The Companies (Amendment) Act, 2017, amends the Companies Act, 2013. It does not create new legislation but instead alters certain sections of the 2013 Act to make the law more comprehensible, less time-consuming, and more user-friendly for the companies.
Why Was This Act Introduced?
The 2017 amendments had a number of causes:
1. Ease of Doing Business
The administration aimed to eliminate excessive paperwork and compliance constraints so companies could carry out their activities more easily.
2. Fix Implementation Problems in the 2013 Act
With the introduction of the Companies Act, 2013, there were few rules that were either ambiguous or complicated to apply. The amendments were of great help in solving such problems and illuminating the workings of the law.
3. Alignment with Financial and Regulatory Frameworks
The amendment has brought company law into line with accounting standards and the rules laid down by SEBI and RBI, thereby making corporate sector regulations more uniform.
Who Does It Apply To?
- Private and public limited companies
- One Person Companies (OPCs) and small-scale companies
- Managers and key managerial personnel (KMPs)
- Auditors and stockholders
What Are the Key Provisions?
1. Simplified Private Placement
The process for the private placement of shares or securities has been streamlined, requiring fewer forms and filings.
2. Independent Directors
The amendment improves the concept of an independent director. An independent director can be one whose benefits from the company do not exceed 10% of his/her income.
3. Company Registration and Names
Company name reservation periods and requirements surrounding incorporation documents were slackened for the sake of speed and convenience.
4. Managerial Remuneration
Companies had to obtain government approval in the past to pay top management more than 11% of profits. The amendment has eliminated that; now it is up to the shareholders.
5. Financial Statements & Annual Returns
The CEO’s signature is now mandatory on the financial statements, and the previous Form MGT-9 has been abolished. A separate annual return form may be required for small companies and OPCs.
6. Auditors
The appointments of auditors can be for a term of five years and no annual ratification by the shareholders is required.
7. Loans to Directors
The companies can offer loans to directors or firms related to them only after obtaining shareholders’ approval at a special meeting.
8. Penalty Rationale
Company size, type of default, and public interest are the main factors that determine the levels of penalty introduced.
How Does It Work in Practice?
In everyday corporate operations:
- A startup starts with quick company registration, as approval of the name and setting up the office take less time.
- Companies get auditors for 5 years through board appointments, without having to vote every year by shareholders, thus making the annual meeting process more efficient.
- Executives can be compensated according to the company’s actions rather than the government regulations.
- The directors’ borrowing from the company must now be supported by a clear vote from the shareholders, thus ensuring the protection of the shareholders’ rights.
The companies still follow the modified procedures but the rules are clearer and there are fewer overlaps, so they can submit the necessary documents electronically like before.
How Does This Affect Companies or Individuals?
Business Owners / Directors
- Private placements and remuneration decisions are subject to limited red tape.
- The new rules provide a more straightforward and thus better way to plan and comply.
Shareholders
- Executive pay is now more a matter of their vote.
- Annual compliance becomes clearer as forms are simplified.
Auditors
- Larger periods without requiring yearly approvals reduce the administrative burden.
Regulators
- Corporate standards enforcement is made easier with clearer definitions and penalties.
Let’s take an example
A statutory auditor is appointed by a company. In the past, every year, the AGM had to get its approval from shareholders. However, the Companies (Amendment) Act, 2017, has allowed the auditor to be appointed for a maximum of 5 years in a single term; thus, annual ratification is no longer required, reducing the compliance burden.
Why Is This Act Important in NCLT/NCLAT Cases?
The Act of 2017, which amends the Companies Act, is a frequent reference in the corporate quarrels attended to by the National Company Law Tribunal or by the National Company Law Appellate Tribunal since:
- It makes the directors’ obligations clear, especially in transactions with related parties.
- It sets the standards and procedures for compliance, thus facilitating the judges’ understanding of the disputes.
- It establishes the principle of fair corporate governance, which tribunals, in their role of enforcing the principle, are involved in disputes between companies.
Conclusion
The Companies (Amendment) Act, 2017, has streamlined corporate compliance, increased the governance clarity, and integrated the company law with the contemporary business needs, i.e., it has made the operation of companies easier at the same time as ensuring accountability and transparency.
Frequently Asked Questions (FAQ)
Q1. Is this a new act?
No, it is not. The Companies Act, 2013, is still in force; it’s just been amended.
Q2. When did it come into force?
It got published in early January of 2018, and they started applying on different dates depending on the specific provision.
Q3. Does it cover just the large corporations?
No, all companies subject to the Companies Act, including private companies, one-person companies, and small companies, are affected.
Q4. Should all companies overhaul their systems?
Updating the compliance process for audits, loans to directors, and annual returns is necessary mainly for companies.
Q5. What was the rationale behind these changes?
They eliminate confusion in the rules, harmonize corporate law with other regimes (such as SEBI and RBI), and help make India a more business-friendly country.
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