Companies Amendment Act 2015


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

The Indian Government is actively working to improve ease of doing business in India. Key initiative in this aspect is the Amendment to Companies Act, 2015 to make it more business or investor friendly. The Companies Amendment Bill, 2015 got the Presidents assent on 25/5/2015 and was published in the Official Gazette of India as the Companies Amendment Act 2015.

Highlights of the Companies Amendment Act, 2015 are as follows.

(i)No Minimum Paid-Up Capital: The Companies Act, 2013 defied a Private Limited Company as: “private company” means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed”. This effectively meant that every private limited company in India must have a minimum paid-up capital (invested funds) of one lakh rupees irrespective of the authorized capital.  The Companies Amendment Act, 2015 removes the words “of one lakh rupees or such higher paid-up share capital” relating to Private Limited Company thereby necessitating NO minimum capital requirement for starting a private limited company. The words “of five lakh rupees or such higher paid-up capital,” has also been removed wherein it pertains to the minimum paid-up share capital of a Limited Company. Hence, a public limited company can also be started without a minimum capital of rupees five lakhs.

(ii) No Requirement for Commencement of Business Certificate: The Companies Act, 2013 introduced the concept of Commencement of Business Certificate for Private Limited Company. The Commencement of Business Certificate was to be obtained after incorporation and before commencing business by filing a declaration with the Registrar. The declaration for Commencement of Business Certificate stated that every subscriber to the MOA has paid the value of the shares agreed to be taken by him and the paid-up share capital of the company is not less than five lakh rupees in case of a public company and not less than one lakh rupees in case of a private company. The requirement of obtaining Commencement of Business Certificate post incorporation has been removed in the Companies Amendment Act, 2015.

(iii) Common Seal is Optional: Company Common Seal In Companies Act, 2013, a common seal was required required for a Company to provide various authorizations and attestations on behalf of the Company. The requirement for common seal has now been made optional and the Directors signature is acceptable in lieu of the common seal of the Company.

(iv) Stringent Penalty for Company Inviting or Accepting Deposit: The Companies Act, 2013 was silent with respect to the penalty or fine for Companies inviting or accepting deposits from Public without approval from the Regulatory Authorities.

The Companies Amendment Act, 2015 has introduced stringent penalty for Directors of Companies that invite or accept or renew deposits contravening to the Companies Act, 2013. Through the Companies Amendment Act, 2015, the following sections have been added to the Companies Act, 2013 prescribing penalty for inviting or accepting or renewing public deposit:
“Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the manner or the conditions prescribed under section 73 or section 76 or rules made thereunder or if a company fails to repay the deposit or part thereof or any interest due thereon within the time specified under section 73 or section 76 or rules made thereunder or such further time as may be allowed by the Tribunal under section 73,the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees but which may extend to ten crore rupees; andevery officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both:Provided that if it is proved that the officer of the company who is in default, has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under section 447.”

(v) Board Resolution are Confidential: So far Board Resolutions executed by the Company had to be filed with the Ministry of Corporate Affairs. The Board Resolutions were public documents and could be downloaded by paying a fee. However, to protect company confidentiality, the clause ““provided that no person shall be entitled under section 399 to inspect or obtain copies of such resolutions” has been inserted. Therefore, board resolutions now cannot be accessed publicly. (vi) Dividend Cannot Be Declared by Company Having Losses The Companies Amendment Act, 2015 has inserted the section “Provided also that no company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company for the current year”. Hence, companies having losses or negative reserves cannot declare dividends.

(vi) Loan can be Provided by Holding Company to Subsidiary Company: Loans or guarantees can be provided by the holding company to the subsidiary company. Though the Companies Act, 2013 did not have any restrictions on holding company providing loan to subsidiary company, the new Companies Amendment Act, 2015 has clarified the same in abundance of caution.

Terms

Authorised Capital and Issued Capital
When a Private Limited Company is incorporated, the promoters of the company must decide on the amount of authorised capital for the company and the value of shares they will receive in return for their investment in the company. Authorised capital of a private limited company is the maximum value of shares a company can allot to its shareholders. Issued shares or outstanding shares on the other hand, is the amount of shares issued by the private limited company to its shareholders. The issued or outstanding share capital of a company can never exceed the authorised capital of a company.
Authorised Capital for Startups
Majority of the startups today are bootstrapped and are unable to pay a significant amount of fee to the Ministry of Corporate Affairs for incorporation of a company with an authorised capital commensurate to the investment in the company. Therefore, most promoters incorporate their company with the minimum required authorised capital of Rs.1 lakh and issue shares with a value of Rs.1 lakh or less to founding members. The rest of the capital invested by the founding members in the Private Limited Company is classified as either unsecured loan or share application money or share premium, thereby reducing the need to increase the authorised capital of the company during the startup and growth stages. Once, the private limited company starts scaling-up operations and/or requires in the form of debt or equity, authorised capital of the company is raised and additional shares are issued to the founding members commensurate to their investment in the company. Therefore, it is acceptable for most startups to start their operations with the minimum authorised capital of Rs.1 lakh and then increase the authorised capital of the private limited company as the necessity for debt or equity funding arises.

Tuesday, 08th Dec 2015, 02:19:03 AM

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