Winding up a company

It is quite possible that a foreign company can be wound up as an unregistered company. This happens if the company does not carry on business in India any more or also in cases where the corporate body for the same tends to get dissolved or if the same stops altogether in existence in accordance with the law under which it had been initially incorporated. The Act states the detailed provisions with respect to the winding up of a company and also prescribes the winding up modes. The said modes can be either by the court or under its supervision. In addition to that, there is also a provision of voluntary winding up.

There can be several reasons based on which the Tribunal may take the decision of ordering for the wind up of any company. Some of these issues can include situations when the company is found to be acting against the sovereignty and integrity of the country, its security or international relations. In another condition, if the company is found guilty of fraudulent practices or has been reported by the ROC for being indulged in any other sort of unacceptable activities. The Act does not distinguish between the winding-up by members or creditors.

Understanding the class action lawsuit as per the Indian Companies Act

The Class Action lawsuit is a new concept that has been introduced by the Indian Companies Act 2013. The lawsuit can be initiated against a certain company and its auditors by its shareholders for any fraud or practices that are unlawful. The Class Action Suit is a procedural instrument for a group with common interest or grievances to approach the National Company Law Tribunal to sue the accused party. This instrument allows the prosecution of litigation in a smoother way.

The suit can be filed against auditors for misleading particulars, against experts or advisers for incorrect statements etc. The suit can also be filed for claiming several relief. Some examples include restraining the company from acting against their memorandum of association or breaching any articles as such. In addition to that, the Directors and other members of the company can also be restrained from going against any of the company policies, resolutions or agreements that might violate the best interest of the shareholders or partners. The CA2013 also allows for the provision of using the class action lawsuit for claiming of damages and also for compensation regarding relevant issues from the Directorial board, audit firm or the company as a whole.

Transferring shares under the companies act 2013

The transfer of shares under the CA2013 requires the companies to issue the relevant certificates for the same within a specified time limit. This time limit is basically a period of one month from the date when the instrument of transfer is first received by the company. It is understandable that the shares of a company are a movable asset and that is what makes them freely transferable too. In case a certain company plans on making such a transfer, they will have to fill up the related form recommended by the Companies Act 2013.

The share transfer form has to be duly stamped and dated. It also has to bear the names of the  transferor and the transferee. Partly paid shares cannot be transferred without a thorough analysis and special permit from the Board. The adequate value of the document along with the relevant dates needs to be mentioned on the form. The buyer also will have to be notified about any pending payments and a certificate for no objection in case he or she is willing to allow the transfer of partly paid shares. It is also important to be aware about the applicable stamp duty on share transfer as well as other details.

The powers of the board of Directors

The Companies Act 2013 confers a company’s' directorial board with several powers. The Board is entitled for exercising all those powers and also to indulge in acts that the company is authorised for as a whole. There also are a few restrictions imposed either under the Act or in the respective Memorandum or articles of the company and the Board is liable to abide by those under all circumstances.

The main highlights of the powers of the Board of Directors have been stated below.

•  The power to authorise any required buy backs of securities

•  To initiate or assist with the diversification of business

•  Borrowing monies

•  Making investments using the funds of the company for the best interest of the company

•  The power to grant financial loans or to provide security or guarantee regarding the loans

•  The power for approving reports

•  Issuing securities as well as debentures within India as well as abroad

•  The power for sending approvals related to mergers, reconstruction and amalgamation

•  Acquiring a company or a substantial stake in another company

Apart from the above mentioned powers, the Board can also take crucial decisions for the company

as and when required.

The duties of the directors

The Indian Companies Act of 2013 classifies the duties of the directors into a fiduciary category and  interest investment category. The first classification is all about ensuring that the directors of the companies maintain ethical practices and work towards the best interest of all their stakeholders. The second classification on the other hand, is to encourage the investment efforts that are made by the directors at several levels for providing elegant and swift resolutions as well as for making wise decisions to protect the company of unnecessary risks.
The specific duties that have been assigned for the directors include exercising of the responsibilities with utmost care and diligence. Also, the directors are not supposed to involve in a situation that may hamper the best interests of the company directly or indirectly. The duties of the directors also require them to:

•  Act in accordance with the company's AOA
•  Avoid any attempts to derive undue advantage from the company's profits
•  Not assign his or her office to anyone else
•  Abide by all the company policies and pre decided codes of conduct

A failure in the up keeping of the duties by a director can draw penalty charges up to five lakh
rupees and even more serious legal consequences depending on the gravity of the situation.

