Friday, November 29, 2013
Wednesday, November 20, 2013
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By CA Nitesh More

Many CA firms including big Firms may lose audit of Companies due to the certain new impractical disqualifications inserted in the new Companies Act.  Sec 141(3) of the Companies Act, 2013 states that the following persons shall not be eligible for appointment as an auditor of a company, namely:—
Ø  is holding any “security” of or interest (beneficial owner)  in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company.
However, the “relative” may hold security or interest in the company of face value not exceeding  one thousand rupees or “such sum” as may be prescribed ;


COMMENTS: Draft Rules on the New Company Law, prescribes Rs 1 Lakh as“such sum”. The expression, relative has been defined in the New Companies Act. The expression ‘‘relative’’ has been defined under Sec 2(77).“Relative” with reference to any person, means anyone who is related to another, if—
(i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed;
  
Brothers are the members of a HUF and hence covered u/s 2(77) as relative.

EXAMPLE:  E &Y is an auditor of  Tata tele services Ltd. Brother of one of the partner of E& Y who is staying in the USA purchased the security of Tata Tele exceeding the prescribed amount . E& Y will be disqualified to be the auditors of Tata Tele.

ISSUES:
1.       How E& Y will come to know that the brother of a partner has purchased such security?
2.       Is it practically possible to implement such provision?

SUGGESTIONS: IT IS SUGGESTION TO DEFINE RELATIVE FOR THE PURPOSE OF THIS SECTION. SUCH DENITION MAY BE AS FOLLOWS:
“Relative” with reference to any person, means anyone who is related to another, if—
(i) they are husband and wife; or
(ii) they are dependent relatives; or
(iii) one person is related to the other in such manner as may be prescribed;

Warm Regards 
CA.Nitesh Kumar More |  FCA, |
Mobile: - +91 9883157484 | +91 9674974186 | Tel: - +91 33 32562967 |
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Tuesday, November 19, 2013
Companies Act, 2013 – Not Applicable for May, 2014 Examination of CA Inter & CA Final


Companies Act, 2013 – Not Applicable for May, 2014 Examination of CA Inter & CA Final
Image Credit: www.seascapelamps.com

The Director, Board of Studies, ICAI on 18th November, 2013 announce that the Companies Act, 2013 shall not be applicable for May 2014 examinations both at the Intermediate (IPC) and Final levels. And the examinations will be based only on the existing syllabus.
Wednesday, November 6, 2013
Can A Company Give Loan To Group Companies Under Companies Act, 2013?

By CA Nitesh More


Many corporate including Pvt Ltd Cos have other related group companies and they transfer money to & from other company as and when require. Stop doing this, even retrospectively from 12th Sep, 2013 as these can be treated as interest free loan u/s 185 of new company law. Loan has not been defined u/s 185. These transfers can be treated as loan. Any transaction of giving money to be returned with or without interest can be treated as loan. However, fund can be transferred to public ltd co. if less than 25% of total voting power is exercised or controlled by "such director(s)".

Section 185 of the Companies Act, 2013 has been made operational from 12-09-2013.This sec is applicable for all companies. This sec states that:
No company can advance loan to its “directors” or to “other persons in whom directors are interested”.

No company can give any guarantee or provide any security in connection with any loan taken by him or such other person.
CAN A COMPANY GIVE LOAN TO GROUP COMPANIES UNDER COMPANY ACT, 2013?
Image Source: mastagroup.com


EXCEPTIONS:
Ø  the giving of any loan to a managing or whole-time director

(i) as a part of the conditions of service extended by the company to all its employees; or

(ii) pursuant to any scheme approved by the members by a special resolution; or
Ø   a company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.

The expression “TO ANY OTHER PERSON IN WHOM DIRECTOR IS INTERESTED” means—

(a) any director of the lending company, or of a company which is its holdingcompany or any partner or relative of any such director; 

(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(d) any body corporate at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or “controlled” by any such director, or by two or more such directors, together; or
(e) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.


"Control" has been defined as to include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholding or management rights or shareholders agreements or voting agreements or in any other manner. [Section 2(g) of the Companies Act, 2013]

IMPRISONMENT & PENALTY UPTO 25 LAKHS :If any loan is advanced or a guarantee or security is given or provided in contravention of the provisions of sub-section (1), the company shall be punishable with fine which shall not be less thanfive lakh rupees but which may extend to twenty-five lakh rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.

COMMENTS: Kindly note the following observations:        

1) Existing loan on 12th sep is not affected by above provisions. However, it should not be renewed & should be repaid on due date.

