Updates on the Impacts of Newly Passed – Companies Act,2013

1. Appointment of key Managerial Personnel (Sec 203)

  • Every Company with a paid up share capital of Rs. 5 corers or More needs to now appoint:
    1. Managing Director or Chief Executive Officer or Manager or Whole Time Director; and
    2. Whole-time Company Secretary; and
    3. Chief Financial Officer
  • Further, the Managing Director or CEO should not be appointed as the Chairperson, unless permitted by the articles of association.
  • Definitely, compliance costs of a company shall be rising substantially due to application of such clauses.

2. Voluntary Revision of Financial Statements or Board’s Report (Sec 131)

  • A Company can, in respect of any of the 3 preceding financial years, voluntarily revise the Financial statements or Board’s Report so as to ensure that the same are prepared as per the requirements of sec 129/Sec 134 of the Act.
  • However, prior approval of the Tribunal shall be required. As per Rule 9.5, a company shall disclose the effect of revision on items specified in Draft Rule in prescribed form to the Tribunal.
  • Also, the CBDT will need to clarify whether such change in financial statements will affect the tax liabilities of the previous years.

3. Corporate Social Responsibility (Sec 135)

  • The Ministry of Corporate Affairs (MCA) in its notification dated 27th February, 2014 mandated the provisions of Corporate social Responsibility (CSR) u/s 135 of The Companies Act,2013 with effect from 1st April, 2014.
  • CSR shall be applicable to all companies whether public or private which satisfies any of the 3 conditions u/s 135 (1):
    1. Net Worth>= 500 Cr
    2. Turnover>= 100 Cr
    3. Net profit>= 5 Cr
  • Companies will have to spend 2% of the average net profit of the last three years.

4. Compulsory Rotation of Auditors (Sec 139)

  • Following companies other than OPC and small company shall not appoint an individual auditor for more than 5 consecutive years or a firm including LLP for not more than 2 terms of 5 consecutive years:
    1. all unlisted public companies having paid up share capital of rupees ten crore or more;
    2. all private limited companies having paid up share capital of rupees twenty crore or more;
    3. all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more.
  • The same auditor can be appointed again only after a cooling period of 3 years with retrospective calculation of the tenure. thus, even private limited companies will have to change their auditors periodically.

5. Depreciation (Schedule II)

  • The new act has introduced depreciation based on useful life instead of fixed depreciation rate.
  • Example, plant and machinery now need to be depreciated over 15 years instead of 4.75% SLM.
  • The challenge is with regard to the transitional provisions.
  • The Act requires balance book value of the assets to be depreciated over balance useful life of those assets.
  • However, if the asset does not have any balance useful life but has a balance book value, the book value needs to be set off against retained earnings.

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Financial Management