Private & confidential
Companies Act 2013
Action has begun
February 2014
Agenda
1. Where are we
2 Board Disclosures
2.
3. Related Party Transactions
4. Key Messages
5. Q&A
Companies Act 2013
February, 2014
Slide 2
Section
Where are we
Companies Act 2013
PwC
February, 2014
Slide 3
Where are we
• Passed by both houses of parliament and received the assent of the
President.
• Currently, 98 sections of the Companies have been notified; both the
acts i.e. Companies Act, 1956 and Companies Act 2013 Act co-exist
• Draft rules and forms have been released for public comments.
• C
Companies
i A
Actt 2013 expected
t d to
t be
b fully
f ll notified
tifi d by
b March
M
h 2014
along with the issuance of all the related Rules / Forms
Companies Act 2013
February, 2014
Slide 4
A statistical snapshot
• In more than 73% of sections, the government has the power to prescribe rules
• Executive can get into legislative domain
Companies Act, 2013: A Statistical Snapshot
Number of Schedules
7
Number of Chapters
29
Number of times the phrase ‘as may be prescribed’ is used
346
Number of Sections
4 0
470
Companies Act 2013
February, 2014
Slide 5
Section
Key highlights and analysis
Companies Act 2013
PwC
February, 2014
Slide 6
Directors – Interesting New Concepts
1. Resident Director
2. Can not be a director in more than 10 public cos
3. Alternate Director
4. Continued absence could lead to vacation
g
5. Reasons of resignation
6. Duty towards community
• Ambiguity laid to rest in case of alternate directors
Companies Act 2013
February, 2014
Slide 7
New disclosures mandated in directors’ report
1. Risk management policy
2 Adequate Process to ensure legal compliance and its operating effectiveness
2.
3. Corporate Social Responsibility
4. Board Evaluation
5. Operating effectiveness of Internal Financial Controls*
6. Related party contracts with their justification
● Good to have things have been made must have
● Applicable for listed cos
Companies Act 2013
PwC
February, 2014
Slide 8
Board’s Confirmation on compliance
1. Inventory of applicable laws & compliance obligations
2. Responsible persons for compliance
3. Compliance Reporting through Chief Compliance Officer
4. No red flags or non compliances in high risk category
Companies Act 2013
PwC
February, 2014
Slide 9
Board’s Confirmation on RPT
1. List of related parties
2. Transactions in ordinary course of business
3. Arms length Pricing
4. Approvals
Companies Act 2013
PwC
February, 2014
Slide 10
Role of a Company Secretary
1. Report to the board about compliance with the provisions of the act
2. Report to the
h b
board
d about
b
compliance
li
with
i h other
h llaws applicable
li bl to the
h
company
3. To ensure that company complies with applicable secretarial standards
meeting
ti
4. To provide guidance to the directors of the company on their duties and
responsibilities
5. To discharge such other duties as may be prescribed
• Company
C
S
Secretary to report to the
h b
board
d on other
h applicable
li bl llaws as well
ll
Back
Companies Act 2013
February, 2014
Slide 11
Key Managerial Personnel (KMP)
Every Listed company and every other company with paid up share capital of
5cr or more to have following full-time KMPs :
(i) The Chief Executive Officer or the managing director or the manager or
WTD,
(ii) The company secretary ,
(iii) The Chief Financial Officer
• Can a KMP be appointed as a KMP in any other company?
• What all documents can be signed by KMP ?
