Private Companies, OPC, Small Company, Section 8 Company. Study Course on the Companies Act, June 2014

Transcription

1 Private Companies, OPC, Small Company, Section 8 Company Study Course on the Companies Act, June

2 Contents Background Private Companies One Person Company Small Companies Section 8 Companies Conversion of a Private Limited company to LLP

3 New Company Law A delegated legislation Companies Act, 2013 (2013 Act) comes in force as and when notified 282 sections notified Corresponding sections of Companies Act, 1956 (1956 Act) cease to have effect. Delegated legislation - over 330 areas where Rules clarifies law! Several Rules for the notified sections have been notified in the Official Gazette Significant flexibility: Sections-wise applicability to be prescribed Class of companies can be prescribed to which provisions may apply 3

4 Private Company 4

5 Private Company Section 2(68) "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, and which by its articles, (i) restricts the right to transfer its shares ; (ii) except in case of one person company, limits the number of its members to two hundred : Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member : Provided further that (A)persons who are in the employment of the company ; and (B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members ; and (iii) prohibits any invitation to the public to subscribe for any securities of the company; 5

6 Public Company Section 2(71), "public company" means a company which (a) is not a private company ; (b) has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed : Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles. 6

7 Subsidiary company Section 2(87), "subsidiary company" or "subsidiary", in relation to any other company (that is to say the holding company), means a company in which the holding company (i) controls the composition of the Board of Directors; or (ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies: Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed. (not yet notified) Explanation. For the purposes of this clause (a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company (b) the composition of a company s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors (c) the expression company includes any body corporate (d) "layer" in relation to a holding company means its subsidiary or subsidiaries What is the status of a private company which is subsidiary of foreign company / foreign body corporates considering absence of similar provisions of section 4(7) under 1956 Act? 7

8 Private Company Privileges / exemptions hitherto available to private companies under 1956 Act substantially gone / diluted under 2013 Act Section 2(76), "Related Party, with reference to a company, defined in section 2(76), means (i) to (iii)... (iv) a private company in which a director or manager is a member or director. (v) to (ix).." Section 11 Newly formed company cannot commence business or exercise any borrowing power unless it has filed with ROC a prescribed declaration to the effect that every subscriber has paid-in the value of shares subscribed to MOA; paid-up share capital of the company is not less than the minimum prescribed; and verification of its registered office 8

9 Private Company Section 185 Loan to Directors: No company should, directly or indirectly, advance any loan to any of its directors or to any other person in whom director is interested. To any other person in whom director is interested includes any private company of which any such director is a director or member. A company name may be struck off by the ROC on the following grounds:- subscribers to the memorandum have not paid subscription money within 180 days from the date of incorporation company has failed to commence its business within 1 year from the date of incorporation Section 188 Related Party Transactions: No member of the company shall vote on special resolution (where required), to approve any contract or arrangement which may be entered into by the company, if such member is a related party (exception to contract or arrangement between Holding company and WOS) Section 184 Disclosure of interest by directors: Director shall disclose his nature of interest in any contract or arrangement which company is entering into and he shall not participate in the same. Provisions of Section 184 is made applicable to private companies as well. What if a private company has only 2 directors and both directors are interested in the contract or arrangement? 9

10 Issue of shares/ securities Company may issue securities as under: Type of issues Public company Private company Through prospectus a x Private placement a a Rights issues a a Bonus issue a a More stringent rules for issue of shares on Private placement, rights basis and bonus issue, shares with differential rights Private placement: Offer / invitation allowed upto 50 persons (excluding QIBs and employees) in a FY Separate bank account Disclosure in private placement offer letter Allotment within specified period Valuation of shares Registered Valuer (Practicing CA / Merchant Banker till Registered Valuer is notified) 10

11 Issue of shares/ securities Rights basis and bonus issue, shares with differential rights Rights issue: Issue of Letter of Offer to existing shareholders Offer to be open for minimum 15 days and maximum 30 days Bonus issue: shareholders approval in a general meeting not defaulted in payment of interest or principal in respect of fixed deposit or debt securities issued by it not defaulted in payment of statutory dues of the employees like provident fund, gratuity and bonus Bonus shares cannot be issued in lieu of dividend Voting rights of preference shares: Where dividend in respect of a class of preferences shares has not been paid for a period of 2 years or more, such class of preferences shareholders shall have a right to vote on all the resolutions placed before a general meeting of the company 11

12 Issue of shares/ securities Shares with differential rights Shares with differential rights shall not exceed 26% of the total post-issue paid up equity share capital. Company shall have consistent track record of distributable profits for the last 3 years Company has no subsisting default in the payment of dividend or repayment of matured deposits or redemption of preference shares / debentures that have become due for redemption or payment of interest on such deposits or debentures or payment of dividend Company has not defaulted in payment of the dividend on preference shares or repayment of any term loan from a public financial institution / State level financial institution / scheduled Bank or interest thereon or dues with respect to statutory payments relating to its employees to any authority or default in crediting the amount in IEPF Company has not been penalized by Court or Tribunal during the last 3 years of any offence under specified laws 12

