Business in India is getting simpler. The amendment to the Companies Act 2013, passed in May 2015, has removed a few clauses that slowed down business processes, takes the pain away from related-party transactions and clarifies some of the vague provisions of the Act. This is perhaps not fast enough, given that India is far behind several smaller economies in giving new businesses the ability to start-up with ease, but it’s a start, for sure.
No Minimum Paid-up Capital
This amendment will have the most impact on start-ups. While founders were required to have paid-up share capital worth Rs. 1 lakh, which means they had to invest this amount in the business at the very beginning, this is no longer the case. You may start a business with no paid-up capital or just Rs. 1000 (although the authorised capital should still be at least Rs. 1 lakh).
No Common Seal
The common seal was a requirement for all private limited companies, one-person companies and public limited companies until the passing of the amendment. While many may choose to get it, because it is a convenience, you no longer have to do so immediately after the receipt of the incorporation certificate. Agreements may now be signed by two directors or a company secretary.
Penalty on Failure to Pay Deposits
Included as a new section, the amendment declares that any deposits accepted in contravention of the Act, and even failure to repay the deposit or interest within the specified time period, can result in fines from Rs. 1 crore to Rs. 10 crore. Furthermore, every defaulting officer may be sentenced to up to 7 years’ imprisonment and a fine of Rs. 25 lakh to Rs. 2 crore.
Transactions between Related Parties
The Act made it more difficult for related parties to transact business with each other. This is because it required a special resolution. Shareholder approval was also required for transactions between holding company and the wholly-owned subsidiary. Now, only ordinary resolutions are required for related-party transactions and shareholder approval is not required when consolidated accounts are submitted to shareholders for their approval.
Board Resolutions No Longer Public
Board resolutions (ordinary and special) will no longer be public documents.
No Dividend Unless Losses Set Off
Companies may no longer declare dividend unless the carried-over losses and depreciation not provided for in previous years are set-off against current year’s profits. Any dividend unpaid for 7 years or longer must now be transferred to Investor Education and Protection Fund.
No Commencement of Business Certificate
It was unclear what it was needed for to begin with, and indeed it had no use for the longest time, but a few months ago banks began demanding it for the opening of a current account. Apparently they were under pressure from government authorities. Thankfully, though, the amendment has struck it off completely.