Companies Amendment Act 2017 - Analysis

On 27th July 2017, The Companies Amendment Bill, 2017 was passed by the Lok Sabha and now awaits at the Rajya Sabha. The bill is expected to be passed and become Companies Amendment Act, 2017 during the financial year 2017-18. Companies Amendment Act, 2017 would mainly focus on making some major amendments to the Companies Act, 2013 and further improving ease of doing business in India. In this article, we look at some of the major changes that will be introduced throgh the Companies Amendment Act, 2017.

Objects of a Company

Currently, the Companies Act, 2013 requires all companies to mention the objects for which the company is proposed to be incorporated in the Memorandum of Association (MOA). Under the Companies Amendment Act, 2017, the MOA of a company could state that the company could engage in any lawful act or activity or business. Hence, small or privately held companies would be able to undertake a range of business activities without making changes to the MOA. However, if the MOA restricts the objects of a company to certain activities, then the company would be able to abide by the objects specified.

Company Annual Return

All companies are required to file an annual return with the Ministry of Corporate Affairs each year. The Companies Amendment Act, 2017 has proposed to provide an abridged form of annual return for One Person Company and

small company. The abridged form of annual return will make annual compliance for a company simpler for small businesses. The Companies Amendment Act, 2017 has also mandated that all companies place a copy of the annual return on the website of the company and provide the web link for the annual report in the Board's report.

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 Rs 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.

Related Party Definition

Under the Companies Act 2013, a 'related party’ in relation to a company includes:

A holding, subsidiary or an associate company of such company; or
A subsidiary of a holding company to which it is also a subsidiary.

Companies Amendment Act, 2017 has proposed to make an investing company or the venture of a company a related party as well.

Loans to Directors

Under the Companies Act 2013, companies are not allowed to advance any loan to its directors or persons related to the Director. The Companies Amendment Act, 2017 has proposed to relax this restriction and allow companies to extend its Directors or related persons, after passing a special resolution. To prevent abuse of this relaxation, an additional clause has also been introduced in the Companies Amendment Act, 2017 to punish Directors who use loans against conditions under which it was extended.

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Frequently Asked Questions

Common questions about Companies Amendment Act 2017: Key Changes & Implications.

The Companies Amendment Act, 2017 primarily aims to make amendments to the Companies Act, 2013 and further improve the ease of doing business in India. It introduces several changes to simplify compliance requirements and reduce regulatory burdens for companies, especially small and privately held ones.

The Amendment Act allows companies to state in their MOA that they can engage in any lawful act, activity, or business. This change enables small or privately held companies to undertake a range of business activities without modifying their MOA repeatedly. However, companies can still choose to restrict their objects in the MOA if desired.

The Amendment Act proposes to introduce an abridged form of annual return for One Person Companies and small companies, making annual compliance simpler for small businesses. Additionally, it mandates that companies place a copy of the annual return on their website and provide the web link in the Board's report.

The penalty for late filing of annual returns or financial statements is set to increase significantly under the Amendment Act. The minimum penalty will be Rs 100 per day of default, and the company may also face penal action. If a company defaults on filing these documents two or more times, the penalty will be doubled.

The Amendment Act proposes to include an investing company or the venture of a company as a 'related party' in relation to that company, in addition to the existing definitions under the Companies Act, 2013.

The Companies Act, 2013, prohibited companies from advancing loans to their directors or persons related to the directors. The Amendment Act proposes to relax this restriction, allowing companies to extend loans to directors or related persons after passing a special resolution. However, it also introduces provisions to punish directors who misuse such loans.

The introduction of an abridged form of annual return for One Person Companies and small companies under the Amendment Act aims to simplify annual compliance for small businesses. The abridged form is expected to reduce the administrative burden and compliance costs for these companies.

The increase in the penalty for late filing of annual returns or financial statements under the Amendment Act is likely aimed at promoting timely compliance and ensuring that companies adhere to the regulatory requirements. The higher penalty is intended to discourage delays and encourage companies to file these documents within the specified timeframes.

While the Amendment Act proposes to relax the restriction on companies extending loans to directors or related persons, it also introduces an additional clause to punish directors who use such loans against the conditions under which they were extended. This provision aims to prevent the misuse of this relaxation.

By mandating companies to place a copy of their annual return on their website and provide the web link in the Board's report, the Amendment Act aims to promote transparency and facilitate easier access to this important compliance document for stakeholders, including shareholders and regulatory authorities.