JUL 20, 2016

Amendment in Share Capital and Foreign Company Rules

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Amendment in rules related to share capital and debentures

MCA vide notification dated 19th July, 2016 has amended the Companies(Share Capital and Debentures),  Rules 2014 by way of Companies (Share Capital and Debentures) Third Amendment Rules 2016.
Key highlights of the amendments are given below:

(i) either upfront at the time when the offer of convertible securities is made, on the basis of valuation report of the registered valuer given at the stage of such offer, or

(ii) at the time, which shall not be earlier than thirty days to the date when the holder of convertible security becomes entitled to apply for shares, on the basis of valuation report of the registered valuer given not earlier than sixty days of the date when the holder of convertible security becomes entitled to apply for shares:

Provided that the company shall take a decision on sub-clauses (i) or (ii) at the time of offer of convertible security itself and make such disclosure in explanatory statement to the notice of general meeting.

  1. A Company may issue equity shares with differential rights upon expiry of five years from the end of the financial year in which such default related to  payment of the dividend on preference shares or repayment of any term loan from a public financial institution or State level financial institution or scheduled Bank that has become repayable or interest payable thereon or dues with respect to statutory payments relating to its employees to any authority or default in crediting the amount in Investor Education and Protection Fund to the Central Government, has made good.
  2. Now a startup company may issue sweat equity shares not exceeding fifty percent of its paid up capital upto five years from the date of its incorporation or registration. Prior to this, the limit was 15% of the existing paid up equity share capital in a year or shares of the issue value of rupees five crores, whichever is higher
  3. Now a startup company may issue upto five years from the date of its incorporation or registration, employee stock options to promoter or a person belonging to the promoter group or a director  who either himself or through his relative or through anybody corporate, directly or indirectly, holds more than ten percent of outstanding equity shares of the company. Prior to this,  ESOP to such persons was not allowed
  4. As a major relief, the requirement related to issuing fully paid up shares or convertible instruments by way of preferential offer has been omitted.
  5. In case of preferential offer, where convertible securities are offered with an option to apply for and get equity shares allotted, the price of the resultant shares pursuant to conversion shall be determined-
  6. Form SH-7 is required to be filed when a Company not having share capital increases number of its members.
  7. In case of issue of secured debentures charge on the properties or assets of the subsidiaries or holding company or its associates companies can also be created.  Further Company can also create charge or mortgage on specific movable property of its holding company or subsidiaries or associate companies or favour of the debenture trustee, earlier it was not allowed.
  8. For NBFC,  Housing Finance Companies and other companies including manufacturing and infrastructure companies, the  adequacy of DRR shall be 25 % of the value of outstanding debentures instead of 25% of the value of debenture. Further where a company intends to redeem its debentures prematurely, it may provide for transfer of such amount in Debenture Redemption Reserve as is necessary for redemption of such debentures even if it exceeds the specified limits.

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Amendment in rules related to Foreign Company

MCA vide its notification dated 19th July, 2016 directed that a foreign company which is an airlines company having a share capital, shall comply the requirement of clause (a) of sub-section (1) of section 381 of the Companies Act 2013,  in respect of the period ending on or after the 31st March, 2016, by submitting the following documents to the appropriate Registrar of Companies in India,—

  1. documents relating to copies of latest consolidated financial statements of the parent foreign company, as submitted by it to the prescribed authority in the country of its incorporation under the provisions of the law for the time being in force in that country:
  2. in respect of its Indian Business operations, a statement of receipts and payments for the financial year, duly authenticated by a practicing Chartered Accountant in India or a firm or a Limited Liability Partnership of practicing Chartered Accountants in India. Requirement of preparing balance sheet and another documents as required to be annexed in accordance of Chapter IX has been dispensed with.
  3. the documents required to be filed with Registrar of Companies under sub-rule (2) of rule 4 of the Companies (Registration of Foreign Companies) Rules, 2014.

Click here to download the Notification