The compulsion of having women directors on board

Companies in India that are governed by the Companies Act 2013 are expected to follow the guidelines that have been set forth regarding the board of Directors and other aspects. Certain clauses of the Act have been especially designed for strengthening the contributions by women in the board room. The companies need to comply with the particular requirement that is stated by the Companies Act wherein it is compulsory to have at least one woman Director on the Board. The prescribed class of companies have been directed by the CA2013 to stipulate the appointment of women Directors as a compulsion so as to allow the corporates in reaping the benefits of people coming from diversified backgrounds and those carrying different viewpoints.Companies that need to comply with the above mentioned requirement of women Directors on board, can be described in the following ways. Public companies who possess at least one hundred crore rupees paid–up share capital or a minimum turnover of three hundred crore rupees. All the listed companies functioning within the first year from the commencement of second provision as stated elaborately in the Act. These new compulsions can prove to be a great way of encouraging gender diversity at the corporate level.

Striking off a company

Once a company has been incorporated as per the Indian Companies Act 2013, it also gets a certificate issued by the government of India that states all the details like the dates and other important points. Once a company has been registered, its name cannot be removed unless there is an instance where it gets dissolved by law. However, this has another condition according to which it is compulsory for that particular company to start business within a span of one year. A failure to do so can lead to the company being considered as defunct. Once that happens, its name can be automatically struck out from the Register of Companies. Another situation that can lead to the striking out of a company arises when a registered company fails to fill its balance sheet for many years. The power of the ROC to strike off a company's name includes the scenarios where the company is either wound up or no liquidator is working in it or if any pending returns are not being submitted. However, the striking off of a company does not have a drastic effect on the creditors because they
have the ability to claim for any dues.

Share transfer procedure governed by the depositories system

In case a company wants to transfer shares through a depository, it should convey the allotment details about all aspects to the concerned depositories. Once the intention of making the transfer has been effectively communicated, the seller is expected to provide the Depository Participant 1 with the necessary instructions. The concerned securities are also expected to be given to the first clearing member's pool account with the DP1. After the transfer of securities, the Clearing Member 1 forwards the delivery to the Clearing Corporation and the related instructions are given to the DP1so that the latter can debit his or her pool account while crediting the clearing member 1 automatic transfers to the Clearing Member 2. The process of security transfer also gets repeated in this case. After that, the Clearing Member 2 provides deliver instructions to DP2 for debiting the respective pool account and also for updating the credit buying client account with DP2. Ultimately, the buyer would give a parallel receipt instruction to DP 2 so that the concerned account securities can be accepted in the desired account. The entire process of share transfer under the depositories system has to be carried out with utmost caution so that there are no problems at a later stage.

Registering a company in India

Foreign companies can set up business in India in two main ways. The first way is where they can choose to register as an Indian company. This is possible if they commence operations in India through WOS or joint ventures. The equity and other aspects would vary as per the requirements and preference of the investors. The second option is to enter as an independent foreign company. This is possible by setting up either a branch office, liaison office or a project office. Such offices are allowed to undertake any permitted activities as required by the company. The most important thing here is to fill out the required forms that are available with the ROC so that an application for registration can be filed. The form also needs to be digitally signed by the authorised person from the applicant company. It is also mandatory for the company to obtain a DSC in order to complete the whole process. Once the medium of setting operations is finalised and all other formalities and legalities are cleared, the company should set up a distinct bank account in India itself and take care of other important aspects like recruitment, pay roll, office space and so on.

Partners and shareholders for private companies

The Indian Companies Act of 2013 sets out several regulations related to the partners and shareholders for private companies. The Act lends a democratic power to the shareholders for private firms under which shareholders and all the other stakeholders can make use of the possibilities related to class action suits. This would also make it possible for them to remain more aware and alert. The Act also limits the maximum number of partners that a certain company can have. This limit is up to a hundred and cannot exceed further. However, an exception to this limitation can be seen in case of certain association partnerships that will not be bound by this fixed limit. Some examples of such association partnerships will include CA's, lawyers, company secretaries and the like.

The maximum number of shareholders for a private company has been increased to 200 by the Act. The Act also vests the shareholders with powers to sanction several limits in case of required approvals related to important transactions at different levels. This supremacy of shareholders that is allowed by the Companies Act 2013 is a good way that has reduced the need for acquiring permissions related to managerial remuneration in case of private companies.

