This document provides an overview of key changes between the Companies Act, 1956 and the new Companies Act, 2013. It compares provisions around incorporation, share capital, deposits, charges, management and meetings. Some key changes include stricter due diligence for company incorporation, requirements for independent directors and key managerial personnel, limits on auditor appointments, provisions around related party transactions, and faster processes for mergers and restructuring. The new law aims to improve corporate governance and bring more accountability in company operations.

1. Presentation byManoj Kumar
E: manoj@indiacp.com
M: +919910688433
Corporate Professionals
D-28, South Ex., Part-I
New Delhi 110049 (India)
Companies Act 2013
- A comparison with the Companies Act, 1956

2. History
The Companies Act, 1956 is
an act of Parliament that
was enacted in 1956
The Companies Act, 2013 was recently
passed by Rajya Sabha on 8th August
2013 and has received Presidential
assent on 29th August 2013.

3. An Overview
Companies Act, 1956
Companies Act, 2013
The Companies Act has a substantial part of the law prescribed
within itself
The Companies Act gives substantial powers to the Government &
hence major prescriptions would be in the form of Rules to be
notified separately

4. Companies Act 1956
vs.
Companies Act 2013

5. The Preliminary Provisions

6. The Preliminary Provisions
THE COMPANIES Act, 2013:
The Companies Act, 1956 was however enacted on 1st April,
1956 in its entirety

7. The Preliminary Provisions
Introduction of new definitions
in the Act which were not
existing under the Companies
Act 1956
Associate
Company
Auditing
Standards
Small
Company
Related Party
CEO & CFO
Global
Depository
Receipt
Independent
Director
Promoter
Key
Managerial
Personnel

8. The Preliminary Provisions
Earlier excluded, Corporation
sole has now been covered in the
definition of body Corporate
The term “Listed Company”
now includes all companies
listed on a Stock Exchange
Subsidiary of a Public Co. shall
be deemed to be a Public Co.
even if it is a Private Co. by its
Articles
The definition of Employee
stock Option now covers
Directors, officers & employees
of Holding & subsidiaries also
The scope of “Officer in default”
has been widened to include
Registrars, Merchant Bankers
related to the issue
Only “Apr-Mar” to be a
Financial Year(exceptions: Foreign
Holding/ Subsidiary subject to
tribunal’s approval)

9. Incorporation and Matters Incidental

10. Changes - Incorporation
Introduction of concept of
One Person Company
No approval required for
conversion of Private
Company to One Person
Company or vice versa
No approval required for
conversion of Private
Company into Public
Company

11. Changes - Incorporation
MOA to carry the main objects
only. Bifurcation of the Objects
clause into main, ancillary &
other objects has been done away
with.
Even the Private Companies
have to file the declarations for
Commencement of Business
Subsidiary can hold shares in
Holding Company as trustee,
which is not allowed under the
Companies Act 1956

12. Changes - Incorporation
Penalizing Provisions
ROC empowered to strike off the name of a
Company incorporated with wrong/incorrect
information
Person deliberately furnishing any
false/incorrect information at the time of
incorporation shall be responsible for fraud
under section 447 & stringent punishment
Any person can challenge the validity of
incorporation before the tribunal in case of such
a Company

13. Prospectus & Allotment of Securities

14. Changes - Prospectus & Allotment of Securities
Specification for raising of
funds by Public Company
Scope widened to include
through:
all type of securities than
1. IPO/FPO
just shares
2. Private Placement
3. Rights/ Bonus Shares
Now Company after varying the terms of contract or objects
mentioned in the prospectus cannot use amount raised by it
through Prospectus for buying/ trading/ otherwise dealing
in Equity shares of other Company

15. Changes - Prospectus & Allotment of Securities
The Act defines the term Private Placement:
PRIVATE PLACEMENT OFFER
PUBLIC OFFER
CONDITIONS
Comply with provisions of Act,
Securities Contract Regulation
Act, 1956 and SEBI Act, 1992
 Offer to section of public
other than QIBs
 Not more than 50 number
of people
 In compliance of
prescribed terms &
conditions
 Made through Private
Placement offer letter and
not Prospectus
YES
NO
Conditions
fulfilled?