• Covered in definition of related party
Back
Companies Act 2013
February, 2014
Slide 12
Officer in Default – Opportunities to delegate
1. Whole-Time director/Key Managerial Personnel
2. Director or Directors specified by the Board
3. Any person with the authority of Board/KMP, responsible for
maintenance / filing of records or accounts etc fails to take
preventive steps
4. Registrar
R i
/M
Merchant
h
B
Bankers
k
- issue
i
/ transfer
f off securities
ii
Companies Act 2013
PwC
February, 2014
Slide 13
Immunity to non-executive and independent
directors
Limited immunity not available in case of:
• Lack of due diligence
• Knowledge
g and consent or connivance
• Limited immunity
y in specified
p f
circumstances
Companies Act 2013
February, 2014
Slide 14
Related Party Transactions: New concepts
1. ‘Related Party’ and ‘Transactions’ expanded
2. No need for Central Government approval
3. Concept of interested member
4. Approval my majority of minority
5. Role of Independent Directors, Audit Committee, Company Secretary
Companies Act 2013
February, 2014
Slide 15
Related Party Transactions
• Scope of transactions widened – includes sale or purchase of any
property
• Need for Central Government approval done away with
• Shareholder’s approval for specified transactions
• Concept of interested member:
• Member can not vote if it is a related party
• Exemption for contracts between Holding and WoS
• Routine transaction at ‘Arm’s length exempted
• RPTs to be included in the Board’s Report along with justification
Companies Act 2013
PwC
February, 2014
Slide 16
Related Parties - Defined
● ‘Related Party’ means:
● A director or his relative
● A firm in which a director or his relative is a partner
● A private in which a director is a member or director
● A public co in which a director along with relatives hold more than
2% of paid up capital
● Any body corporate whose board is accustomed to act – instructions
of a director
● A KMP or his relative
● Holding co/Subsidiary co / Associate co
● Subsidiary of a holding company
● Such other person as may be described
Companies Act 2013
PwC
February, 2014
Slide 17
Scope of transactions widened
● Transactions covered:
●
Sale,, purchase
p
or supply
pp y of g
goods or materials
●
Selling or buying property of any kind
●
Leasing of property of any kind
●
Availing or rendering of services
●
Appointment of any agent for purchase or sale of goods, materials,
services or property
●
Underwriting the subscription of any securities
Companies Act 2013
PwC
February, 2014
Slide 18
Related Party Transactions – Some teasers
● Company intends to pay royalty to the holding company?
● Director wants
ants to rent out his propert
property to the compan
company ?
● A Company Secretary’s relative is proposed to be appointed as
a Manager Finance?
● CEO wants to buy the car which has been allotted to him by the
company?
● C
Can a company gett a consolidated
lid t d approvall ffor multiple
lti l
contracts?
Companies Act 2013
PwC
February, 2014
Slide 19
When do I need to go to shareholders?
●
For each transaction, if paid up capital of the company exceeds one
crore, or,
●
Transactions exceed 5% of the annual turnover or 20% of net worth,
whichever is higher or,
●
Appointment to of office of profit at monthly remunerations
exceeding one INR 1 lakh or,
●
Underwriting fees exceeding INR 10 lakh
•
•
Approval of central government not required
Exemption in case of transactions in the ordinary course of business if
done on an arms’
arms length basis
Companies Act 2013
PwC
February, 2014
Slide 20
Interesting Concept of interested shareholder
●
Member can not vote if it is a related party
Question
What will
Wh
ill h
happen to contract b
between h
holding
ldi company and
d wholly
h ll
owned subsidiary? Will there be a deadlock?
Way Forward for RPT
1.
Define related party universe and possible transactions
2.
Define mechanism to demonstrate Arms length basis
3.
Obtain revised disclosures before start of FY 14-15
4.
Prepare RPT guidance document for company and its employees
Companies Act 2013
PwC
February, 2014
Slide 21
Loans to Directors
• Loans can only be given to WTD or MD:
− As a part of employment terms applicable to all employees
− Pursuant to a scheme approved by the special resolution
• Exemption to cases where loan is given in ordinary course of business at
bank rate
• Interested person means:
−
−
−
−
Director of the holding co
anyy firm in Director or relative is a p
partner
a private company where such director is a director or member
Any body corporate whose Board / MD is accustomed to act in
accordance with the instructions of its Board / Directors of lending
company
Companies Act 2013
PwC
January, 2014
Slide 22
Questions
1. Can section 186 / 372 A dilute the impact of section 185?
2. What about existing loans to subsidiaries and other companies?
3. Does interest need to be charged on existing loans?
4. Are Directors of subsidiary co accustomed to act in accordance with
instruction of board of holding company? In all cases?
