INDIAN COMPANIES ACT 2013 and AMENDMENT ACT 2019
The Indian Companies Act 2013 replaced the Indian Companies Act, 1956. The Companies Act 2013 makes comprehensive provisions to govern all listed and unlisted companies in the country. The Companies Act 2013 implemented many new sections and repealed the relevant corresponding sections of the Companies Act 1956. This is a landmark legislation with far-reaching consequences on all companies incorporated in India.
Salient features of the Companies Act 2013
Class action suits for Shareholders: The Companies Act 2013 has introduced new concept of class action suits with a view of making shareholders and other stakeholders, more informed and knowledgeable about their rights.
More power for Shareholders: The Companies Act 2013 provides for approvals from shareholders on various significant transactions.
Women empowerment in the corporate sector: The Companies Act 2013 stipulates appointment of at least one woman Director on the Board (for certain class of companies).
Corporate Social Responsibility: The Companies Act 2013 stipulates certain class of Companies to spend a certain amount of money every year on activities/initiatives reflecting Corporate Social Responsibility.
National Company Law Tribunal: The Companies Act 2013 introduced National Company Law Tribunal and the National Company Law Appellate Tribunal to replace the Company Law Board and Board for Industrial and Financial Reconstruction. They would relieve the Courts of their burden while simultaneously providing specialized justice.
Fast Track Mergers: The Companies Act 2013 proposes a fast track and simplified procedure for mergers and amalgamations of certain class of companies such as holding and subsidiary, and small companies after obtaining approval of the Indian government.
Cross Border Mergers: The Companies Act 2013 permits cross border mergers, both ways; a foreign company merging with an India Company and vice versa but with prior permission of RBI.
Prohibition on forward dealings and insider trading: The Companies Act 2013 prohibits directors and key managerial personnel from purchasing call and put options of shares of the company, if such person is reasonably expected to have access to price-sensitive information.
Increase in number of Shareholders: The Companies Act 2013 increased the number of maximum shareholders in a private company from 50 to 200.
Limit on Maximum Partners: The maximum number of persons/partners in any association/partnership may be upto such number as may be prescribed but not exceeding one hundred. This restriction will not apply to an association or partnership, constituted by professionals like lawyer, chartered accountants, company secretaries, etc. who are governed by their special laws. Under the Companies Act 1956, there was a limit of maximum 20 persons/partners and there was no exemption granted to the professionals.
One Person Company: The Companies Act 2013 provides new form of private company, i.e., one person company. It may have only one director and one shareholder. The Companies Act 1956 requires minimum two shareholders and two directors in case of a private company.
Entrenchment in Articles of Association: The Companies Act 2013 provides for entrenchment (apply extra legal safeguards) of articles of association have been introduced.
Electronic Mode: The Companies Act 2013 proposed E-Governance for various company processes like maintenance and inspection of documents in electronic form, option of keeping of books of accounts in electronic form, financial statements to be placed on company’s website, etc.
Indian Resident as Director: Every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year.
Independent Directors: The Companies Act 2013 provides that all listed companies should have at least one-third of the Board as independent directors. Such other class or classes of public companies as may be prescribed by the Central Government shall also be required to appoint independent directors. No independent director shall hold office for more than two consecutive terms of five years.
Serving Notice of Board Meeting: The Companies Act 2013 requires at least seven days’ notice to call a board meeting. The notice may be sent by electronic means to every director at his address registered with the company.
Duties of Director defined: Under the Companies Act 1956, a director had fiduciary (legal or ethical relationship of trust) duties towards a company. However, the Companies Act 2013 has defined the duties of a director.
Liability on Directors and Officers: The Companies Act 2013 does not restrict an Indian company from indemnifying (compensate for harm or loss) its directors and officers like the Companies Act 1956.
Rotation of Auditors: The Companies Act 2013 provides for rotation of auditors and audit firms in case of publicly traded companies.
Prohibits Auditors from performing Non-Audit Services: The Companies Act 2013 prohibits Auditors from performing non-audit services to the company where they are auditor to ensure independence and accountability of auditor.
Rehabilitation and Liquidation Process: The entire rehabilitation and liquidation process of the companies in financial crisis has been made time bound under Companies Act 2013.
LIMITED LIABILITY PARTNERSHIP ACT 2008
The Lok Sabha passed the Limited Liability Partnership Bill on 13 December 2008 thereafter it received the assent of the President on 7 January 2009 and thereby it has received legal status as Limited Liability Partnership Act, 2008 (“the act”).
Object of the Limited Liability Partnership Act 2008 The LLP is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organising their internal structure as a partnership based on a mutually arrived agreement. The LLP form would enable entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements. Owing to flexibility in its structure and operation, the LLP would also be a suitable vehicle for small enterprises and for investment by venture capital.
What is Limited Liability Partnership?
“LLP shall be a body corporate and a legal entity separate from its partners. It will haveperpetual succession. While the LLP will be a separate legal entity liable to the full extent of its assets, the liability of partners would be limited to their agreed contribution.”
The salient features of the Limited Liability Partnership Act, 2008, inter alia, are as follows:—
(i) the LLP shall be a body corporate and a legal entity separate from its partners;
(ii) the mutual rights and duties of the partners of the LLP inter se and those of the LLP and its partners shall be governed by an agreement between the partners inter se or between the LLP and the partners subject to the provisions of the Act. The Act provides flexibility to devise the agreement as per their choice. In the absence of any such agreement, the mutual rights and duties shall be governed by the provisions of the Act;
(iii) the LLP will be a separate legal entity, liable to the full extent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP. No partner would be liable on account of the independent or unauthorised actions of other partners or their misconduct. The liabilities of the LLP and its partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP;
(iv) every LLP shall have at least two partners and shall also have at least two individuals as Designated Partners, of whom at least one shall be resident in India.