2) If any loan had already been given after 11th sep., you should book it as advance  for property/ purchase of goods/ materials etc. backed by adequate documentation . These should be return as soon as possible.
3) Deposits or advance for property/ purchase of goods, services etc  is not covered.
4) Company in the ordinary course of business can give loan at not below bank rate.
5) Sec 372 of the Companies Act, 1956 is applicable after 11th sep.
6) Above is my opinion only, you may have different opinion.


PRIVATE LTD COMPANIES HAVING TURNOVER UPTO 60 LAKHS SHOULD BE CONVERTED TO LLP
1) LLP is not a company, hence proposed limit of audit of 20 company / CA will not be applicable.
2) As companies Act will not be applicable, you can transfer fund from one LLP to another group LLP.
3) Many of exemption which Pvt Ltd company enjoy under old Companies Act has been withdrawn, which are not applicable to LLP.
4) Compliances under new companies Act for Pvt Ltd Companies has been substantially increased, which are not applicable for LLPs.
5) There is heavy penalty for non compliances under New Company Act. Penalty of rs 50000 is a small amount for a single violation.
6) Cost benefit analysis suggests that these should be converted into LLP.
7) However, as per sec 47(xiiib) of Income tax Act, for tax neutrality of such conversion , turnover of Pvt Ltd company  in any of last 3 years must not exceeds 60 lakhs. So, if turnover exceeds 60 lakhs than such conversion will be subject to income tax.

PRIVATE LTD COMPANIES SHOULD  BE CONVERTED INTO PUBLIC LTD COMPANIES
1) Sec 185 of New Co Act is not applicable to public ltd co at a general meeting of which not less than twenty five per cent. of the total voting power may beexercised or controlled by any such director, or by two or more such directors, together
2) We can plan accordingly and take benefit.
3) So, we can convert our existing Pvt Ltd companies to public Ltd companies and take benefits.

THE COMPANIES ACT, 2013

185. (1) Save as otherwise provided in this Act, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person:

Provided that nothing contained in this sub-section shall apply to—
(a) the giving of any loan to a managing or whole-time director—
(i) as a part of the conditions of service extended by the company to all its employees; or
(ii) pursuant to any scheme approved by the members by a special resolution; or
(b) a company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.
Explanation.—For the purposes of this section, the expression “to any other person in whom director is interested” means—
(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director; 
(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(d) any body corporate at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
(e) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

(2) If any loan is advanced or a guarantee or security is given or provided in contravention of the provisions of sub-section (1), the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.


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Wednesday, October 30, 2013
Risk of not investing in Equity

By Ramalingam K.

Rajeev and Sanjay are classmates. They both had same level of knowledge and smartness when they completed their graduation. Rajeev hates to take the risk of traveling in a vehicle for the reasons only best known to him. Believe me; he travels only by walk wherever he goes. But Sanjay is ready to take risk. He uses all the mode of transports time to time convenient to him.

Risk of not investing in Equity
Image Source: insidetradellc.com
After 10 years of their graduation, they connected to each other on facebook only to know that they both are working for the same company. Rajeev is working as an accounts executive in Chennai branch. Sanjay is working as a Director-Finance in Mumbai, the head quarters of the company.

What made this huge difference? The ability and willingness to take risk.

Similarly investors should not hesitate to take risk. The ability and willingness to take risk by investing in equity will potentially increase your wealth considerably.

A person who is investing Rs.5000 per month for 25 years in safe avenues like FD or PPF will get around Rs.47 lacs; whereas if it is invested in equity it has got a potential to grow to Rs.1.64 crores. Huge difference! Isn’t it?

There are two types of risks. One is blind risk. It is something like driving a vehicle without knowing how to drive and driving without understanding the road rules. The other one is calculated risk where we know how to drive as well as the road rules.

An investor needs to take well calculated risks; not blind risks. One should know how to invest as well as the investment principles and techniques.

Suppose you don’t know how to do that and also don’t have enough time to learn those things, it is better to outsource it to someone who knows investing better. Mutual funds and Portfolio management services will serve this purpose for you.

Investing in equity is a risky proposition. At the same time staying away from equity is also a risky proposition, because inflation is like a slow poison, which will eat away the value of money over a period of time. That is if inflation is 6%, your investment should give at least 6% post tax return to maintain the same money value for your investment. If it is giving less that 6%, then your money value is eroding. If it is giving more than 6% then your investment is really growing. Equity is one such investment which has got a potential to beat inflation in the long term.

Don’t hesitate to invest in equities. Beat inflation and accumulate real wealth.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (http://www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.