‘One Person Company’ and ‘Small Company’ under Companies Act, 2013

The Companies Act, 2013 (“Act”), which received the assent of the President of India last year, has introduced two important concepts in (Indian) Company Law Jurisprudence – Small Company and One Person Company (“OPC”). As can be understood from the reply of Sachin Pilot, Minister of State (I/C) Corporate Affairs, to Starred Question no. 507 (2^nd May, 2013, Lok Sabha) and Unstarred Question no. 90 (5^th Dec., 2013, Lok Sabha), the concept of ‘small company’, along with ‘one person company’, have been introduced to allow new entrepreneurs to take advantage of corporate form of business. In the Companies Act, 1956 (“1956 Act”), there were no such concept(s) and those, intending to incorporate a business entity under the 1956 Act, had the option to incorporate companies in other forms.

Both Small Company and OPC are special form of private companies. While existence of the former company is determined in accordance with the value of share capital or turnover, existence of the latter company is determined in accordance with the number of members. There can also be a possibility where both the forms of companies may overlap. For instance, consider a situation where an OPC also satisfies the definition of a Small Company. These companies are different from other companies because of the simplified procedure available for them, both in terms of administration and responsibilities.

The 21^st Report [Companies Bill, 2009 (“2009 Bill”)] of the Standing Committee on Finance noticed that the 2009 Bill contained scattered provisions for providing exemptions to OPC and Small Companies [see: clause 421, 2009 Bill – it was later removed]. While Ministry of Corporate Affairs (“MCA”) was of the opinion that further exemptions, if any, could be provided vide notifications, the Standing Committee opined that such exemptions should be provided in the bill itself. In fact, Standing Committee recommended that such exemptions should be provided by way of a schedule or be appended to the main Act. Once again in its 57^th Report [Companies Bill, 2011 (“2011 Bill”), the Standing Committee reiterated that exemptions available to different classes of companies should be clearly specified.

Companies (Corporate Social Responsibility Policy) Rules, 2014: An Overview

In exercise of the powers conferred under section 135 and section 469 [sub-sections (1) and (2)] of the Companies Act, 2013 (“Act”), the Central Government, on February 27^th (2014), has notified Companies (Corporate Social Responsibility Policy) Rules, 2014 (“CSR Rules”). The Rules, which provides for the implementation for Corporate Social Responsibility ("CSR") obligations,  will come into force on 1^st April, 2014.

Section 135 of the Act mandates a company, falling under the provided criteria, to constitute a CSR Committee. The function of the CSR Committee is to formulate and recommend CSR Policy.The provision also provides that the CSR committee should consist of two or more director, out of which one shall be an ‘independent director’. So far as section 469 of the Act is concerned, it empowers the Central Government to make rules for carrying out the provisions of the Act.

The CSR Rules, as notified by the Ministry of Corporate Affairs (“MCA”), consist of 9 rules. Among the important ones, it contains the descriptive rules for CSR Activities, CSR Committees, CSR Policy, CSR Reporting etc. In this blog post, I intend to explain and summarise the CSR Rules in brief.

Important Definitions:

1.   Definition of ‘Corporate Social Responsibility’: One of the most important features of the CSR Rules is that it defines the term ‘Corporate Social Responsibility’; according to Rule 2(c), CSR means and includes but is not limited to:

(i)           Projects or programs relating to activities specified in Schedule VII to the Act; or

(ii)         Projects or programs relating to activities undertaken by the board of directors of a company (Board) in pursuance of recommendations of the CSR Committee of the Board as per declared CSR Policy of the company subject to the condition that such policy will cover subjects enumerated in Schedule VII of the Act

From both the above clauses, it becomes apparent that a company has to focus on the subjects specified under Schedule VII of the Act. Schedule VII of the Act contains a list of activities which a company may purse for discharging its CSR obligations. Among other things, the list contains subjects such as ‘promotion of education’, ‘eradicating extreme hunger and poverty’, ‘social business projects’ etc.

Companies Act, 2013: Independent Directors

In this post, important changes relating to introduction of Independent Directors (IDs) in the new Companies Act, 2013 would be discussed. [For an analysis & discussion of M&A and Corporate Restructuring in the ‘new act’, kindly click here].

Now, the primary role of corporate governance is always to ensure the independence of the board of directors (BOD) in a company. Independent directors on the board predominantly enhance the monitoring and supervising of the management and the promoters of a company. Thus is turning immensely helps in protecting and safeguarding the interests of the public shareholders. The new Companies Act, 2013 on one hand bestows independent directors with greater say in corporate governance & on the other hand places greater demand from them. Now, the relevant provisions concerning IDs in the new act are Section 149, 150 and Schedule IV. The primary features concerning Independent directors (IDs) in the new Companies Act, 2013 are as follows-

Number of Independent Directors

The new Companies Act, 2013 requires all the listed companies to have at least 1/3rd independent directors on their board. But this provision of the Act is a slight departure from clause 49 of the listing agreement. Clause 49 of the Listing agreement issued by SEBI requires that at least 50% of the Board of Directors (BOD) must comprise of Independent Directors in case the chairperson is in an executive capacity or a promoter or related to a promoter. Now, one thing which must be noted is that the listed companies will be required to comply with the more onerous of the two requirements, while others can merely comply with the company law. The consequences of violation may also be different under company law and securities regulation i.e. under clause 49 of the listing agreement.

Companies Act, 2013: What's in the box for Mergers & Amalgamations (M&A) and Corporate Restructuring?

The Companies Bill, 2012 has finally become the Companies Act, 2013. See the official Gazette Notification here. Further, we already had an overview of the Companies Bill, 2012 here. But it must be noted that all the substantive sections are yet to be notified in due course of time by the Central Government. Only section 1 of the Act has come into effect, and section 1(3) provides:-

This section shall come into force at one and the remaining provisions of this Act shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of this Act and any reference in any provision to the commencement of the Act shall be construed as a reference to the coming into force of that provision.

Thus, the substantive sections would be notified by the Government later. Now, I would be delineating, in this post, the key provisions relating to Mergers & Acquisitions in the new Companies Act, 2013. The new Companies Act, 2013 has sought to streamline and make M&A more smooth and transparent. The newly added provisions have made it easier for companies to implement ‘Schemes of Arrangement’ (mergers & acquisitions (M&A), de-merger, corporate debt restructuring etc) and at the same time impose checks & balances to prevent abuse of these provisions.

Now, the key provisions relating to M & A transactions and corporate restructuring are as follows-