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MCA Makes Company Incorporation Easy in India

Written by: Stuti Raibagkar

In a bid to attract more investors, India’s Ministry of Corporate Affairs has decided to incorporate major changes into the existing company registration procedure. Here is all what you need to know about the reforms:

The major changes made in the Companies Act, 2013 are:

Related Party and Related Party Transaction:

Definition of the term ‘related party’ in section 2(76) of the 2013 Act used the word company, i.e. used the word ‘holding’, ‘subsidiary’ or associate’ company. Foreign company was not Company under the 2013 Act rather it was a body corporate. Thus, previously the term ‘related party’ included only companies/entities incorporated in India and the entities incorporated outside India, were excluded from the definition. The 2017 Amendment Act substitutes the word ‘company’ with the word ‘body corporate’.

Section 188 of 2013 Act deals with related party transactions. It requires board approval for certain transactions with related parties and prohibits interested parties from voting on such resolutions. The amendment seeks to relax the voting restriction in cases where 90 percent or more members, in number, are relatives of promoters or are related parties.

Change in Loan and Investment by Company:

Section 186(2) of the 2013 Act contains specific prohibitions/ restrictions on provision of loan/guarantee/security etc. to a person or body corporate. The occurrence of the word ‘person’ in the section unwittingly seemed to cover employees. This section was meant to cover inter-corporate loans and not loans to employees. The 2017 Amendment Act clarified that for the purposes of this sub-section, the word ‘person’ does not include any individual who is in the employment of the company.

Furthermore, the companies are permitted to give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirements. This gives big relief to the companies. This is done to address the difficulties being faced in genuine transactions due to the complete embargo on providing loans to subsidiaries with common director.

Penalty for Late Filing of Annual Return:

The penalty for late filing of company annual return is set to significantly increase on the implementation of the Companies Amendment Act, 2017 during the current financial year.

Under the Companies Amendment Act, 2017, the penalty for late filing of Annual Return or financial statements will be a minimum amount of INR 100 per day of default. Further, the company would be liable for penal action. If a company defaults on filing the annual return or financial statements for two or more times, the penalty levied would be doubled.

Change in Private Placement Issuances:

The amendment Bill seeks to amend the entire Section 42 of Companies 2013 that deals with the issue of shares on private placement basis. One of the important changes relates to rights of renunciation. The 2013 Act permits investors to renunciate their investment rights in favour of another entity. The amendment takes away this right. This means only investors whose names are mentioned in the information memorandum, filed by the issuer, can subscribe to the shares.

Launch of SPICe:

The Ministry has introduced a new e-form named INC-32- SPICe (Simplified Proforma for Incorporating Company Electronically) in place of form INC-29 to provide more functionalities. It deals with a single form for multiple services for incorporation of a company.

Reduction in Procedures 

This reform undertaken by the Ministry of Corporate Affairs is to help reduce the procedures for starting a business in India and provide ease of doing business. Initially there were five procedures for starting a business which now are integrated and can be done simultaneously in one step. Using the newly launched integrated e-Form SPICe, stakeholders now can apply for Company Name, Company Incorporation, DIN of the directors, PAN and TAN for the newly incorporated company, and avail all five services simultaneously.

Reduction in Cost/Fees: 

The fee for incorporation (of the integrated e-Form SPICe /INC-32) has been reduced from INR 2000 to INR 500. The cost incurred by a company for company seal is also eliminated, as the requirement for a company seal has been removed vide amendment to the Companies Act, 2013.

Reduction in Time:

To improve greater transparency, uniformity, eradication of discretion, the Ministry of Corporate Affairs have made efforts to reduce the time taken for processing company incorporation applications. The time has been reduced drastically from between 5 to 15 working days in June 2014, to an average of 0.6 working days (15 hours) in March 2017. Similarly, the processing time for name availability applications has been brought down significantly from between 5 to 6 working days in June 2014, to an average of 0.4 days (10 hours) in March 2017. In addition, more than 90% applications are being approved within 1 working day.

Apart from these, certain changes in Independent Directors and provision related to their pecuniary interest, definitions, Declaration and payment of dividends, provision relating to financial reporting, Corporate social responsibility (CSR)  have been made.

For more information about company registration process in India, contact Lex Protector

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MCA Makes Company Incorporation Easy in India


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