3rd Floor, Todi Building, Mathuradas Mills Compound,
Lower Parel (W), Mumbai – 400013
Find us on Google Maps!
By Husain Kader
The Ministry of Corporate Affairs (MCA) has issued a recent notification dated 16th October, 2019 notifying the Companies (Incorporation) Eight Amendment Rules, 2019 to amend the Companies (Incorporation) Rules, 2014.
The amendments are summarised below:
|Sr No.||Particulars||Erstwhile Provision||After Amendment||Remarks|
|Earlier if the name of the proposed company included a registered trademark then approval from the owner or the applicant for registration of trademark had to be obtained by the promoters of the proposed company before making name application to ROC.||Now the option to get approval from the applicant for registration of trademark has been removed.
Now approval has to be obtained from the owner only.
|The Owner and applicant for registration of trademark could be two different persons and therefore earlier there was an option.
Now the rule has been made more stringent and the approval of the present owner is necessary.
|2.||Active Company Tagging Identities and Verification (ACTIVE)
|Earlier if a company was marked as ACTIVE-non-compliant than unless e-Form ACTIVE was filed the company was not able request for any changes in director information by filing Form DIR-12 except in case of cessation.||Now if a company is marked as ACTIVE-non-compliant than it will not be able to request for any changes in director information except in the following cases:
1. cessation of any director; or
2. appointment of directors in a company where total number of directors fall below the minimum limit as provided in the Act on disqualification of all or any of the director; or
3. appointment of any director in such company where DINs of all or any of its director(s) have been deactivated; or
4. appointment of director(s) for implementation of the order passed by the Court or Tribunal or Appellate Tribunal.
|MCA has liberalized the ACTIVE rule to allow changes to be made to the information of directors to allow appointment or cessation of directors where it becomes absolutely necessary in cases which may lead to non-functioning of the Board of Directors of a company or non-compliance of the Companies Act.|
|3.||Shifting of registered office within the same State
|After amendment the MCA has added the following rules to the present provisions:
1. The Regional Director (“RD”) shall examine the application seeking confirmation from the RD for shifting the registered office within the same State from the jurisdiction of one ROC to another ROC and the application may be put up for orders without hearing and the order either approving or rejecting the application shall be passed within 15 days of the receipt of application complete in all respects; and
2. The certified copy of order of the RD, approving the alternation of MOA for transfer of registered office company within the same State, shall be filed in Form No. INC-28 along with fee with the Registrar of State within 30 days from the date of receipt of certified copy of the order.
|The Rule has been made more stringent by the MCA whereby now an order shall be passed by the RD after examination of all the submitted documents and such order shall have to be filed in Form INC-28 (which is an added compliance to be followed) for shifting of registered office.|
As per a recent notification dated October 29, 2019, the Ministry of Corporate Affairs (“MCA”) has provided relief to the stakeholders by relaxing additional fees and extending the last date of filing for the following for the financial year which ended on March 31, 2019 to:
- Filing of forms for financial statements – November 30, 2019; and
- Filing of annual returns – December 31, 2019.
On failure to file the forms by the above due dates, an additional fees of INR 100/- per day for each day of default will become applicable.
The Government of India recently announced significant reduction in corporate tax rates through The Taxation Laws (Amendment) Ordinance, 2019 (‘Ordinance’). The Ordinance provides for a reduced tax rate of 22% for existing domestic companies and 15% for newly set up manufacturing companies. The taxpayer has the option to opt for lower tax rate or to continue under the existing tax regime and avail existing deductions and set-off of losses.
The Ordinance also provides that Minimum Alternate Tax (MAT) shall not apply to any taxpayer opting to be governed by these lower tax rates. One of the conditions for availing the lower tax rates is that the taxpayer shall not be eligible to set-off brought forward tax losses against its taxable income.
