Ballak & Whyte International " BnW "

Ballak & Whyte International " BnW " BnW is one step solution for setting up business in INDIA. BnW helps Non Resident Indians and Investors to set up business in INDIA and ensure its all tax and legal compliance . For our complete services visit us at www.ballak-whyte.com .
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BnW is one step solution for setting up business in INDIA. BnW helps Non Resident Indians and Investors to set up business in INDIA and ensure its all tax and legal compliance . For our complete services visit us at www.ballak-whyte.com .

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The Companies Act, 1956 (“Old Act”) had adopted a more friendly approach towards Private Companies and exempted the private companies from various provisions which were otherwise applicable to Public Companies. The Old Act did not have any provision for monitoring the raising of funds by Private Companies and as such, the Private Companies were free to raise funds by way of issuance of securities in any manner. Unlike Public Companies, they were not required to offer shares on Right Issue basis to existing shareholders or to obtain approval of the shareholders in case the shares were issued on preferential basis. They were allowed to issue the securities to anyperson including promoters and at any price which they like. There was no requirement with respect to any kind of disclosures or pricing for Private Companies in case of preferential issue. As a result of such relaxation in Law, the promoters of many Private Companies were enjoying a special position since they always had the opportunities to invest in the share capital at a price which was far below the fair value of shares.
But the Companies Act, 2013 (New Act or Act), in a move to ensure better corporate governance and to protect the rights & interest of investors, introduced certain new provisions to curb such kind of practice of promoters and requires even the private companies to mandatorily offer further shares in their share capital either to their existing shareholders through right issue or to follow the regulatory provisions related to Private Placement Offer which include prior approval of shareholders, valuation of shares, issuance of offer document etc.
We have tried to summarize the key provisions of New Act which are now applicable to further issuance of securities by Private Companies:
Key provisions

 in terms of provisions of Section 23 (2) of the New Act a Private Company may issue securities :
a. by way of right issue or bonus issue in accordance with the provisions of the Act; or
b. by way of private placement by complying with the provisions of Section 42;
 Sec 62 dealing with provisions related to further issuance of share capital by a company provides that where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares , such shares shall be offered in the following manner:
a. to the existing equity shareholders in proportion to the amount of capital paid up on the shares held by them (Right Issue);
b. to employees under a scheme of under a scheme of employees’ stock option, subject to special resolution passed by company and subject to such conditions as may be prescribed (ESOP Issue); or
c. to any persons, if it is authorized by a special resolution, subject to such conditions as may be prescribed (Preferential Issue);

Since Right Issue/Private Placement/Preferential Issue of securities constitutes the major source of funds for Private Companies, these options have, therefore, been discussed thoroughly hereinafter.
RIGHT ISSUE

The term ‘Right Issue’ does not have any exact meaning in the new Act. However, in common parlance, right issue means an offer of shares by a company to its existing shareholders on proportionate basis. The objective of right issue is to ensure that whenever the Company makes any further issue of shares in its share capital, the existing shareholders get first right to subscribe to additional shares. In order to protect the interest of shareholders, the New Act has extended the provisions of Right issue on Private Companies also.

A summary of the provisions of Companies Act, 2013 regulating the right issue is given herein below for quick understanding:

i. In case of any further issue of shares by a Company, such shares shall be offered to the existing equity shareholders of the Company in proportion to the amount of share capital paid up on the shares held by them;
ii. The offer shall be made by a notice which shall specify the number of shares offered and the time period within which the shareholder has to communicate his decision to the Company;
iii. Notice shall be given to all the existing shareholders by way of registered post or speed post or electronic mode at least three days before the opening of issue;
iv. A time of minimum 15 days and not more than 30 days shall be given to the shareholders to communicate their decision to the Board;
v. In case the Board does not receive any communication from a shareholder within the given time period, the offer shall be deemed to have been declined;
vi. The shareholder shall have right to renounce the offer in favor of any other person. However, the company may, by its Articles of Association, may impose restriction on such right;
vii. In case a shareholder declines to exercise his right or fails to communicate his decision to Board within given time period in which case the right shall be deemed to have been declined, the Board of Directors may dispose of such shares in such manner which is not dis-advantageous to the shareholders and the company.
viii. Return of allotment of securities along with list of allottees shall be filed with ROC within 30 days.

Although, this can be said to be a welcome move on behalf of Ministry of Corporate Affairs (MCA) to extend the provisions of Right Issue on Private Companies also, yet, certain issues still remain unaddressed. For example; in case of a listed company proposing to make right issue, all the existing partly paid up shares should be first made fully paid up or they should be forfeited before the issue. This ensures equality in participation by all the shareholders in right issue. But the New Act does not have any such kind of restriction in the absence of which even the shareholders of partly paid up shares shall be entitled to participate in right issue by Private Companies.

PREFERENTIAL ISSUE

The New Act has defined the preferential offer under the rules according to which ‘Preferential Offer’ shall mean an issue of shares or other convertible securities, by a company to any select person or group of persons on a preferential basis and does not include shares or other securities offered through a public issue, rights issue, employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or bonus shares or depository receipts issued in a country outside India or foreign securities.

