifications of Auditor .
• Auditors can audit maximum 20 Companies including
Private companies .

23. Appointment of Auditor in unlisted companies
Appointment Period of appointment
At first AGM to hold office till conclusion of 6th AGM subject to ratification by
members at every
AGM
Subsequent to hold office till conclusion of 6th meeting, subject to ratification
by members at
every AGM
Appointment of Auditor in listed and specified class of companies
Appointment Maximum period of appointment
Of an individual as an
auditor
1 term of 5 consecutive years
Of an audit firm as an
auditor
2 terms of 5 consecutive years
Cooling off period of 5 years before next appointment

24.  Every listed company shall form an Audit Committee.
 The Audit Committee shall consist of minimum of three
directors with independent directors forming majority.
 Provided that majority of members including the
Chairperson shall be persons with ability to read and
understand the financial statements.
Continued…

25. Summary
Appointment or Reappointment
Of Auditor
Individual as an Auditor
More than 5
Consecutive
years
Audit Firm
More than 10
Consecutive
years

26. NATIONAL FINANCIAL REPORTING
AUTHORITY (NFRA)
 NFRA to be constituted by CG to provide for dealing
with matters relating to accounting and auditing
policies and standards to be followed by companies and
their auditors.
 Functions of NFRA shall include :
 Make recommendations to CG on the formulation of
accounting and auditing policies and standards;
 Monitor and enforce compliance with accounting and auditing
standards;
 Oversee the quality of service of the professions and suggest
measures required for improvement in quality of services and
such other related matters as may be prescribed

27. SECRETARIAL STANDARDS
• For the first time, the Secretarial Standards has been
introduced and provided statutory recognition.
• Clause 118(10) read as:
Every company shall observe Secretarial Standards with
General and Board meetings specified by ICSI.
• Clause 205 casts duty on the Company Secretary to ensure
that the company complies with applicable Secretarial
Standards.
• It is the beginning of a new era where non financial
standards have been given importance statutory
recognition besides financial standards

28. APPOINTMENT OF COMPANY
SECRETARY
 CS being a whole-time KMP is to be appointed by a
resolution of the BOD which will also contain the terms
and conditions of appointment including the
remuneration. The functions of CS shall include
– report to BOD about compliance with the
provisions of 2013 Act, the rules made there under
and other laws applicable to the company;
– ensure compliance with the applicable secretarial
standards as may be approved by CG; and
– discharge such other prescribed duties.

29.  In December 2008, the Ministry of Corporate Affairs
introduced Voluntary Guidelines on Corporate Governance
which inter-alia prescribed Secretarial Audit.
 Now, for the first time Secretarial Audit as been included in
the Act.
 Secretarial audit by CS in practice made compulsory for listed
and prescribed class of companies.
 Every listed company and prescribed class of companies shall
annex with it’s Board Report a Secretarial Audit Report given
by a Company Secretary in practice, in such a form as may be
prescribed.
SECRETARIAL AUDIT

30. CHANGES REGARDING DIRECTORS AND
THEIR POWERS
 In listed and prescribed class or classes of companies, there
should be at least 1 woman director.
 At least 1 director of a company shall be a person who
has stayed in India for 182 days or more in the previous
calendar year. Existing companies to comply with this
provision within 1 year from the date of commencement
of the 2013 Act.
Continued…

31. Continued…
 The maximum limit of directors in the Company has
been increased to 15 from the 12. Company can appoint
more than 15 directors by passing an special resolution.
 A person cannot become directors in more than 20
companies instead of 15 as provided in the Companies
Act 1956 and out of this 20, he cannot be director of
more than 10 public companies.
 Contents of Directors’ Report elaborated. Directors to
annually report on the existence and effective
operations of systems on compliance with all applicable
laws

32. INDEPENDENT DIRECTOR
Continued…
 Listed co. and prescribed class of public co. to have at least 1/3rd of
its total number of directors as IDs
 CG may prescribe minimum number of IDs in case of any class of
public companies.
 This requirement is to be complied within 1 year:
 By existing listed companies from the commencement of 2013
Act; and
 By the prescribed class of public companies from the date Rules
are notified.
 The company and independent director are required to abide by
the provisions specified in Schedule IV.

33. Continued..
 The company and independent director are required to comply
with the provisions specified in Schedule IV.
 An independent director shall hold office for a term up to five
consecutive years on the Board of a company, but shall be eligible
for re- appointment on passing of a special resolution by the
company for another 5 year term. Thereafter 3 years gap.
 The Section seeks to provide that an independent director shall not
be entitled to any remuneration, other than sitting fee,
reimbursement of expenses for participation in Board meeting and
profit related commission as approved by the members.
 A person cannot be a director, including alternate director, in more
than 20 companies including not more than 10 public companies.