The drafting of the Ordinance left open certain key questions. The CBDT through Circular No. 29/2019 dated 2 October 2019, has sought to clarify the following two questions:
- Whether taxpayers will be eligible to set-off unabsorbed depreciation against taxable income of FY 2019-20 and subsequent years?
- What will be the position of unutilised MAT credit since the provisions of MAT no longer apply to taxpayers opting for concessional tax rates
A company opting for the lower tax rates shall not be eligible to set-off any brought forward business loss on account of additional depreciation
The Clarification provided by the CBDT, with due respect, appears misplaced. Denial of benefit of unabsorbed depreciation will require an amendment in section 32(2) which can be carried out only by approval from the Parliament of India or a Presidential Ordinance and not by the CBDT through issuance of Circular. Therefore, to that extent, the Circular No. 29/2019 may be considered as ultra-vires the powers of CBDT and may not survive judicial review. Please refer the subsequent paragraphs for a discussion on this aspect.
It is pertinent to note that the restriction is only on set-off of unabsorbed additional depreciation. The set-off of normal depreciation should continue unabated
Be that as it may, taxpayers opting to be governed by the Circular will have to carry out active number- crunching to determine the component of unabsorbed additional depreciation comprised in brought forward depreciation
- The restrictions provided under the newly inserted section 115BAA(2) has three clauses, as under:
- Clause (i) prohibits claiming specified deductions, including additional
- Clause (ii) prohibits set-off of brought forward tax losses relating to deductions under Clause (i)
- Clause (iii) provides for claim of current year depreciation in such manner as may be prescribed
It is a settled position under the Income Tax Act, 1961 (Act) that depreciation is an allowance and not a deduction. Therefore, the restriction under Clause (ii) dealing with losses relating to deductions referred in Clause (i) should not cover additional depreciation.
- Under section 32(2) of the Act, unabsorbed depreciation is treated as depreciation of the current year and can be carried forward indefinitely to be set-off against taxable income of future years. As such, when the taxpayer off-sets unabsorbed depreciation, technically, the taxpayer claims off-set of the current year depreciation and not of a brought forward loss. Therefore, any restrictions on brought forward losses should not apply to brought forward depreciation
- It is also an established position that unabsorbed tax losses are different than unabsorbed A case in point is the provisions of section 79 of the Act which deny benefit of brought forward losses to closely held companies in cases of change in control. Courts have held that section 79 would not apply to brought forward unabsorbed depreciation as depreciation is not a loss.
- The CBDT can issue Circulars only for administrative and procedural guidance. A Circular cannot amend or restrict the operation of the law. It is pertinent to note that the clarification is provided by the CBDT by way of a Circular and has not been announced through a Supplementary Ordinance.
A company opting for the lower tax rates shall not be eligible to set-off unutilised MAT credit
Since the provisions of MAT do not apply to taxpayers opting for the lower tax rates, any unutilised MAT credit available with these companies up to 31st March 2019 shall lapse. This could require writing-off of unutilised MAT credit as an expense to the Profit and Loss Account, impacting the Profit after Tax.
This provision, in effect, will make the MAT paid in earlier years a final tax payment. However, since an option has been provided to the taxpayer of not opting for the concessional tax rate and utilise the MAT credit, a constitutional challenge to this clarification may not survive
The changes made by the Ordinance and this recent clarification present a strong case for the taxpayers and tax advisors to sit together for carrying out a tax review of existing business operations to ascertain whether any tax optimisation avenues exist and what would be the opportune time for the taxpayer to opt for the lower headline tax rate of 22%
For any queries and feedback, you may please reach us at [email protected]
The following information must be mandatorily disclosed in the Director’s Report filed by the Board of Directors:
|1||Dividend, if declared & amount, if any, carried forwarded to reserves|
|2||Details of ESOPs:
a. Options granted
b. Options vested
c. Options exercised, and
d. Total number of Options in force, if any
|3||Information about the financial performance / financial position and details of the subsidiaries / associates/ JV|
|4||Details of loans, investments and guarantees by the company|
|5||Details relating to deposits, covering the following:
Accepted during the year;
|7||Disclosures under the Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013|
|8||Borrowing by the company|
|9||Director remuneration (for each director)|
|10||Details of transfer of shares during the financial year|
|11||Break up of related party transaction (1. Name of related party and nature of relationship and 2. Duration of the agreement)|
What does Issue of Shares through Differential Voting Rights means?
