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:

1. A holding, subsidiary or an associate company of such company; or
2. 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.