The major highlights of the regulatory provisions governing the preferential offer via Private Placement Route have been summarized herein below for easy reference:
i. Authorization in Articles of Association (AOA) is mandatory for preferential issue. Further, authorization should also be obtained from the shareholders by way of passing of Special Resolution in General Meeting;
ii. Valuation report of shares must be obtained from a Registered Valuer to determine the issue price;
iii. The list of invitees of the proposed offer should be decided by the Board of Directors before the issuance of offer document;
iv. The offer of securities or invitation to subscribe securities should be made to not more than 200 persons in aggregate in a financial year. Any offer/invitation made to more than 200 persons in a financial year shall be treated as Public Offer;
v. The value of such offer or invitation per person shall be with an investment size of not less than Rs. 20, 000/- of face value of securities;
vi. The Share application money received by the Company shall be kept in a separate bank account in a scheduled bank and shall not be utilized for any purpose other than allotment of shares/refund to the investors.
vii. No cash transaction is permitted. All monies payable towards subscription of securities shall be paid through cheque or other banking channels only;
viii. Allotment of Shares have to be completed within a period of 60 days from the receipt of share application money failing which the Company shall be required to refund the entire share application money within 15 days after completion of 60 days;
ix. Return of allotment shall be filed to ROC within 30 days of allotment of shares along with list of allottees and valuation report given by the registered valuer;
x. In case of allotment of securities for non-cash consideration, the valuation such consideration shall be done by registered valuer. The valuation report allotted given by the registered valuer along with copy of contract pursuant to which the securities are allotted shall also be filed with the ROC along with return of allotment;
xi. In case of allotment of convertible securities, the price of resultant shares shall be determined beforehand on the basis of valuation report of registered valuer;
xii. The allotment of securities on preferential basis shall be completed within a period of 12 months from the date of passing of Special Resolution failing which fresh Special Resolution shall be required.

The new Act has also put another restriction which says that no fresh offer or invitation shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company. It means that a Company cannot make two simultaneous private placements. Further, the new Act has also provides for levy of hefty penalty on Company, its promoters and Directors in case a Company lakes an offer or accepts monies in contravention of the prescribed provisions, The amount of penalty may extend to an amount involved in the offer or invitation or Rs. Two Crore, whichever is higher. Besides, the Company shall also be liable to refund all monies to subscribers within a period of 30 days of order imposing penalty.

By providing for complete disclosures, additional compliances, pricing guidelines and heavy penalties for promoters also in case of contravention, the New Act has attempted to create a faith in the domestic as well global investors about the investment environment in India which may result in floods of investment proposals across the sectors in forthcoming days.

BnW Team.

An initiative of Mr. Manoj Gupta and his Team members.

For further information contact Santanu Deka, Rahul Sangal and Mannick Shah or mail at manoj@bnwinternational.com

   Over a month ago
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Worried about 46 new ROC e-forms !!!

Here is comparative chart of 46 e-forms through which you can check what are the new forms against old ROC forms.


Click Here


List of new ROC forms in place of old ROC Forms.


BnW Team -

Regards
Santanu Deka & Manoj Gupta

   Over a month ago
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Few Definitions of certain terms under Companies Act, 2013... starting with alphabet 'C'


(15) “called-up capital”
means
such part of the capital, which has been called for payment;

(16) “charge”
means
an interest or lien created on the property or assets of a company or any of its undertakings or both as security and
includes
a mortgage;

(17) “chartered accountant”
means
a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 who holds a valid certificate of practice under sub-section (1) of section 6 of that Act;

(18) “Chief Executive Officer”
means
an officer of a company, who has been designated as such by it;

(19) “Chief Financial Officer”
means
a person appointed as the Chief Financial Officer of a company;

(20) “company”
means
a company incorporated under this Act or under any previous company law;

(21) “company limited by guarantee”
means
a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up;

(22) “company limited by shares”
means
a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them;

(23) “Company Liquidator”, in so far as it relates to the winding up of a company,
means
a person appointed by—
(a) the Tribunal in case of winding up by the Tribunal; or
(b) the company or creditors in case of voluntary winding up,
as a Company Liquidator from a panel of professionals maintained by the Central Government under sub-section (2) of section 275;

(24) “company secretary” or “secretary”
means
a company secretary as defined in clause (c) of sub-section (1) of section 2 of the Company Secretaries Act, 1980 who is appointed by a company to perform the functions of a company secretary under this Act;

(25) “company secretary in practice”
means
a company secretary who is deemed to be in practice under sub-section (2) of section 2 of the Company Secretaries Act, 1980;

(26) “contributory”
means
a person liable to contribute towards the assets of the company in the event of its being wound up.

Explanation.—For the purposes of this clause, it is hereby clarified that a person holding fully paid-up shares in a company shall be considered as a contributory but shall have no liabilities of a contributory under the Act whilst retaining rights of such a contributory;

(27) “control”
shall include
>the right
>>to appoint majority of the directors or
>>to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner;

(28) “cost accountant”
means
a cost accountant as defined in clause (b) of subsection (1) of section 2 of the Cost and Works Accountants Act, 1959;

(29) “court”
means—
(i) the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conferred on any district court or district courts subordinate to that High Court under sub-clause (ii);
(ii) the district court, in cases where the Central Government has, by notification, empowered any district court to exercise all or any of the jurisdictions conferred upon the High Court, within the scope of its jurisdiction in respect of a company whose registered office is situate in the district;
(iii) the Court of Session having jurisdiction to try any offence under this Act or under any previous company law;
(iv) the Special Court established under section 435;
(v) any Metropolitan Magistrate or a Judicial Magistrate of the First Class having jurisdiction to try any offence under this Act or under any previous
company law;

For any query Please contact Santanu Deka +91 9899226523 or mail him at santanu@bnwinternational.com

For any business inquiry write to our TALK TO BUSINESS section.. or visit our website
Click Here


BnW Team

   Over a month ago
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