As we all know, many provisions of the new Companies act 2013 has been made effective from 1.4.2013. A number of regulatory and compliance provisions are now applicable to private limited companies as well. The main objective of this article is to provide the private companies a brief picture of the changes introduced. And thus, help them comply with the law in the best possible way, for easy and peaceful business existence.
For my professional colleagues, the respective sections have been mentioned in brackets, for ready reference.
Now financial year can only be April to March. Companies cannot have a different financial year ending, e.g.: January to December. For companies having a different financial year at the commencement of this act, a transition period of 2 years has been given from the date of commencement of the new act, to order their financial year to April-March.
- Company or a body corporate, which is a holding/subsidiary of a company incorporated outside India, and is required to follow a different financial year for consolidation of its account, they may continue do so after obtaining approval of the tribunal.
[Refer section 2(41)]
Number of directorships
A person cannot hold directorship in more than 20 companies, public and private included. Previously directorship in private companies was not included in this limitation. Now under the new regime even directorship in private companies would be added to compute the magic number 20. Moreover, out of 20 he can be appointed as a director in maximum 10 public companies. A transitional period of 1 year has been given to rectify the same from the date of commencement of the act.
[Refer section 165]
Number of members
The maximum number of members for private companies has been increased to 200, which was previously 50.
[Refer section 165]
Maximum number of directors and resident director
A private company can have a maximum of 15 directors, out of which at least one should be a resident director, that is have stayed in India for a total period of not less than 182 days in the previous calendar year. A time period of 1 year from the date of commencement of the act has been given for the compliance of the provisions.
[Refer section 149]
Appointment of two or more directors
Now the provisions relating to appointment of directors to be voted on individually are applicable even to private companies.
[Refer section 162]
Consent of director
Now even director of a private company has to give his consent to act as a director and the same is to be filed with ROC within 30 days of his appointment.
[Refer section 152]
Corporate identification number (CIN)
Every company shall get its corporate identification number printed on its invoices, letterheads, notices and any other official publication.
[Refer section 12(3)(c)]
Further issue of shares
A private company can further issue its shares only by way of ESOP, Rights issue or Preferential Allotment and will have to comply with the respective provisions for each.
[Refer section 62]
Loans to directors
A private company can no longer give loans/advances or security/guarantee in respect of such loans or advances to directors or to persons in whom the directors are interested. However few exceptions to this are provided.
[Refer section 185]
Key Managerial Personnel(KMP)
Even private limited companies having a paid up share capital of 5 crore or more are now required to appoint the following whole time KMP:
[Refer section 203]
Inter corporate loans and Investments
Private companies cannot give loan or provide any guarantee or security in respect of such loan to any person or body corporate or acquire by specified modes the securities of any other body corporate exceeding the following limit:
- 60% of its paid up share capital, free reserves and securities premium account or
- 100% of its free reserves and securities premium account, whichever is more.
Where such limit is exceeded, prior approval by means of special resolution in general meeting is to be obtained and all other conditions specified are to be fulfilled.
[Refer section 186]
Acceptance of deposits
A private company can no longer accept unsecured loans or deposits from relatives of its directors. The amount so already taken has to be repaid within 31.03.2015 and DPT-4 is required to be filed with the ROC stating the details of such loans or deposits already taken by the company by 30.06.2014.
[Refer section 73]
Share Application Money
Now even private companies cannot retain share application money received in advance pending allotment, beyond the specified period. A company accepting advance for issue of its securities is required to allot the same within 60 days from the date of acceptance. However if the securities are not allotted, the amount is to be repaid within 15 from the end of sixtieth day. If the company fails to do so, it is liable to repay that money with interest @12 %p.a., provided the amount is to be kept in a separate bank account and not to be utilized for any other purpose.
[Refer section 42]
Corporate Social Responsibility(CSR)
Every company including private company, meeting any of the following criteria:
- Net worth of rupees 5 hundred crore or more
- Turnover of rupees one thousand crore or more
- Net profit of rupees 5 crore or more,
During any financial year shall constitute a CSR committee of 3 or more directors and spend at least 2% of average net profits in CSR activities.
[Refer section 135]
The term ‘financial statement’ in relation to a company ,now defined, includes the following:
- Balance Sheet
- A Statement of Profit or Loss
- A Cash Flow Statement (except OPC,Small Company and Dormant Company)
- A Statement of changes in Equity
- Notes to Accounts
[Refer section 2(40)]
Even private companies having subsidiaries (including associates and joint ventures) need to prepare consolidated financial statements.
[Refer section 129]
Signing of Annual return
For a private company being a small company or a one person company, annual return is to be signed by a CS and in case there is no CS by a director. In case of other private companies, it is to be signed by CS and one director and where there is no CS by any practicing CS and one director of the company.
[Refer section 92]
Approval of Financial Statements
Financial statements including consolidated financial statements of a private company is required to be signed by the following:
- By the chairperson where he is authorized by the Board of Directors or
- By two directors out of which one shall be MD,if any in the company, and CEO if he is a director in the company, and
- CFO and CS of the company, wherever appointed.
[Refer section 134]
Signing of Director’s Report
The Board of Director’s Report is to be signed by:
- By the chairperson, if he is authorized by the board, or
- By two directors, out of which one shall be the managing director or by the director where there is one director.
[Refer section 134]
Rotation Of Auditors
No private company having a paid up share capital of 20 crore or more shall appoint or reappoint an individual auditor or audit firm after completion of the following term :
- In case of individual auditor, for a period of maximum 5 years subject to ratification at AGM every year.
- In case of an audit firm, for a period of maximum 10 years subject to ratification at AGM every year.
[Refer section 139]
Number of audits
Private Company cannot appoint a person as an auditor if he or she is holding employment as auditor of more than 20 companies as on the date of appointment.
[Refer section 141]
Commencement of business
Private companies cannot commence business immediately after Incorporation until it has filed with ROC:
- A declaration by the directors that the minimum paid up capital has been received and
- A confirmation that the company has filed with the registrar a verification of its Registered office.
[Refer section 11]
Only few sections have been made effective till date, as a result of which the above changes have been introduced. Many more are still not notified and inactive. Clarity on various issues is still yet to come. Hence private companies are advised to keep themselves updated with the new act and continue business in accordance with law as the penalties for non-compliance are huge and disturbing, some of them including imprisonment. The above is only a brief picture and details have not been discussed. For clarity please refer the respective sections in detail.
This Article is written by CA Suhasini Dudhwewala, Consultant at www.SoftwareSuggest.com.