Initially, Companies Amendment bill was passed by Lok Sabha on 27th, July 2017 and the decision with regard to the passing of Bill passed by Rajya Sabha on 19th December 2017 but the Consent of President was still required.
Now, the wait is finally over as on 3rd, January 2018, President gave his assent and the Companies Amendment Bill, 2017 passed and the focus of this amended Act, 2017 will be mostly on the Concept of Ease of Doing Business along with certain changes in Companies Act, 2013.
JOURNEY BEFORE ENACTMENT OF COMPANIES (AMENDMENT) ACT, 2017
The Companies (Amendment) Bill, 2016 introduced in the Lok Sabha on March 16, 2016
The Companies (Amendment) Bill, 2016 was referred to the Standing Committee on Finance on 12th April 2016
The committee after hearing the views of the Professional bodies adopted its report on 30th November 2016.
The government after taking the suggestions of the Committee into consideration, gave notice of the amendments as approved by the Lok Sabha.
The Companies (Amendment) Bill,2017 was passed by the Lok Sabha on July 27, 2017, after insertion of certain amendments
The assent of Rajya Sabha was received on 19th December 2017
Finally, the Companies (Amendment) Bill, 2017 approved by the President and Notified on 3rd, January 2018
OBJECTS OF THE COMPANIES (AMENDMENT) ACT, 2017
To boost up the Concept of Ease of doing of business
To make the Compliances under the Companies Act, 2013 more transparent and simplified.
To promote Corporate Governance along with its code of conduct in the companies.
To include the Concept of STARTUPS, in a way to promote employment and growth.
To rectify any variations and contradictions in the Companies Act, 2013
In this article discussions about the Amendments made in the Concept of Private placement and Incorporation.
Any offer of securities or invitation to subscribe securities to a selected group of persons by a company (other than by way of the public offer) through the issue of a private placement offer letter and which satisfies specified conditions defined under Section 42 Read with Companies ( Prospectus and Allotment of Securities) Rules, 2014.
PRIVATE PLACEMENT BECOMES MORE STRUCTURED UNDER COMPANIES ACT, 2013
The Companies Act, 1956 and the SEBI (Securities and Exchange Board of India) guidelines and regulations governed the law relating to private placement, but the loopholes present in those laws were misused to a higher extent by the companies and their promoters, thereby compromising the interests of the shareholders.
The Companies Act, 2013 made significant changes in the law relating to private placement and made it unquestionable so as to prevent the malpractices taking place in the companies. With this new law, the procedure for private placement has become more structured, transparent and time-oriented as compared to the law under the 1956 Act.
Following are the Key Changes in the Conditions which are to be fulfilled for Private Placement:
Limit of the Person to whom offer to be made:
The Private Placement offer shall be only made to the selected group of persons who have been identified by the board namely IdentifiedPersons which shall not exceed50 and not more than 200 people as per Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014 but the limit of 200 people shall not include the following persons in a financial year:
Qualified Institutional Buyer
Employees offered securities under Employees Stock Option Scheme
To Whom Offer to be made
Private Placement offer shall be made to Identified Persons as decided by the Board and whose name and addresses are recorded by the Company.
Right to Renounce
Private Placement offer does not carry the right to Renunciation which means that when a particular person denies or rejects to subscribe shares and transfer the right to subscribe shares to another person.
Ways of Payment to Subscribe Shares under Private Placement:
Subscription money shall be paid either by:
Demand Draft OR
Other Banking Channels But
Cash not to be used as mode of payment to subscribe shares
Utilization of Allotment Money
Company shall not utilize the funds raised through Private Placement until the return of allotment through filing ofForm PAS-3 with the Registrar.
Fresh Offer under Private Placement
No fresh offer shall be made unless allotment with regard to the earlier offer has been completed or that particular offer has been withdrawn by the Company.
Maximum Number of Offers
There are no restrictions on the number of offers to be made in a financial Year subject to that number of people to whom the offer is to be made should not be more than 200 people.
Time limit for Allotment of Securities
Following are the time limits which includes both When Company is able to allot its Securities and Vice versa:
Company shall allot its Securities within 60 days from the date of receiving the application money.
If Company is not able to allot its securities within 60days, then Company shall return the application money as received within 15 days from the expiry of 60 days.
If Still the Company is not able to repay the application money within 15 days then Company is liable to repay the money along with the interest of 12% Per annum from the expiry of 60 days.
Separate Bank Account
Money received on application to be kept in a Separate Bank Account and further, to be only used for Allotment or its Repayment.