Obtaining status of Dormant company

Dormant companies are an excellent option for those promoters who want to hold an asset under their corporate umbrella to be used at a later stage. The provision for obtaining the status of a dormant company is a new and effective tool that can be of great advantage for foreign investors as well. In order to apply for obtaining the said status, there are certain conditions that need to be adhered to. Some of those conditions can include that the applicant company is free form any legal inspections or investigations in the past, the company does not have any outstanding public deposits as such nor is it under default for monetary payments. Apart from these, there are other conditions too that have been listed in detail under the CA2013. In order to obtain the status of a dormant company, there is a systematic procedure that needs to be followed which begins with a formal board meeting. A particular director would have to be authorised for applying as a dormant status with the ROC and the notice will have to be issued in the general meeting of the company. The procedure also requires the filling up of the forms that are available with the registrar and sending them for approval along with other relevant documents. Once the form is approved, a system generated certificate is sent to the company declaring its dormant status.

Managing intermediaries in a capital market system

There can be several classifications for the intermediaries in a capital market system and also on a crowd funding platform. According to the functions that they are assigned and the way in which they perform, these intermediaries could be either listing avenues or serve as mediums for project recommendation at several levels. There is no doubt that they are quite essential to a capital market system. As a matter of fact, under the concept of crowd funding, it requires special attention. As a company planning to start up a business in India, it is quite essential to be aware of the right ways of managing intermediaries in a capital market system. The initial goal should be to develop a complete understanding of crowd funding regulations and several innovative features that are associated with them. You could think about availing schemes related to licensing, record maintenance and so on. It is important to remember that intermediaries can serve different roles and that is why a funding portal or any related systems might need to be modified accordingly. In case of foreign projects in particular, jurisdictional matters should be fully understood and complied by so that any conflicts or issues can be avoided well in advance.

Maintaining the e-documents of your company

The Companies Act 2013 prescribes all the listed companies to convert all their records and documents into an electronic mode. The aspect of an e-governance has also been introduced so that the statutory records of the company can be maintained and inspected in a better way. Digital signatures and placement of the company's financial statements on its official website are some other processes that have been suggested by the Act. Apart from all the listed companies in general, those with less than a thousand share or debenture holders and other security holders will be expected to maintain these electronic records. In addition to that, the existing companies are also expected to convert the physical records to electronic form within a period of six months of being notified for the same. The maintenance of the e-documents of the company would be carried out as per the decision of the Board of Directors and in accordance with the stated rules. The e-documents should be retrievable and reproducible in the printed form. However, it is important to keep in mind that the e-documents should not be editable in any format. You should make sure that the e-documents of your company can be updated as and when required and also, you should be able to save the updates with ease. Cyber security for your documents is extremely essential and you must take care of these aspects.

Loans, finances and funding portals: A comprehensive overview

According to the Companies Act 2013, all the listed or categorised companies in India are allowed to make investments only through two layers of investment. The Act also imposes several onerous conditions for inter-corporate loans. Under the Companies Act 2013, no company shall give out any loans directly or indirectly to the directors. This also applies to any individuals who might be favoured or shown an interest in by any of the directors. The companies are not even allowed to guarantee anything in connection with the loans to the afore mentioned people. Detailed descriptions have been stated by the Act in relation with inter corporate loans, layered investments and the various types of funding portals that are permitted for the companies that are functioning both in the public sector or the private sector. In case of funding options or any investment plans, the discussion and a unanimous approval of the Board of Directors is mandatory. In case of certain necessary loans, a special resolution is required to be passed which also requires the involvement of shareholders and their majority opinion. The CA2013 also provides prescriptions related to enhanced loan requirements, securities and even guarantees at several levels that make the regulations quite clear for the companies.

Investments and related party transactions

The term “Related Party” refers to any external parties that may be related to a particular company. Related parties could be promoters, holdings, subsidiaries, group companies and so on. Investments and related party transactions are not generally seen in the good light by investors and shareholders because these investments are usually carried forth by the decision of the board of directors. In other words, public share holders also have the fear of incurring losses because of these deals. However, the Companies Act 2013 does not place any restrictions on such investments except for a few rules that must be followed.

As per the guidelines of the CA2013, related party transactions and investments should be done at arm's length and can only happen once they have been certified by the authorised auditors. An adherence to market prices is another mandatory aspect that needs to be kept in mind. In order to make such investments or to enter into deals with related parties, the company also needs to receive the consent of the Board of Directors which can happen after a resolution that is passed at a meeting. The amendment rules about the same are elaborately stated under the formal document of the Act. 

Independent directors and a prescribed code of conduct

SEBI has mandated some salient requirements in the CA2013 which have made it necessary for all the listed public companies to have at least one third of the total Directors as independent. The prescribed code of conduct for Independent Directors requires the board to also evaluate certain attributes but does not provide any kind of training for the ones being appointed on the same position.  The code for Independent Directors broadly covers the areas of professional conduct, their roles and functions, manner of appointment and even the duties. Reappointment of the Independent Director, his or her removal or resignation, evaluation mechanism and holding of separate meetings are some other factors that are covered under the Companies Act 2013. There seems to be a mandatory element with the code but there can also be a few concerns regarding its aspects. One major aspect that is open to interpretation is the statement where Independent Directors are expected to uphold ethical standards of integrity and probity. There can be conflicting views in this area as the definition of ethical standards or ethical behaviour has not been specified in any way. Also, regarding the aspect where companies are expected to assess the attributes of the directors is quite ambiguous.

