Companies (Amendments) Bill 2015 and its implications
How the Amendments to the Companies Act Makes Business Easier
Doing business in India is still painful (when will that change?), but somewhat less so now, with the President’s assent to the Companies (Amendment) Bill 2015. The bill has removed a few clauses that made business (perhaps unintentionally) difficult, eased certain transactions and brought clarity to certain ambiguous provisions of the Companies Act, 2013. It also places hefty penalties on fraud. Along with the successful implementation of INC-29, the government does seem committed to making India an easier place to register a company and run it. It’s still very far from being world-class, but it’s certainly a good start. Let’s find out what’s changed:
No Commencement of Business Certificate
No Minimum Paid-up Capital
While the act required founders of private limited companies to have a paid-up share capital worth Rs. 1 lakh (also the minimum amount of authorised capital for a company), this requirement has now been removed. You may now start a business with any amount of paid-up capital. It isn’t clear whether you can start with no paid-up capital at all (only time will tell this), but for now, even issuing shares of a paltry Rs. 1000 would do.
No Common Seal
Until May 26, 2015, the date the amendment was signed by the President, all companies (private, one-person and public) had to get a common seal made. While it cost just Rs. 500, it was a waste of two days and had to be done immediately after the receipt of the incorporation certificate is received. This is no longer the case; all agreements can now be signed by two directors or a company secretary. You may still have a common seal, but you can get it at your own time.
Penalty on Failure to Repay Deposits
A new section now deals with deposits accepted in contravention of the Act as well as failure to repay deposits or interest, in part of full, within the specified period of time. In both cases, the company can be fined anywhere from Rs. 1 crore to Rs. 10 crore. Every defaulting officer may also be sentenced to up to 7 years’ imprisonment and a fine of Rs. 25 lakh to Rs. 2 crore.
Transactions between Related Parties
The Companies Act, 2013 made it difficult for related parties to transact business with each other, as it required a special resolution. Shareholder approval was also required for transactions between holding company and the wholly owned subsidiary. With the Amendment, only ordinary resolutions are required for related party transactions and shareholder approval is not required when consolidated accounts are submitted to shareholders for their approval.
Board Resolutions No Longer Public
Board resolutions (ordinary and special) will no longer be public documents.
No Dividend Unless Losses Set Off
Companies may no longer declare dividend unless the carried-over losses and depreciation not provided for in previous years are set-off against current year’s profits. Any dividend unpaid for 7 years or longer must now be transferred to Investor Education and Protection Fund.
Commencement of Business Certificate
This certificate, which had to be obtained immediately after the incorporation of a company, is no longer needed. And good riddance. The Commencement of Business Certificate was completely unnecessary even when the MCA declared it a requirement. A few months ago, however, banks began insisting on it to open a simple current account, apparently under pressure from government authorities. This, even though it is MCA itself that had registered your business.