No use of Distribution Channels
No Company shall release any advertisements, marketing, or Distribution channels or Agents or Media in order to inform the public at large about the Securities offered under Private Placement.
Return of Allotment
When a Company makes allotment of Securities, it shall file the return of allotment within 15 days of allotment which includes the list of allottee along with their Names, Addresses and Securities which are allotted.
Note: If a Company fails to file Return of Allotment within 15 days as prescribed, then both Promoters and Directors are liable to a penalty of One Thousand Rupees for each day till the default continues but not exceeding Rs. 25 Lakh.
If a Company makes an offer to the limit beyond as defined under Section 42 of the Companies Act, 2013 i.e. 200 people then,
Promoters of the Company AND
Directors of the Company
Shall be liable to a penalty which involves the amount raised through Private placement OR Two Crore Rupees, Which is lower.
Any Provision related to the Limit of the Person to whom offer to be made i.e. 200 People is not complied with, then it is considered as PUBLIC OFFER and the provisions and regulations as per Companies Act, 2013 and the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 shall be applicable.
IMPACT OF THE AMENDMENTS MADE IN THE CONCEPT OF PRIVATE PLACEMENT
Private Placement process has now been more simplified as the number of filings has been reduced.
The requirement of filing the record of a private placement with the Registrar within a period of thirty days of circulation of private placement offer letter has been omitted.
Penal Provisions under Private Placement are not as much stringent as compared with the earlier provisions before enactment of Companies Amendment, 2017.
The time period has now been reduced for filing Return of Allotment i.e. from 30 days to 15 days.
The restriction has been made with regard to utilization of Subscription money raised through Private Placement.
Following Are The Key Changes In The Conditions Which Are To Be Fulfilled For Incorporation:
Insertion of New Section 3(a) under the Companies Act, 2013
Earlier, Section 3 of the Companies Act, 2013 prescribes the Minimum number of persons to form a Company but now, through Amendment Act, 2017, Section 3(a) has been inserted in accordance to which if at any time number of number of members of a company is reduced below the minimum limit in Section 3 of the Companies Act, 2013.
Further, still if the Company carries on the business for more than 6 months then every person who is a member at that particular time is liable to pay whole debts of the Company occurred due to the Contract done by the Company and may be sued also.
As per Section 12(1) of the Companies Act, 2013, A company shall within 30 days of its incorporation shall have its registered office.
Notice of Change of Registered Office:
In accordance with Section 12(4) of the Companies Act, 2013, after incorporation of the Company, notice of every change of Registered Office shall be given to the Registrar within 30 days of Change.
Reservation of Name
After applying for Name Reservation to the Registrar, Name Reservation is for the period of 20 days from the date of approval of Name.
Change of Name
In case of Change of Name for Existing Companies, Registrar may reserve the name for a period of 60 days from date of approval.
Authentication of Documents
Any document or any Contract made by the Company or any proceedings which need to be authenticated may be signed by:
Key Managerial Personnel
Any officer or Employee of the Company
Authentication means proving something to be valid or true.
Incorporation of the Company
At the time of Incorporation, a declaration in format Namely INC-9 as per Section 7 of the Companies Act, 2013, read with Rule 15 of the Companies (Incorporation) Rules,2014, is to be given by each Subscriber and director that :
The person is not convicted of any offence,
That the person is not guilty of any fraud or misfeasance OR
All the documents filed with the Registrar and the information contained therein are correct and true.
IMPACT OF THE AMENDMENTS MADE IN THE CONCEPT OF INCORPORATION
Time limit for filing documents for change in Registered Office has been increased in order to avoid burden.
Period of Name Reservation has been reduced to 20 days from date of approval in comparison to earlier it was 60days from the date of application
The declaration is only required instead of Affidavit from all the Subscribers and Directors.
An employee of the Company is also included to authenticate the documents of the Company.
Members are individually liable if Company violates the criteria of having a minimum number of Members in a Company for more than 6 months.
The Enactment of Companies (Amendment), 2017 came with the concept of ease of doing business as it simplifies the provisions, rules and regulations under the Companies Act, 2013.
All the regulations are introduced to resolve all the ambiguities aroused under the Companies Act, 2013.
Author CS Kanika Kumar
An Associate Member of Institute of Company Secretaries of India, having Knowledge of Company Law, GST and have Experience of Incorporation of Various Companies. She is good at drafting and has written articles on Company Law Matters, Indirect Taxation Matters and on other applicable laws along with their amendments and implications. For Further details Contact on Kumar.firstname.lastname@example.org or at Mobile No. 9828665848, 9818044561.
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