The issue of Shares with Differential Voting Rights (DVRs) means shares that give the holder differential rights as to voting (either more or less voting right) as against the Ordinary shareholders of the company.
As per Section 43(a)(ii) of the Companies Act, 2013, a company incorporated in India and limited by shares is permitted to have equity shares with differential voting rights as part of its share capital. The differential rights appended to such equity shares may be with respect to dividend, voting or otherwise. Such equity shares may be issued by a company as per Rule 4 of the Companies (Share Capital & Debentures) Rules, 2014 prescribed under the Companies Act, 2013. Private companies can issue shares with differential voting rights in the manner prescribed under their Articles of Association, provided the Articles exempt the applicability of the Section 43 and 47 of the Companies Act, 2013 read with rule 4 of the Companies (Share Capital & Debentures) Rules 2014.
Section 47 of The Companies Act, 2013, provides for every shareholder of a company to have a right to vote on every resolution presented before the company. However, in the event that the memorandum and articles of association of the company so provide, a private company may opt to not accord every member with such right to vote.
What are the benefits of issuing shares with differential voting rights?
A company may choose to issue shares with differential voting rights for obtaining investments without offering voting rights to the investor and thereby avoiding any attempts at a hostile takeover. Similarly, the promoters can get investment without diluting the control on decision making capabilities. Shares with differential voting rights are favorable to private companies which do not have abundance of dispensable funds or distributable profits and are susceptible to a hostile takeover. Issuance of shares with differential voting rights affords an opportunity to such private companies to broaden their capital base without having to lose control over or management of the company.
What is the Procedure for issue of issue of shares with DVR?*
1) No company limited by shares shall issue equity shares with differential rights as to dividend, voting or otherwise, unless it complies with the following conditions, namely:-
(a) the articles of association of the company should authorizes the issue of shares with differential rights;
(b) The Company should call board meeting and shareholders meeting for passing ordinary resolution for issue of shares with DVR;
Provided that where the equity shares of a company are listed on a recognized stock exchange, the issue of such shares shall be approved by the shareholders through postal ballot;
(c) the voting power in respect of shares with differential rights of the company shall not exceed seventy four per cent. of total voting power including voting power in respect of equity shares with differential rights issued at any point of time;
(d) the company has not defaulted in filing financial statements and annual returns for three financial years immediately preceding the financial year in which it is decided to issue such shares;
(e) the company has no subsisting default in the payment of a declared dividend to its shareholders or repayment of its matured deposits or redemption of its preference shares or debentures that have become due for redemption or payment of interest on such deposits or debentures or payment of dividend;
(f) the company has not defaulted in payment of the dividend on preference shares or repayment of any term loan from a public financial institution or State level financial institution or scheduled Bank that has become repayable or interest payable thereon or dues with respect to statutory payments relating to its employees to any authority or default in crediting the amount in Investor Education and Protection Fund to the Central Government;
Provided that a company may issue equity shares with differential rights upon expiry of five years from the end of the financial Year in which such default was made good.”]
(g) the company has not been penalized by Court or Tribunal during the last three years of any offence under the Reserve Bank of India Act, 1934, the Securities and Exchange Board of India Act, 1992, the Securities Contracts Regulation Act, 1956, the Foreign Exchange Management Act, 1999 or any other special Act, under which such companies being regulated by sectoral regulators.