16. Changes - Prospectus & Allotment of Securities
Person responsible for fraudulently
inducing others to invest money now liable
for stringent punishment for fraud under
section 447 which shall be noncompoundable
Now Any person affected by misleading
statement, any inclusion/omission of a
matter in the prospectus can file suit/ take
an action :
For civil liability for misstatement in
Prospectus
For punishment for fraudulently inducing
persons to invest money

17. Changes - Prospectus & Allotment of Securities
Power of SEBI to administer provisions related to listed
Company or Company going to be listed widened to include:
1.
2.
3.
4.
5.
Kind of Share Capital to be issued
Nature of Shares/Debentures
Voting Right
Variation of Shareholders’ Rights
Further Issue of Capital
In Companies Act, 1956, only Public Financial Institutions, Public
sector Banks or Scheduled Banks with main object as “financing”
were allowed to issue Shelf Prospectus

18. Changes - Prospectus & Allotment of Securities
Penalizing Provisions
Persons authorizing the issue of the
prospectus having misleading information
shall also be criminally liable besides
holding the civil liability
Civil liability for misstatement in
prospectus has been extended to experts
also

19. Share Capital & Debentures

20. General Changes - Share Capital & Debentures
Various changes in respect to Shares & Securities
GENERAL CHANGES
Changes with respect to
VOTING RIGHTS
Changes with respect to
ISSUE OF SHARES

21. General Changes - Share Capital & Debentures
Various changes in respect to Shares & Securities
OVERAGE OF
C
Act seeks to regulate all
type of Securities as
opposed to Equity and
Debentures only

22. General Changes - Share Capital & Debentures
NEW VARIATIONS IN
Company can issue shares
with
as to other
things also

23. Voting Right Changes
Equitable Voting rights for
Equity and Preference share
holders with respect to their paid
up capital
For vote on resolutions
affecting rights of both
categories
Preference shareholders allowed
to vote on every resolution
placed before shareholders’
meeting
If dividend payable to any
class of preference
shareholders in arrear for
more than 2 years
No classification between
cumulative and
non-cumulative preference
shares
For identification of voting
rights

24. General Changes - Share Capital & Debentures
Various changes in respect to Shares & Securities
GENERAL CHANGES
Changes with respect to
VOTING RIGHTS
Changes with respect to
ISSUE OF SHARES

25. Issue of Shares
Private Companies also to comply
with the provisions of further issue of
shares, which were applicable to
Public Companies only
New provision for allotment of ESOP, rules
will be provided soon

26. Changes - Share Capital & Debentures
No other shares except
to
be issued at discount
No provision has been made for issue of shares on discount with the
approval of Central Government

27. General Changes - Share Capital & Debentures
PROHIBITION ON
Prohibition on Bonus Issue if the
Company has defaulted in
payment of:
 Interest/ Principal in respect of
Fixed
Deposits
or
Debt
Securities issued by it
 Statutory dues of employees
such
as
contribution
to
provident fund, gratuity , Bonus

28. Changes - Share Capital & Debentures
No reduction in Capital allowed if the
Company is in arrears for payments of
deposits, accepted either before or after the
Commencement of Act

29. Acceptance of Deposits

30. Acceptance of Deposits
NBFCs will be governed only by the rules issued by
the Reserve Bank of India
Deposits from persons other than members not
allowed
Shareholders’ approval required for accepting
deposits from members
The concept of Small Depositors done away with

31. Charges

32. Changes – Registration of Charges
1.
2.
3.
4.
Whether created within or outside India
On property, or
On assets, or
On any undertaking whether tangible/otherwise
Whether situated within/outside India
Under The Companies Act, 1956, specific events are provided when the
charge has to be registered

33. Management & Meetings

34. Changes - Management & Meetings
The new law brings about changes in respect of
some very important components of a Company
DIRECTORS & KEY
MANAGERIAL
PERSONS
 Requirement for
appointment
 Maximum number
 Condition for
Removal
 Extended Duties
SHAREHOLDERS’
MEEETING
BOARD
MEEETING
 Quorum
 Notice
 Postal Ballot
 Participation of
Directors
 Number & Timing

35. Changes - Management & Meetings
DIRECTOR’S
A prescribed class of Companies will be required to have:
Managing Director/ CEO/ Manager
Whole Time Director in the absence of
MD/CEO/Manager
Company Secretary
A mandatory requirement to appoint such persons will ensure proper
Governance of the Company

36. Changes - Management & Meetings
DIRECTORS
A Company can have maximum 15 Directors at Board instead of
earlier 12 directors
Central Government’s approval for increase in number
of directors has been dispensed with

37. Changes - Management & Meetings
DIRECTORS
Only prescribed number of members can pass a resolution for removal
of a Director in the following cases
Company with Share
Capital
Other Company
Members holding 1/10th of
the voting power
Members holding shares valued
at an aggregate of Rs. 5 lakh or
more
A great relief to Company from frivolous application for removal of directors
by small shareholders holding 1 share only