13 Prescribed class of companies (Private company) Compliance requirement Appointment of Internal auditor Thresholds Turnover 200 Crores Borrowing/ Outstanding loans 100 Crores Rotation of Auditor Paid-up share capital 20 Crores Borrowing/ Outstanding loans 50 Crores Constitution of CSR Committee Net worth 500 Crores Turnover 1000 Crores Certificate by a Practicing CS in Form MGT 8 Net Profit 5 Crores Turnover 50 Crores Paid up share capital 10 Crores 13

14 Private Company 1956 Act vis-à-vis 2013 Act Particular Companies Act, 1956 Companies Act, 2013 Maximum no. Members Commencement of Business Immediately after incorporation Only after filing a statement with ROC that subscription money and minimum paid up capital is brought up Further issue of Shares Provision relating to rights issue and Preferential allotment not applicable Applicable Shares with differential voting rights Not applicable Applicable 14

15 Private Company 1956 Act vis-à-vis 2013 Act Particular Companies Act, 1956 Companies Act, 2013 Acceptance of Deposits from relatives of Directors Consent to act as Director Allowed No consent to be given by Director to ROC Not allowed Consent mandatory to act as director Resident Director No provision At least one resident director, who has stayed in India for minimum period of 182 days during previous calendar year is mandatory to be appointed. Loans to Directors & interested parties No Restriction Restricted with few exception Disqualification of director (non-filing of accounts / failure to repay deposit/ interest / redeem debentures etc. Director was not disqualified if there was default by private company Director will be disqualified if there is default by private company 15

16 Private Company 1956 Act vis-à-vis 2013 Act Particular Companies Act, 1956 Companies Act, 2013 Consolidation of Accounts Not mandatory Mandatory Inter corporate Loans Not applicable Applicable Limit on Number of Directorships Directorships in Private company not counted in overall companies (20) in which a person can be a director Directorships in Private company counted in overall companies (20) in which a person can be a director Maximum no. of public companies in which a person can be director is 10 Further, a private company which is holding company or subsidiary of a public company, will be counted for ceiling limit of public company 16

17 One Person Company (OPC) 17

18 OPC A new vehicle for individuals for carrying on business with limited liability Section 2(62) "One person company means a company which has only one person as a member." Only a natural person, who is an Indian citizen and resident in India shall be eligible to incorporate a OPC. Also nominee (in the event of death or incapacity of the sole member) has to be a natural person and citizen of India Memorandum of OPC is required to indicate the name of nominee OPC is required to specifically mention the word "one person company" below the name wherever it is used OPC not allowed to carry out: Non-Banking Financial Investment activities including investment in securities of any body corporate Charitable activities (therefore cannot be converted into section 8 companies) 18

19 OPC One person Company can be formed by any one person, by subscribing his name to a memorandum and complying with the requirements of this Act. Member of OPC, shall nominate a person who, in the event of the subscriber s death or his incapacity to contract, become the member of that OPC and such nomination in Form No INC.2 along with consent of such nominee obtained in Form No INC.3 and fee is to be filed with the Registrar at the time of incorporation. Member can change the name of nominee at any time by obtaining prior consent from such other person 19

20 Flexibilities to OPC Particulars Membership Directors Exempted Provisions Following can neither be a member or Nominee or hold share with beneficial interest in OPC: Minor Body Corporate Company Individual is not eligible to incorporate more than 1 OPC or become nominee in more than 1 OPC Minimum- 1 Director, the Sole shareholder can himself be the Sole Director Maximum- 15 Directors Provisions of board meeting, quorum and interested director (where OPC has only 1 director) Hold of AGM Provisions relating to notice, explanatory statement, EGM, quorum, voting, chairman, poll, proxies, postal ballot, NCLT s power of calling for EGM Power of Tribunal to call meetings of members 20

21 Flexibilities to OPC Particulars Relaxations Where an OPC has only 1 director, the date on which the resolution is signed and dated by such director is considered as the date of the board meeting Financial Statements can be signed by only one director Financial Statements are to be filed with ROC within 180 days from the end of FY OPC can contract with the sole member who is a director OPC having more than 1 director, can hold only 1 Board Meeting in each half of calendar year provided the gap between the two meetings is not less than 90 days 21

22 Conversion of OPC into Private / Public Company Compulsory Paid up Capital increased beyond 50 lacs Turnover exceeds 2 Crores Time limit of six months given Voluntary Can be done anytime after 2 years from the date of incorporation 22

23 Conversion of Existing Companies into OPC Who can convert? Private Limited Company A company, which do not have charitable objects Share Capital less than Rs. 50 lacs Turnover less than Rs. 2 Crores 23

24 Small Company 24

25 Small Company Particular Definition [Section 2(85)] It means a company, other than a public company. Threshold Limits Restrictions Paid-up share capital < 5 million Turnover < 20 million (as per last financial year s P&L) Small Company cannot be: A holding or subsidiary company A Company registered under section 8 A Company or body corporate governed by any special Act.

