Recent Amendment in Companies Act, 2013

Finance Minister Nirmala Sitharaman had presented Union Budget 2021-22 on 1st February, 2021. The Budget focuses on ease of doing business by making change in Small Company Definition, OPC framework, Fast Track Merger scheme, etc. and bringing various amendment in Companies Act, 2013 to that extent which are discussed as below:

– Change in Small Company Definition:

The Companies (Specification of Definitions Details) Amendment Rules, 2021 passed on 1st February 2021. This Rules shall become effective with effect from 1st April, 2021.

Pursuant to the amendment in the Companies (Specification of Definitions Details) Rules, 2014, a new clause (t) has been inserted in the Rule 2, in sub-rule (1), after clause (s), as under:-

“(t) For the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company shall not exceed rupees two crores and rupees twenty crores respectively.”

Now as per this rules, Small Company means a company, other than a Public Company –

(i) Paid-up share capital of which does not exceed two crores rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees and

(ii) turnover of which as per Profit and loss account for the immediately preceding financial year does not exceed twenty crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees.

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;

– Merger or Amalgamation of Start-up Companies

The Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2021 passed on 01stFebruary 2021. This Rules came into effect immediately on publication of same in official gazette.

Earlier only two or more small companies or between Holding company and its wholly-owned Subsidiaries, a scheme of arrangement may be entered. Recent amendment widen the scope of Fast Track Merger and now a scheme of arrangement can also be made between

– Two or more Start-up companies

– one or more start-up company with one or more small company.

Now, the scheme of Fast Track Merger can be entered between following parties:

i) Two or more small companies

ii) Holding Company and its wholly-owned subsidiary company

iii) Two or more Start-up companies

iv) One or more start-up Company with one or more small company.

Explanation – *Start-up company” means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification number G.S.R. 127 (E), dated the 19thFebruary, 2019 issued by the Department for Promotion of Industry and Internal Trade.”

Changes in One Person Company (OPC) Framework:

Ministry of Corporate Affairs (MCA) has eased the process of setting-up of One Person Company (OPC). Earlier, only residient were allowed to incorporate an One person company in India. The recent amendments has relaxed the residency limit of NRIs from 182 days to 120 days. These rules has also removed the Monetary limit for conversion of OPC into Private or Public company. Earlier, an OPC with paid-up capital of Rs. 50 lakhs or less and Turnover of Rs. 2 crore or less  was allowed to be converted as such.

So now, any resident or Non-resident Indian who fulfilled the residential criteria of 120 days as compared to earlier rule of 182 days can set-up One Person Company and can also convert such OPC into Private or Public Company other Section 8 Company with no paid up capital and turnover restrictions.