Recent Amendment in Companies Act, 2013 Persuant to Budget 2021

The Hon’ble Finance Minister Mrs. Nirmala Sitharaman presented the Union Budget 2021 on 1^st February. The Budget leads the way for various amendments in Companies Act, 2013 which are as follows:

1) Definition of Small Company

The definition of Small Company under Clause (85) of Section 2 of Companies Act, 2013 has been changed vide Notification No. CG-DL-E-01022021-224862 dated 1^st February, 2021. The Notification has been reproduced as below:

In exercise of the powers conferred by sub-sections (1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Companies (Specification of Definitions Details) Rules, 2014, namely: –

1. Short title and commencement: – (1) These rules may be called the Companies (Specification of Definitions Details) Amendment Rules, 2021.

(2) They shall come into force on the 1st day April, 2021.

2. In the Companies (Specification of Definitions Details) Rules, 2014, in the rule 2, in sub-rule (1), after clause (s), the following clause shall be inserted, namely:-

“(t) For the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company shall not exceed rupees two crores and rupees twenty crores respectively.”

Now, the definition of Small Company is “small company” means a company, other than a public company,—

(i) paid-up share capital of which does not exceed two crores rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees and

(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed twenty crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees.

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;

2. Incorporation of One Person Company (OPC)

Further, the Budget made space for easing norms for setting up of One Person Company (OPC) by reducing the residency limit of NRIs from 182 to 120 days. Earlier, only Indian resident citizens were allowed to form one person companies in India. Non-resident individuals with entrepreneurial potential are now enabled to set up One Person Companies (OPC) with no paid up capital and turnover restrictions, reducing registration timeline from 182 days to120 days. The aforesaid announcement leads to amendment in Companies (Incorporation) Rules, 2014 which is reproduced as under:

In exercise of the powers conferred by sub-sections (1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Companies (Incorporation) Rules, 2014, namely: –

(1) These rules may be called the Companies (Incorporation) Second Amendment Rules, 2021.

(2) They shall come into force on the 1st day of April, 2021.

2. In the Companies (Incorporation) Rules, 2014,-

I. in rule 3,_

(a) in sub-rule (1),-

(i) for the words, “and resident in India” the words “whether resident in India or otherwise” shall be substituted;

(ii) in Explanation 1, for the words “one hundred and eighty two days” the words “one hundred and twenty days” shall be  substituted;

(b) sub-rule (7) shall be omitted.

3. Conversion of OPC into Private or Public Company

Since the aforesaid amendment in Companies (Incorporation) Rules, 2014 had done away with requirement of paid up capital of Rupees Fifty Lakhs or less and turnover of Rupees Two Crore or less for Conversion of OPC, now any Resident or Non-Resident who has stayed in India for more than 120 who has incorporated OPC can convert the OPC into Private Company or Public Company other than Section 8 Company with no paid up capital and turnover restrictions. The said announcement leads to amendment in Rule 6 of Companies (Incorporation) Rules, 2014 which is reproduced as below:

Process for Conversion of OPC into Private or Public company

1. The One Person company shall alter its memorandum and articles by passing a resolution in accordance with sub-section (3) of section 122 of the Act to give effect to the conversion and to make necessary changes incidental thereto.

2. A One Person company may be converted into a Private or Public Company, other than a company registered under section 8 of the Act, after increasing the minimum number of members and directors to two or seven members and two or three directors, as the case may be, and maintaining the minimum paid-up capital as per the requirements of the Act for such class of company and by making due compliance of section 18 of the Act for conversion.

3. The company shall file an application in e-Form No.INC-6 for its conversion into Private or Public Company, other than under section 8 of the Act, along with fees as provided in the Companies (Registration offices and fees) Rules, 2014 by attaching documents, namely:-

(a) Altered MOA and AOA;

(b) copy of resolution;

(c) the list of proposed members and its directors along with consent;

(d) list of creditors; and

(e) the latest audited balance sheet and profit and loss account.

4. On being satisfied that the requirements stated herein have been complied with, the Registrar shall approve the form and issue the Certificate.

Hence pursuant to the aforesaid amendment the requirement of filing INC-5 has been done away with and the format of INC-6 has been changed.

4. Merger or Amalgamation of Startup Companies

Earlier under Section 233 of Companies Act, 2013 a scheme of arrangement may be entered between two or more small companies or between a holding company and its wholly-owned subsidiary company but pursuant to amendment in Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 now the scheme of fast track merger can be entered into by the following companies:

a) two or more small companies

b) holding company and its wholly-owned subsidiary company

c) two or more start-up companies

d) one or more start-up company with one or more small company.

* start-up company” means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification number G.S.R. 127 (E), dated the 19th February, 2019 issued by the Department for Promotion of Industry and Internal Trade.”

#The above article is only fair work on the recent amendment in Companies Act, viewers/readers are requested to verify the same before relying on the aforesaid article.