34. RESIGNATION OF DIRECTORS

35. NOMINATION AND REMUNERATION
COMMITTEE (NRC)
Companies Act, 1956 Companies Act, 2013
No provision Mandatory in case of listed and other prescribed
classes of companies
Governed by Section 49
of listing agreement
Composition of the committee would include
three or more non-executive directors of which at
least one-half shall be Independent directors.
Shall formulate the criteria for determining
Qualifications, positive attributes and
independence for a director
Shall recommend to the Board a policy, relating
to the remuneration for the directors, key
managerial personnel and other employees
(Section 178)

36. Corporate Social
Responsibility
(CSR)

37. CSR…
 Every company having
Net worth of Rupees 500 Crore or more, or
Turnover of Rupees 1,000 Cr or more, or
Net profits of Rupees 5 Cr or more during any FY shall
constitute CSR Committee.
 Committee to consist of at least three directors out of
which at least one should be independent director.
 CSR Committee shall formulate and recommend policy to
Board, which shall indicate activities to be undertaken by
the company.
Continued...

38. Continued…
 Board to ensure that at least 2% of the average net
profits of last 3 years is spent by the company on CSR
activities (Specified in schedule VII) every financial year.
 If company fails to spend such amount, reasons for not
spending to be specified in the Board's report signed by
a director and the company secretary, or where there is
no company secretary, by a company secretary in
practice.

39. RESTRICTION ON FURTHER BUYBACK OF
SHARES
 Whether Authorised by Board or
Shareholders , No further offer for buy-
back shall be made within a period of
One year from the date of preceding
buy-back.

40. MERGERS & ACQUISITIONS
• Merger of Indian company with a foreign
company allowed.
• Fast track merger for small companies and
between holding company and its wholly owned
subsidiary introduced
• Any valuation of shares / assets etc. required
under 2013 Act to be performed by a Registered
Valuer.

41. NATIONAL COMPANY LAW TRIBUNAL
(NCLT)
 2013 Act replaces the High Court with a Tribunal to be
known as NCLT, which will consists of Judicial and
Technical members, as Central Government may deem
necessary, to exercise and discharge the powers and
functions conferred including approval of merger,
corporate reorganization, capital reduction, extension
of financial year etc.

42. RELATED PARTY TRANSACTIONS
 Requirement of obtaining Central Government
approval for related party transactions not required
 Approval of related party transactions by Board of
Directors at Board meeting made mandatory
 Related party transactions to also require prior
shareholder’s approval by special resolution for
companies having prescribed paid up capital or
transactions exceeding prescribed amounts.
 Related party transactions to be disclosed in the
Director’s Report along with justification thereof.

43. COMMITTEES OF THE BOARD
Following committees of the Board made
mandatory for listed and prescribed classes of
companies:
– Audit committee
– Stakeholder relationship committee
– Nomination and Remuneration committee
– Corporate Social Responsibility committee

44. LOAN TO DIRECTORS
 No company shall directly or indirectly advance any
loan (including loan represented by a book debt) or give
guarantee or provide security in connection with such
loan to any director / related persons.
- An exception to the above rule is made for MD or a whole time
director (WTD) if such loan is in accordance with the terms of
services extended to all employees or is approved by
shareholders by special resolution
 Provisions for loan to directors are also applicable to
private companies

45. WINDING UP OF A COMPANY
 Certain criteria for winding-up by NCLT deleted like minimum
number of members falling below prescribed limit, non-
commencement of business for 1 year etc.
 Additional grounds provided for winding-up.
 Winding up can be ordered if NCLT is of the opinion
that:
– affairs of the company have been conducted in a
fraudulent manner;
– company was formed for fraudulent and unlawful
purpose;
– the persons concerned in the formation or
management of its affairs have been guilty of
fraud, misfeasance or misconduct in connection
therewith.

46. MISCELLANEOUS
 Inability to pay debts will be considered as criteria for
determining a sick company
 Central Government to establish Serious fraud
investigation office for investigation of frauds relating
to a company
 Credit rating made mandatory for acceptance of public
deposits
 Time gap between 2 buy-backs shall be minimum 1
year.
 Now all types of charge would be required to be
registered,.

47. PROVISIONS CITED IN COMPANIES ACT-
2013 FOR BETTER GOVERNANCE
 New Provisions for Better Governance:
 Requirement to constitute Remuneration and Nomination Committee and Stakeholders.
 Grievances Committee.
 Granting of More powers to Audit Committee.
 Specific Section pertaining to duties of directors.
 Mode of appointment of Independent Directors and their tenure.
 Code of Conduct for Independent Directors.
 Rotation of Auditors and restriction on Auditor's for providing non-audit services.
 Enhancement of liability of Auditors.

48. Why worry and have wrinkles
When you can smile and have
Than
k
You..