What foreign investors need to know about insider trading

Foreign investors should begin to be careful regarding the new provision that has been introduced by the Companies Act 2013. This fresh provision relates to the concept of insider training. This concept used to be dealt under a different regulation run by the Securities and Exchange Board of India. As per the rules laid down under the domain of the 2013 Act, the fresh provision prohibits any director or personnel of a certain company from indulging in any kind of insider trading at any level. The broad terminology comprises of several activities like sales-purchase, subscription or deals in securities. In addition to that, there is also a prohibition on procuring or communicating price sensitive information which is of a non public nature. The CA2013 provision prescribes communication of unpublished price sensitive information in a carved out manner. In other words, the details are described in a very systematic way related to the communication aspect. The term “insider trading” has been defined quite differently from those in a specific regulation. Also, unlike the previous regulations, the provision extends to public unlisted companies as well. Understanding these concepts in detail would surely act as the best way
of understanding the related clauses of the Act.

Forming a WOS company in India by an overseas company

Forming a WOS or a wholly owned subsidiary company in India can be possible by investing in an Indian company to an extent that the parent company is able to gain full possession of all the shares of that particular subsidiary. The Foreign Direct Investment policy of India needs to be understood before you decide to buy the 100% shares of a company in this country. Once all those things are taken care of, the other stages can be discussed and the plan can be taken forward.

There are several steps involved in the process of finally forming a WOS company in India along with a minimum capital of Rs. 1,00,000. The steps begin with applying for the DIN or Director Identification Number. In addition to that there is also a requirement of a DSC or Digital Signature Certificate so that your digital messages and documents can be easily authorized. Once you are able to acquire all the necessary documents and are also able to clear all legal things, you can apply for the name of your company through the forms collected from the registrar. Once your name is approved, you can apply for a certification for your WOS company.

What the ICA2013 states about managerial personnel

The Indian Companies Act 2013 mentions significant guidelines for the appointment as well as the remuneration of managerial personnel. These guidelines include separate provisions regarding appointments for the manager, managing director, whole time director and so on.  Regarding the payments made to the managerial personnel, the usual ceiling remains at 11-12% of the financial year's profit earned by the company on an average. The categorised list of companies in this regard comprise of those which possess a paid-up share capital of a minimum five crore INR in both public and private sectors. The Companies Act 2013 clarifies certain points according to which one individual cannot be appointed as the Managing Director, CEO and chairperson of a company at the same time. Exceptions to this rule can be seen in case a company has particular norms that govern such a decision and also if the company is not into multiple businesses. The upper and lower age limits for the managerial personnel at different levels, overall remuneration in detail, appointment and qualification related causes are some of the other factors that have been stated extensively in the Indian Companies Act 2013. Most of these details have been incorporated in the section 196 of the Act.

Foreign projects and equity crowd funding in India

The Crowd funding scene in India seems to be a highly lucrative one at present. Based on three different aspects, crowd funding can be a great support for foreign projects too. Reward based programs tend to offer a cohesive platform for accepting banker's donations for projects while those based on lending tend to be more people oriented and those that facilitate loans to the needy. And then there is the equity based crowd funding where donors are allowed a share of equity in the project or start up in which they are investing. However, the equity based trend is not legal in India as of now. The Companies Act 2013 in India makes it mandatory for all listed companies to spend 2% of their profits on CSR. India can be seen as one of those countries that have a strong presence of NGOs. This is a significant aspect as it implies that crowd funding does stand a very good chance of success. There can be challenges associated with various crowd funding platforms but that is only natural and it tends to go hand in hand with the available number of opportunities that can be present for foreign projects or multi national companies willing to open up branches in India.

Are you authorized to register your company in India?

If you are a multi national company or a company based in some other country who wants to establish business in India, then you should be aware of the governing laws, rules and regulations of the country. It is important to ascertain that your company is authorised to register in India and in order to do so, you should know about the type of companies that can register themselves in the country. The different kinds of companies that are authorised to be registered in India have been discussed below.  OPC: An OPC is a one person company and as the name suggests, it is run only by one member. The process of starting the same is more of a hybrid structure that is based on an infusion of sole proprietorship and company forms of business. Private Limited: This is a separate legal entity with a minimum required capital of Rs. 1 lakh.  Public Limited: The minimum requirement for registering a Public Limited company is to have a capital of Rs. 5,00,000 and at least three directors.Company Limited by Guarantee: This one is run without any shareholders.Non-profit Organizations:  This category includes trusts, societies and section 8 companies as per the rules and set guidelines.