26 Small Company Flexibilities Cash flow statement is not required to be prepared Annual Return can be signed by CS or one director if there is no CS Board meeting is required to be held at least once in each half of a calendar year and the gap between the 2 meetings is not less than 90 days Merger process between 2 or more small companies is to be approved on fast track basis. Such merger would require approval of ROC, OL, members holding at least 90% of total number of shares and majority of creditors representing 9/10 th in value. 26

27 Section 8 Company 27

28 Section 8 Company Particulars Scope Revocation of License Widened scope under 2013 Act, such company can not only have charitable objects but can also add new objects like: Environment protection Education Research Social welfare Sports On contravention of any of the requirements of the section Where the affairs of the company are conducted fraudulently or in a manner violative to the objects of the company or prejudicial to public interest. Restrictions Shall not alter provisions of its MOA and AOA Prohibits the payment of dividend to any of its members It can amalgamate only with another company registered under this section and having similar objects 28

29 Conversion of Section 8 company now possible Section 8 company can convert itself into a company of any other kind by: Passing Special Resolution at a General Meeting(The explanatory statement annexed to the notice convening the general meeting should set out in detail the reasons for opting for such conversion) Alter MOA and AOA Give up all exemptions and privileges enjoyed by it by being registered under section 8 Pay for the immovable property acquired at concessional rate from Govt. or other authorities Filing of Form MGT-14 with ROC Filing of Form INC-18 with Regional Director Publishing a notice- (1) In a vernacular newspaper in vernacular language of a district in which registered office of company is situated (2) in English in a English newspaper (3) on the website of the Company Where the license granted to a company registered under section 8 has been revoked, the company should Form No.INC.20 with Registrar along with the fee to convert its status and change of name accordingly 29

30 Conversion of private limited company into LLP 30

31 Conversion into LLP Eligibility for conversion Consent for conversi on into LLP Obtain DSC for DPs Obtain DPIN for DPs online Resolution / consent of proposed partners Filing incorpor ation docume nts of LLP Drafting of LLP incorporati on docs. including LLP Agreement Approva l of the name by ROC Make an application to ROC for reservation of name Filing of application for Conversion Scrutiny of incorporation documents by ROC Certificate of Registration on LLP Intimation to ROC + Filing information about LLP agreement Form 1 (reservation of name), 2 (Incorporation document and statement), 3 (Intimation of LLP Agreement), 4 (Notice of appointment of Partners/ DPs), 7 (Application for allotment of DPIN), 9 (consent to act as DP); 14 (Intimation to ROF/ ROC); 17 (Application and statement for the conversion of a firm into LLP); 18 (Application and Statement for 31 conversion of a private company/unlisted public company into LLP)

32 Driving Forces LLP combines the advantages of both the Company and Partnership into a single form of organization Benefits of conversion into LLP includes: Privileges / exemptions hitherto available to private companies under 1956 Act substantially gone / diluted under 2013 Act i. Restriction on Companies to give loans to Directors or to persons in whom the Director is interested ii. iii. iv. Removal of exemption for acceptance of deposits from Directors Removal of exemption for acceptance of deposits from members Restriction on number of Members v. Restriction in related party transactions Protection against personal liability, except for own wrongful act or omission 32

33 Driving Forces Income tax i. Income tax slab rates (no surcharge - effectively 3% savings) ii. iii. iv. No restriction on carry forward of income-tax losses in case of change in beneficial holding of interest in LLP No Dividend Distribution Tax (17%) [What Budget 2014 has in store?] Conversion will be exempt under Income Tax provided it is within the threshold Renowned and accepted form of business worldwide No requirement of any minimum capital contribution No restrictions as to maximum number of partners Low cost of Formation and compliances Lesser statutory compliances Lesser Government Intervention etc.. 33

34 Conditions for conversion Conditions to be satisfied for conversion of company into LLP under Income Tax Act, 1961 All the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the LLP All the shareholders of the company immediately before the conversion become the partners of LLP and their capital contribution and profit sharing ratio in the LLP are in the same proportion as their shareholding in the company on the date of conversion Shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the LLP Aggregate of the profit sharing ratio of the shareholders of the company in the limited liability partnership shall not be less than 50% at any time during the period of 5 years from the date of conversion Total sales, turnover or gross receipts in the business of the company in any of the 3 previous years preceding the previous year in which the conversion takes place does not exceed ` 60,00,000/- No amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of 3 years from the date of conversion 34

35 Conditions for conversion Key conditions to be satisfied for conversion into LLP under LLP Act There should be no security interest in company's assets subsisting at the time of application for conversion into an LLP All the shareholders of the company become the partners of the LLP on being converted, and no one else 35

36 Contact details Sanjeev Shah, ACA, ACS Senior Manager Tax & Regulatory Services Deloitte Touche Tohmatsu India Private Limited Indiabulls Finance Centre Tower 3, 28 th Floor, Elphinstone Mill Compound, Senapati Bapat Marg, Elphinstone (West), Mumbai Office Tel: +91 (22) (D) / (B) Mobile: Fax: +91 (22) sanjshah@deloitte.com