A Review – Companies Act, 2013

The 2013 Act has introduced several new
concepts and has also tried to streamline many of the requirements by
introducing new definitions. This chapter covers some of these new concepts and
definitions in brief. A few of these significant aspects have been discussed in
detail in further chapters.

One-person company:
The 2013 Act introduces a new type of entity to the
existing list i.e. apart from forming a public or private limited company, the
2013 Act enables the formation of a new entity a ‘one-person company’ (OPC). An
OPC means a company with only one person as its member [section 3(1) of 2013
Private company:
The 2013 Act introduces a change in the definition
for a private company, inter-alia, the new requirement increases the limit of
the number of members from 50 to 200. [section 2(68) of 2013 Act].
Small company:
A small company has been defined as a company, other than a
public company.
(i) Paid-up share capital of which does
not exceed 50 lakh INR or such higher amount as may be prescribed which shall
not be more than five crore INR.
(ii) Turnover of which as per its last
profit-and-loss account does not exceed two crore INR or such higher amount as
may be prescribed which shall not be more than 20 crore INR: As set out in the
2013 Act, this section will not be applicable to the following:
• A holding company or a subsidiary
• A company registered under section 8
• A company or body corporate governed by
any special Act [section 2(85) of 2013 Act]
Dormant company:
The 2013 Act states that a company can be classified as
dormant when it is formed and registered under this 2013 Act for a future
project or to hold an asset or intellectual property and has no significant
accounting transaction. Such a company or an inactive one may apply to the ROC
in such manner as may be prescribed for obtaining the status of a dormant company.[Section
455 of 2013 Act]
Roles and responsibilities
The definition of officer has been extended to include promoters
and key managerial personnel [section 2(59) of 2013 Act].
Key managerial personnel:
The term ‘key managerial personnel’ has been
defined in the 2013 Act and has been used in several sections, thus expanding
the scope of persons covered by such sections [section 2(51) of 2013 Act].
The term ‘promoter’ has been defined in the following ways:• A
person who has been named as such in a prospectus or is identified by the
company in the annual return referred to in Section 92 of 2013 Act that deals
with annual return; or
• who has control over the affairs of the
company, directly or indirectly whether as a shareholder, director or
otherwise; or
• in accordance with whose advice,
directions or instructions the Board of Directors of the company is accustomed
to act. The proviso to this section states that sub-section (c) would not apply
to a person who is acting merely in a professional capacity. [section 2(69) of
2013 Act]
Independent Director:
The term’ Independent Director’ has now been defined
in the 2013 Act, along with several new requirements relating to their
appointment, role and responsibilities. Further some of these requirements are
not in line with the corresponding requirements under the equity listing
agreement [section 2(47), 149(5) of 2013 Act].
The definition of subsidiary as included in the 2013 Act states
that certain class or classes of holding company (as may be prescribed) shall
not have layers of subsidiaries beyond such numbers as may be prescribed. With
such a restrictive section, it appears that a holding company will no longer be
able to hold subsidiaries beyond a specified number[section 2(87) of 2013 Act].
Financial statements
Financial year:
It has been defined as the period ending on the 31st day of
March every year, and where it has been incorporated on or after the 1st day of
January of a , the period ending on the 31st day of March of the following
year, in respect whereof financial statement of the company or body corporate
is made up. [section 2(41) of 2013 Act]. While there are certain exceptions
included, this section mandates a uniform accounting year for all companies and
may create significant implementation issues.
Consolidated financial statements:
The 2013 Act now mandates consolidated
financial statements (CFS) for any company having a subsidiary or an associate
or a joint venture, to prepare and present consolidated financial statements in
addition to standalone financial statements.

Conflicting definitions:
There are several definitions in the 2013 Act
divergent from those used in the notified accounting standards, such as a joint
venture or an associate,, etc., which may lead to hardships in compliance.
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