Companies Act 2013
PwC
February, 2014
Slide 23
Key Messages
•
Disclosure based regime
•
Focus on governance
•
Cl
Clear
road
d map & action
i plan
l ffor compliance
li
Companies Act 2013
February, 2014
Slide 24
Thank You
This publication does not constitute professional advice. The information in this publication has been obtained or derived from sources believed by
PricewaterhouseCoopers Private Limited (PwCPL) to be reliable but PwCPL does not represent that this information is accurate or complete. Any opinions or
estimates contained in this publication represent the judgment of PwCPL at this time and are subject to change without notice. Readers of this publication are
advised to seek their own professional advice before taking any course of action or decision, for which they are entirely responsible, based on the contents of
thi publication.
this
bli ti
P
PwCPL
CPL neither
ith accepts
t or assumes any responsibility
ibilit or liliability
bilit tto any reader
d off thi
this publication
bli ti iin respectt off the
th information
i f
ti contained
t i d within
ithi it
or for any decisions readers may take or decide not to or fail to take.
© 2013 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited
liability company in India), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal
entity.
Corporate Social Responsibility (Schedule VII)
1)
Eradicating extreme hunger and poverty;
2)
Promotion of education;
3)
Promoting gender equality and empowering women;
4)
Reducing child mortality and improving maternal health;
5)
Combating human immunodeficiency virus, acquired immune deficiency syndrome,
malaria
l i and
d other
th di
diseases;
6)
Ensuring environmental sustainability;
7)
Employment enhancing vocational skills;
8) Social
S i lb
business
i
projects;
j t
9)
Contribution to the Prime Minister's National Relief Fund or any other Fund set up by
the Central Government or the State Governments for Socio-economic development and
relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other
backward classes, minorities and women; and
10) such other matters as may be prescribed.
Companies Act 2013
February, 2014
Slide 26
Clause 49 requirements
Board Disclosures – Risk management
The company shall lay down procedures to inform Board members about the risk assessment
and minimization procedures. These procedures shall be periodically reviewed to ensure that
executive
i management controls
l risk
i k through
h
h means off a properly
l d
defined
fi d fframework
k
Compliance
The Board shall periodically review compliance reports of all laws applicable to the
company, prepared
db
by the
h company as well
ll as steps taken
k b
by the
h company to rectify
if
instances of non compliances.
CEO/CFO certification
The CEO,
Th
CEO i.e.
i the
h M
Managing
i Di
Director or M
Manager appointed
i d iin terms off the
h C
Companies
i A
Act,
1956 and the CFO i.e. the whole-time Finance Director or any other person heading the
finance function discharging that function shall certify to the Board that:
Audit Committee - Related party transactions
A statement in summary form of transactions with related parties in the ordinary course of
business shall be placed periodically before the audit committee
Companies Act 2013
February, 2014
Slide 27
Internal Financial Controls
Internal Financial Controls” has been defined in the Act as to mean policies and procedures adopted by the
company for ensuring:
● The orderly and efficient conduct of its business
● The safeguarding of assets
● The prevention and detection of frauds and errors
● The accuracy and completeness of the accounting records
● The timely preparation of reliable financial information
Requirements
q
and applicability
pp
y (for
(f various class off companies)
p
)
Requirement as per Companies Act 2013
Listed
Public Company with paid
up capital >= 100 crore or
Debt >200 Crore
Private &
other Public
companies
Auditor’s report to comment upon adequacy of internal
financial controls system (design as well as operating
effectiveness)
D
D
D
Directors’ Responsibility Statement to state that directors, have
laid down adequate internal financial controls and such
controls are operating effectively.
D
x
x
The Independent Directors shall satisfy themselves on the
integrity of financial information, and that financial controls
and the systems of risk management are robust and defensible
D
x
x
Audit Committee’s terms of reference to include evaluation of
g
systems
y
internal ffinancial controls and risk management
D
D
x
Monetary penalty up to Rs. 25 lacs
Companies Act 2013
Imprisonment up to 3 years
Auditor’s qualification
February, 2014
Slide 28
Woman Director – Some interesting Stats
Analysis of a total of 404 companies which came out with IPO’s from 2002
and are listed on BSE
Gender Categorisations of Board positions
No of
Directors
Percentage
2 991
2,991
95%
Female
152
5%
Total
3,143
100%
Gender
Male
5%
Male
Gender Frequency and Board representation
Female
Presence
No of
Percentage
Companies
No Female Director
1 Female Director
2 Female Directors
3 Female Directors
Total
Female
1 Female
Director
2 Female
Directors
Companies Act 2013
69%
25%
6%
0%
404
100%
0%
No Female
Director
95%
277
103
23
1
6%
25%
69%
3 Female
Directors
February, 2014
Slide 29