Corporate frauds: Reporting, investigation and action

The Companies Act 2013 deals the issue of fraud much extensively and defines it as an act of concealment, deceit or abuse of position by any member of a company that can either injure the interests of the company or can allow that member to take undue advantage of the same. The reporting of corporate frauds at any level needs to be handled well by the company to ensure proper investigation and action that can prevent such cases in the future. The various possibilities of corporate fraud that need to be reported can include furnishing false or incorrect information or even suppressing any significant information for personal gains. Tricking people into investing money for fraudulent gains, illegal transfer of shares, failure to pay pending deposits or deliberately providing incorrect particulars in case of filling up forms and other related acts all account for corporate fraud. Reporting for the same can call for serious legal penalties. In order to handle the reporting and investigation of corporate frauds, the SFIO or Serious Fraud Investigation Office has been set up by the Central Government under the Companies Act 2013. Once the report of any possible fraud reached the inspector or the registrar, the SFIO will proceed with the investigation and all fraud related offences will be subject to stringent penalties that have been prescribed in advance.

Corporate frauds: Reporting, investigation and action

The Companies Act 2013 deals the issue of fraud much extensively and defines it as an act of concealment, deceit or abuse of position by any member of a company that can either injure the interests of the company or can allow that member to take undue advantage of the same. The reporting of corporate frauds at any level needs to be handled well by the company to ensure proper investigation and action that can prevent such cases in the future.

The various possibilities of corporate fraud that need to be reported can include furnishing false or incorrect information or even suppressing any significant information for personal gains. Tricking people into investing money for fraudulent gains, illegal transfer of shares, failure to pay pending deposits or deliberately providing incorrect particulars in case of filling up forms and other related acts all account for corporate fraud. Reporting for the same can call for serious legal penalties.

In order to handle the reporting and investigation of corporate frauds, the SFIO or Serious Fraud Investigation Office has been set up by the Central Government under the Companies Act 2013. Once the report of any possible fraud reached the inspector or the registrar, the SFIO will proceed with the investigation and all fraud related offences will be subject to stringent penalties that have been prescribed in advance.

Rotation of Auditors

The final changes in the rules of the Indian Companies Act 2013 accounts for a threshold that is more practical for identifying the required class of companies on a broader scale. According to those rules, the unlisted public companies that have a paid up share capital of more than or equivalent to Rs.10 crores or more, will be liable to abide by an auditor rotation feature. The condition differs in case of private sector companies and those with public borrowings from financial institutions as the required paid up share capital limit for them is Rs.20 crores and Rs.50 crores respectively. Audit rotation appears to be quite a welcome change due to the fact that it increases the possibility of providing significant relief for smaller companies as well as their auditors. Another significant matter related to the audit rotation requirement is to evaluate the maximum term for the existing auditors according to their terms that they have been serving in the past. This particular requirement is a great medium that positively reinforces the intent of making the auditor rotation even more effective. The appointment of an auditor on a rotational basis can be decided through an ordinary resolution at an Annual General Meeting. In other words, unlike the previous fixed term appointments of the auditors, annual appointments will start to take place.

The Policy of Corporate Social Responsibility

In order to ensure ethical business practices and functioning by a company, several legal mandates have been created in India. These mandates are an effort for introducing a healthy culture of social responsibility among Indian corporates. It also requires a certain class of companies to formulate exclusive policies for incurring a certain minimum expenditure on social activities. The Indian Companies Act 2013 stipulates the companies to come up with their own policy for Corporate Social Responsibility under which they can contribute towards initiatives and activities for the benefit of the society. The companies which need to formulate the CSR policy are the ones that have an annual turnover of Rs.1000 crore or more. In addition to that, every company which has a net worth of Rs. 500 crore or more or a net profit of Rs. 5 crore or more during a particular financial year would be legally liable to establish an internal CSR Committee with a minimum of three directors on board. Also, out of the three directors, one should be independent. The aforementioned requirement of the Board of Directors would also be expected to generate a report based on which the composition of the CSR Committee would be disclosed. Though some companies may find it difficult to implement a policy for reflecting their Corporate Social Responsibility during the initial years, this measure has been taken to ensure the improvement of the under privileged sections of the society. Moreover, at another level, corporates can use this opportunity to enhance their image and reputation for contributing towards these causes.