(v) the LLP shall be under an obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A statement of accounts and solvency shall be filed by every LLP with the Registrar every year. The accounts of LLPs shall also be audited, subject to any class of LLPs being exempted from this requirement by the Central Government;
(vi) the Central Government shall have powers to investigate the affairs of a LLP, if required, by appointment of competent inspector, for the purpose;
(vii) the compromise or arrangement including merger and amalgamation of LLPs shall be in accordance with the provisions of the act;
(viii) a firm, private company or an unlisted public company would be allowed to be converted into a LLP in accordance with the provisions of the act.
(ix) the winding up of the LLP may be either voluntary or by the Tribunal to be established under the Companies Act, 1956. Till the Tribunal is established, the power in this regard has been given to the High Court;
(x) the act confers powers on the Central Government to apply provisions of the Companies Act, 1956 as appropriate, by notification with such changes or modifications as deemed necessary. However, such notifications shall be laid in draft before each House of Parliament for a total period of 30 days and shall be subject to any modification as may be approved by both Houses;
(xi) the Indian Partnership Act, 1932 shall not be applicable to LLPs.
Nature of a LLP The LLP act has incorporated definitions which has explained various expressions used in the Act for the purposes of certainty in the interpretation of the Act. The LLP act seeks to provide that LLP is to be a body corporate having perpetual succession and a legal entity separate from its partners and any change in the partners of such partnership shall not affect its liabilities.
Partners Any individual or a body corporate may become a partner in a LLP provided the said person is of sound mind, is not insolvent, and has not applied for adjudication for insolvency. A LLP shall consist of at least two partners and there is no restriction on the maximum number of partners. The Act provides that in a situation where the number of partners is reduced to one and such LLP carries on business with such sole partner for more than six months and then such partner, if having knowledge of such a situation, shall be liable personally for the obligations of the LLP. The LLP act has made provisions that a LLP shall have at least two designated partners who shall be individuals and at least one of them shall be resident in India. An individual shall not become a designated partner in any LLP unless he has given his prior consent to act as such to the LLP in the prescribed form and manner. The particulars of every designated partner who agrees to act as such shall be filed with the Registrar. Any partner may become or cease to be designated partner in accordance with the LLP agreement. It also seeks to empower the Central Government to make rules for prescribing the conditions and requirements for an individual to be a designated partner. It also provides that every designated partner shall obtain a Designated Partner Identification Number (DPIN) from the Central Government. The responsibilities and liabilities of the designated partner are as provided—
(a) responsible for the doing of all acts, matters and things as are required to be done by the LLP in respect of compliance of the said Act; and
(b) liable to all penalties imposed on the LLP for any contravention of those provisions.
The LLP Act has provided for a 30 days period for filling up of a vacancy of a designated partner. If no designated partner is appointed, or if at any time there is only one designated partner, each partner of the LLP shall be deemed to be a designated partner. If the LLP fails to appoint designated partners, then the LLP and its every partner shall be punishable with fine The Act provides that any agreement, made before the incorporation of the LLP, between the partners who subscribe their names to the incorporation document may impose obligation on LLP, if ratified by all the partners after its incorporation.
Extent and Limitation of Liability The act provides that every partner of the LLP is, for the purpose of business of the LLP, an agent of the LLP but not of other partners. The LLP shall not be bound by anything done by a partner in dealing with a person if that partner has no authority to act for the LLP in doing a particular act and the person with whom he is dealing also knows that the partner has no authority for such ac.t It, further, provides that an obligation of the LLP, whether arising out of contract or otherwise shall be solely the obligation of the LLP. It also seeks to provide that liabilities of the LLP are to be met from the property of the LLP and that a LLP shall be liable for a wrongful act or omission by a partner in the course of the business of the LLP or with its authority. The partner is not personally liable, directly or indirectly for an obligation of the LLP solely by reason of his being a partner of the LLP.
Contribution by the partners The contribution may consist of money, tangible or intangible property, or any other benefits such as promissory notes, contracts for services performed or to be performed. The obligation of a partner to contribute money or property to a LLP shall be as per the LLP agreement.
Conversion of existing firms into a LLP A partnership firm may convert itself into an LLP as per Section 55 and second schedule of the act. A private company may convert itself into an LLP as per section 56 and third schedule of the act. A unlisted Public company may be converted into an LLP as per section 57 and the fourth schedule of the act. Upon such conversion, on and from the date of certificate of registration issued by the Registrar in this regard, the effects of the conversion shall be such as are specified in the act. On and from the date of registration specified in the certificate of registration, all tangible (movable or immovable) and intangible property vested in the firm or the company, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, and the whole of the undertaking of the firm or the company, shall be transferred to and shall vest in the LLP without further assurance, act or deed and the firm or the company, shall be deemed to be dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be.
Winding up and dissolution of LLP The winding up of LLP may be either voluntary or by the NCLT under certain circumstances. The NCLT can order for the winding up of the LLP on the grounds of inability of the LLP to pay its debts, or default in filing the statement of account or solvency or annual return with the Registrar of Companies (“ROC”) for five consecutive financial years or any other ground which is just and equitable in the opinion of the NCLT. The Central Government will make rules for provisions relating to winding up and dissolution of LLP.