(2) The explanatory statement to be annexed to the notice of the general meeting in pursuance of section 102 or of a postal ballot in pursuance of section 110 shall contain the following particulars, namely:-
(a) the total number of shares to be issued with differential rights;
(b) the details of the differential rights ;
(c) the percentage of the shares with differential rights to the total post issue paid up equity share capital including equity shares with differential rights issued at any point of time;
(d) the reasons or justification for the issue;
(e) the price at which such shares are proposed to be issued either at par or at premium;
(f) the basis on which the price has been arrived at;
(g) (i) in case of private placement or preferential issue-
(a) details of total number of shares proposed to be allotted to promoters, directors and key managerial personnel;
(b) details of total number of shares proposed to be allotted to persons other than promoters, directors and key managerial personnel and their relationship if any with any promoter, director or key managerial personnel;
(ii) in case of public issue – reservation, if any, for different classes of applicants including promoters, directors or key managerial personnel;
(h) the percentage of voting right which the equity share capital with differential voting right shall carry to the total voting right of the aggregate equity share capital;
(i) the scale or proportion in which the voting rights of such class or type of shares shall vary;
(j) the change in control, if any, in the company that may occur consequent to the issue of equity shares with differential voting rights;
(k) the diluted Earning Per Share pursuant to the issue of such shares, calculated in accordance with the applicable accounting standards;
(l) the pre and post issue shareholding pattern along with voting rights as per clause 35 of the listing agreement issued by Security Exchange Board of India from time to time.
(3) The company shall not convert its existing equity share capital with voting rights into equity share capital carrying differential voting rights and vice–versa.
(4) The Board of Directors shall, inter alia, disclose in the Board’s Report for the financial year in which the issue of equity shares with differential rights was completed, the following details, namely:-
(a) the total number of shares allotted with differential rights;
(b) the details of the differential rights relating to voting rights and dividends;
(c) the percentage of the shares with differential rights to the total post issue equity share capital with differential rights issued at any point of time and percentage of voting rights which the equity share capital with differential voting right shall carry to the total voting right of the aggregate equity share capital;
(d) the price at which such shares have been issued;
(e) the particulars of promoters, directors or key managerial personnel to whom such shares are issued;
(f) the change in control, if any, in the company consequent to the issue of equity shares with differential voting rights;
(g) the diluted Earning Per Share pursuant to the issue of each class of shares, calculated in accordance with the applicable accounting standards;
(h) the pre and post issue shareholding pattern along with voting rights in the format specified under sub-rule (2) of rule 4.
(5) The holders of the equity shares with differential rights shall enjoy all other rights such as bonus shares, rights shares etc., which the holders of equity shares are entitled to, subject to the differential rights with which such shares have been issued.
(6) In case issue of DVR affects the rights of existing class of shares then obtain consent form that class shares (3/4th) or by passing special resolution by having meeting of separate class of shares and file form MGT-14 with ROC;
(7) Where a company issues equity shares with differential rights, the Register of Members maintained under section 88 shall contain all the relevant particulars of the shares so issued along with details of the shareholders.
*The provisions of Section 43 and Section 47 of the Companies Act, 2013 shall not apply to private companies in case MOA and AOA of the company provide otherwise.
When : August 23, 2019 | Timing: 4.30 p.m to 5.30 p.m.
- Founders, Promoters, Entrepreneurs
- HR Personnel
- Understand the law in India on Prevention of Sexual Harassment at Workplace
- Key terms that should go into a Policy for Prevention of Sexual Harassment at Workplace
- Constitution of Internal Complaints Committee
- ABCs of how to respond to a #metoo situation
As per a recent amendment to the Companies Act, 2013, every private limited company may have to maintain its shares in dematerialised form, w.e.f. August 01, 2019.
While a specific timeline for dematerialisation has not yet been notified, it is important that every private limited company takes steps immediately to dematerialise their securities, before making any fresh offer for issue/buyback/transfer of any securities to any investors or existing shareholders.