Companies Act 2013 – Key Highlights

Introduction

In India, a wide range of laws govern multiple subject matters existing in the society. For every human conduct, there is a set of law that defines and regulates his acts. Humans in the society are bound by these laws and may face penalties if, they repudiate to follow these laws. It is thus, an effort made by the Government of India, to ensure peace and harmony among the civilians, residing in a civilized society, which everyone of us has aspired of. Rapid Industrialization, especially after the World War II, infused an urgent need, for a law that will govern and monitor all such activities in this sector. With a view to regulate the affairs of companies in India, and nail down its smooth functioning along with transparency the Companies Act, 1956 was enacted, by the Parliament of India on 1st April, 1956.

Over the years, it was understood that, the companies during that time were just a brainchild of what we see today. The development in IT sector and many other reasons justified the need for amendments to be made in the 1956 act. Accordingly, the Parliament of India enacted the Companies Act, 2013 to govern the Indian Company Law. In other words, existing companies in India are duty bound to abide by the, rules and regulations laid down in the Companies Act, 2013 and any such further amendments in the Act. The act is thus, a proper model to administer the current companies in India, characterized by vigilance, innovation, aspirations, predictions and many more.

Let us now, dive deep in a comparative analysis of the earlier act and amended provisions, along with its effects on Companies in India. (i.e. Companies Act 1956 and 2013)

1. Constitution

The Companies Act, 1956 had 13 chapters containing 658 Sections and 13 Schedules.

The Companies Act, 2013 Act is divided into 29 chapters containing 470 sections and 7 Schedules.

2. Financial Year

The earlier act permitted the companies to, have financial year ending on a date as decide by them.

The 2013 Act made it mandatory for the companies to have their financial year ending on 31 March every year. (Exception: Foreign holding/subsidiary subject to tribunal approval.)

This amendment brought about, uniformity in the financial year used by different companies, making it easier to keep a track of all.

3. Format of Financial Statements

The earlier act permitted the companies to, have financials made in accordance with Schedule VI of the act.

The 2013 Act makes it mandatory for the companies to prepare the financial statements in accordance with Schedule III of the act.

With a view to bring more transparency in the activities of companies, amendment was made in this regard which required them to furnish more information as compared to the information disclosed by them earlier. Furnishing of Cash Flow Statement was made mandatory with certain exceptions.

4. Number of Shareholders

Under the old act, Maximum Shareholders in Private Limited Company was 50 excluding past and present employees.

Under the new act, Maximum Shareholders in Private Limited Company can be 200 excluding past and present employees.

The enhanced limit, in the number of shareholders in private companies, enabled them to fetch more capital.

5. Issue of shares at Discounted price

Section 79 of the 1956 act, permitted the issue of shares at a discounted price.

Under Section 53 of the Companies Act, 2013 issue of shares at discount is prohibited. However, Section 54 of the act permits the issue of Sweat Equity Shares, at discount.

In order to aid the restructuring of distressed companies, such a restriction was imposed. Moreover, earlier this facility was hardly used by the companies. The issue of Sweat Equity shares at discount was permitted to enable companies, particularly start-ups, to attract talent and procure know how and other value additions.

6. Utilization of Security Premium

Section 78 of the 1956 Act, permitted all companies to utilize securities premium account inter alia, for writing off preliminary expenses of or the commission paid or discount allowed on any issue made of shares or debentures of the company.

Section 52 of the 2013 Act, intends to eliminate conflict with Accounting Standards, by providing that such class of companies as may be prescribed for, cannot utilize securities premium account for writing off preliminary expenses or for writing off the expenses or the commission paid or discount allowed on the issue of preference shares or debentures of the company or for providing premium payable on redemption of preference shares or debentures of the company.

7. Article of Association

In case where Companies Limited by shares does not adopt their own Article of Association, Table A shall apply.

In case, where Companies Limited by Shares does not adopt their own Article of Association, Table F shall be applicable.

8. Interest on Calls in Arrears

In case of unavailability of a clause in the Articles of Association, maximum interest chargeable on Calls-in-arrears earlier, was 5% p.a.

If the Articles of Association of the company lacks a clause in this regard, the maximum interest chargeable on Calls-in-arrears is 10% p.a. under the new act.

9. Interest on Calls in Advance

Previously, in absence of a clause in the Articles of Association in this regard, the maximum interest payable on Calls-in-advance was 6% p.a.

Under the 2013 act, in absence of a clause in the Articles of Association of the company, the maximum interest payable on Calls-in-advance is 12% p.a.

10. Requirement of Minimum Subscription 

Previously, as per section 69 the requirement of minimum subscription was with respect to Shares only.

Under the 2013 act, Section 39 restricts a company to allot Securities, unless the amount stated in the prospectus as minimum subscription has been subscribed & the sum is paid.

11. One Person Company (OPC)

Previously, such a company did not exist.

Under the 2013 act, a new form of company was brought into existence. This type of company has only one person (natural person) as its member.

12 Alteration of Object Clause

Alteration of object clause was done for one of the specified purposes as mentioned in section 17(1) of the 1956 Act].

The 2013 act, does not require the alteration of object clause for specified purposes as given in the earlier act. Provisions of section 17(1) of the 1956 Act have been omitted in the 2013 Act.

13. Registration of Alteration of object clause

The previous act had, no time-limit within which the companies were required to register the alteration of its object clause, to the Registrar of Companies (ROC).

The 2013 act, makes it mandatory for the companies to register, the alteration of its object clause within 30 days from date of passing special resolution in this regard.

14 Conversion – Private to Public

The previous act did not allow any alteration which had the effect of converting public company into a private company, and shall have no effect unless such alteration has been approved by the Central Government where the power was delegated to Registrar of Companies.

The 2013 act, made Approval of Tribunal a pre-requirement.

15. Subsidiary as a member of holding

Section 42 of the 1956 Act, barred any of the body corporate from being a member of its holding company.

The bar in section 18 of the 2013 Act, applies only to companies and not to bodies corporate other than companies as the wording in section 18(1) is “No company shall, either by itself or through its nominees, hold any shares in its holding company” as opposed to section 42(1) of the 1956 Act which stated “a body corporate cannot be a member of a company which is its holding company”