38. Changes - Management & Meetings
DUTIES OF A DIRECTOR
To act in accordance to the Articles of Association
To act in good faith in order to promote the objects of the Company in the
best interests of its members, shareholders, employees, community and
environment
To exercise duties with due and reasonable care, skill and diligence
To not involve in a situation in which he may have a direct/ indirect interest
that conflicts or may conflict with the interest of the Company
To not achieve or attempt to achieve any undue gain or advantage to
himself or his relatives/ partners or associates
To not assign his office (any such assignment will be void)

39. Changes - Management & Meetings
EXPRESS DUTIES OF DIRECTORS
Bring accountability in the
functioning of Director
Ease of finding the case of
negligence by directors

40. Changes - Management & Meetings
Shareholders Meeting

41. Management & Meetings
QUORUM shall now be considered as:
QUORUM
(No. of Members
personally Present)
NUMBER OF MEMBERS AS ON
THE DATE OF MEETING
5
≤ 1000
15
1000 < number ≤ 5000
30
≥ 5000
Fixing of a higher quorum as compared to the earlier requirement
will ensure greater participation by shareholders

42. Changes - Management & Meetings
Board Meeting

43. Changes - Management & Meetings
SOME NEW PROVISIONS
1
2
Notice of the
Meeting
Participation
of Directors
3
Number & Timing
of Meetings
 In person, or
 Minimum 7 days
Notice
 To be given to all
directors whether or
not in India
 Can be sent through
any means; hand
delivery, post or eform
 By video
conferencing, or
 At least 4 meetings in
a year
 Any other audiovisual means capable
of recording,
recognizing and
storing the
participation of
director with date &
time
 Not necessary to be
held in every quarter
 Time gap of not
more than 120 days
between 2 meetings
Meeting at shorter notice allowed subject to attendance by at least 1 Independent director
or subsequent ratification of decision by all directors

44. Audit & Auditors

45. Changes - Audit & Auditors
Listed & other prescribed companies shall not
appoint or reappoint:
An individual auditor for more than 1 term of 5
consecutive years
An auditor firm for more than 2 terms of 5 consecutive
years
A gap of at least 5 years should elapse after
completion of the aforesaid term before the same
auditor can be reappointed
A period of 3 years available as a transition period for compliance after
enactment of this law

46. Changes - Audit & Auditors
Auditor shall not provide the following services
whether directly/ indirectly to Company and its
Holding & subsidiary Companies:
Design & Implementation of Financial
Information system
Internal Audit
Investment Banking & Advisory
Accounting & book Keeping Services
Actuarial Services
Management Services

47. Payment of Dividend

48. Changes - Payment of Dividend
No dividend shall be declared or paid by a
Company from its reserves other than free
reserves.

49. Restructuring & Revival

50. Changes - Restructuring & Revival
Reduction of
Capital
Compromise or
Arrangement
Sick Company
Fast Track
Merger

51. Changes - Restructuring & Revival
Reduction of Capital
accounting treatment
proposed by the Company for
such reduction is in conformity
with the accounting standards
if the
Company is in arrears for
payment of deposits

52. Changes - Restructuring & Revival
Compromise or Arrangement
Notice of any meeting in this matter
also to be given to Central
Government, Income Tax Authorities,
Reserve Bank of India, SEBI and
CCI
Calling of meeting of members or
creditors now mandatory (after
consent received by postal ballot) for
approval of compromise by persons
representing at least 3/4th of the
value of members of creditors

53. Changes - Restructuring & Revival
Compromise or Arrangement
Abolition of Treasury Stocks
Any shares arising out of
arrangement or compromise to be
cancelled and extinguished and
not to be held by the Transferee
Company in its own or a Trust’s
name whether on its behalf or on
behalf of a subsidiary/associate
Company

54. Changes - Restructuring & Revival
Fast Track Merger
for merger between 2 small Companies or
a holding and its wholly owned subsidiary and some other class of
Companies
to approve & effect the scheme if
no objections by Official Liquidator and the Registrar to the scheme

55. Changes - Restructuring & Revival
Fast Track Merger
between Indian Companies and Foreign
Companies incorporated in prescribed jurisdictions
and the scheme must provide for
payment to shareholders of the merging Company in any combination of
cash and IDRs

56. Changes - Restructuring & Revival
Sick Company
:
Any Company can be declared as a Sick Company and not
necessarily an Industrial Unit

Criteria of 50% Net Worth erosion dispensed with

A Company unable to repay 50% or more of secured debts within 30 days
of notice served by the Creditors can be declared sick on application
moved by:

The Company itself, OR

The Creditors representing 50% or more of secured debts

57. Changes - Restructuring & Revival
“ It is not the strongest of the species that survive, nor
the most intelligent, but the one most responsive to
change. ”
Charles Darwin
011-40622214/+91- 981027551
arun@indiacp.com

58. 33.
Manoj Kumar