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Ease of Doing Business Report 2019 – Corporate Law Perspective
Once upon a time falling in the line of World Bank was not fine for at least half of the world. The scenario is changing. There is a rumour that economies not only reforms but also window dress it.
India placed this year at the 77th place with 67.23 EODB scores. Unlike a layman, this EODB score concerns the exports. When we talk about this ranking is a rating of Delhi and Mumbai, not any other place. It might possible other states/cities doing better and not reflected in the report.
“India also focused on streamlining business processes. Under its National Trade Facilitation Action Plan 2017-2020, India implemented several initiatives that improved the efficiency of cross-border trade, reducing border and documentary compliance time for both exports and imports (figure 1.9). Enhanced risk-based management now allows exporters to seal their containers electronically at their own facilities; as little as 5% of shipments must undergo physical inspections. India also invested in port equipment, strengthened management and improved electronic document flow. By implementing the Single Window Clearance System in Delhi and the Online Building Permit Approval System in Mumbai during the second half of 2017, India also continued to streamline and centralize its construction permitting process. Regarding getting electricity, newly-adopted regulations from the Delhi Electricity Regulatory Commission require that electrical connections be completed within 15 days of the application’s acceptance. To comply with this regulation, Tata Power Delhi Distribution deployed more personnel as well as tracking tools and key performance indicators to monitor each commercial connection.” {Page 12}
A print version of the report may be downloaded from here.
SPICe added to the report
The report mentioned that India is among nation who improved by making it easier to start a business. India made starting a business easier by fully integrating multiple application forms into a general incorporation form.
Starting a Business
The starting a business ranking is fairly poor despite mentioning of SPICe in the report. The starting a Business rank among 190 economies is 137. On the scale of 100, the score for incorporation is 80.96. Starting a business in India involves 10 procedures involving 16.5 days. It cost 14.4% of per capita income of Indians. It means it is still not easy to start a formal business for an average Indian. This fact cause concern as there is no legal requirement of minimum capital for a business.
Minority Protection
This is good news. Our ranking is fairly good at 7th place with a score of 80. It can be understood that most economies are not doing fair on minority protection. So, it may not be our best efforts but the poor performance of most economies.
The extent of disclosure index (0–10) 8
The extent of director liability index (0–10) 7
Ease of shareholder suits index (0–10) 7
The extent of shareholder rights index (0–10) 10
The extent of ownership and control index (0–10) 8
The extent of corporate transparency index (0–10) 8
Resolving Insolvency
Insolvency is a very interesting phenomenon presently in India. Our improved rank is 108, a number which Indians love. Insolvency Resolution Score is 81.85. An average time for insolvency resolution is one year presently. This is quite embracing as against the promised 180 days. However, we are facing many practical issues and teething troubles.
Cost of Insolvency resolution is 3.5% of the estate evolved. Recovery rate is 85.3 cent in the Dollar.
In India the establishment of debt recovery tribunals reduced nonperforming loans by 28% and lowered interest rates on larger loans, suggesting that faster processing of debt recovery cases cut the cost of credit.
A recent study using Doing Business data showed that insolvency resolution is one of the main drivers behind “missing” corporate bond markets in many economies. More borrowers gain access to credit in economies with a robust legal system that supports the use of movable assets as collateral and a well-developed credit information sharing system.
Other major reform related to business
India (Delhi) issued a regulation prescribing new electricity charges.
India introduced the Maharashtra Goods and Services Tax Act 2017 and the Delhi Goods and Services Tax Act 2017, which unified all sales taxes into one new tax called the Goods and Services Tax (GST).
Performance on corporate law front
Overall performance on corporate law front is not satisfactory. We can notice that last year insolvency related score and rating were improved due to the introduction of the law. Practical implementation of the same was not so satisfactory. Same is also true for incorporation of a company or starting a business.
Targeted reforms
This is unfortunate that government across economies trying to improve their ease of doing business ranking and not taking a holistic approach on reforms. Various segments which might need attention but not directly related to the ranking are not taken care of.
Anyway it is good to see reforms.
Serious Penal Consequence of late Annual Filing – landmine ahead
[The law stated in this post is effective from the 7th day of May 2018]
There is a perception that filing of financial statements and other documents with additional fee absolve the company from consequences under section 92, section 137 and conditional exemption given to certain companies by certain notifications issued by the Ministry of Corporate Affairs.
This is also a general view of the companies that any extension granted for the filing of the financial statements and other documents without additional fee grant immunity to the companies from its liabilities under mentioned provisions.
I beg to differ, conditionally.
Application to Central Government for appointment of Managerial Personnel
[NOTE: The law stated in this post is effective from 12th September 2018. For the law applicable from 1st April 2014 till 11th September 2018, please visit here.]
We discussed the appointment of managing director and whole time directors recently here as per the law effective from 12th September 2018. A careful reading suggests that recent amendment done away with the requirement of the central government for payment of remuneration of managerial personnel. This amendment also eased procedure for appointment of managerial personnel with the limited requirement for central government approval for such an appointment. We will discuss the same, in this post.
Managerial Remuneration during period of inadequate profit
[NOTE: The law stated in this post is effective from 12th September 2018. For the law applicable from 1st April 2014 till 11th September 2018, please visit here and here.]
Any managerial remuneration exceeding 11% of net profit limit may be payable subject to compliance of conditions given in Schedule V.
Where a remuneration of managerial personal exceed respective limits of 1%, 3% 5%, or 10% specified in section 197 in any manner, it becomes remuneration in case of the inadequate profit and attracts approval company in general meeting by special resolution, subject to the provisions of Schedule V.
We have discussed Section 197 as amended update 12th September 2018 earlier here. In this post, we will discuss managerial remuneration in case of inadequate profit as per Schedule V as on 12th September 2018.
MANAGERIAL REMUNERATION
[NOTE: The law stated in this post is effective from 12th September 2018. For the law applicable from 1st April 2014 till 11th September 2018, please visit here and here.
In this post, we will discuss managerial remuneration. The managerial remuneration in case of inadequate profit shall be discussed in a future post, soon.
APPOINTMENT OF MANAGING DIRECTOR AND MANAGER
[NOTE: The law stated in this post is effective from 12th September 2018. For the law applicable from 1st April 2014 till 11th September 2018, please visit here.]
The Managing Director is Key Managerial Personnel of utmost importance. He is the face of a company and its decision-making mechanism. A person gains significant advantages as the Managing Director which may not be there, in case of his appointment as the Manager or the Chief Executive Officer. While the Chief Executive Officer has no special advantage except his clubbing as a Key Managerial Personnel with the Manager and the Managing Director, the Manager has some advantage. Their definitions speak themselves. Appointment of Managing Director, Whole – Time Director and Manager is governed by the provision of Section 196 of the Companies Act, 2013. They all are a different class of Key Managerial Personnel and has the specific provision of appointment in addition to Section 203, discussed in an earlier post. Continue reading
REGISTERING COMPANIES AUTHORISED TO REGISTER
Part – I of Chapter XXI deals with companies authorizes to register under this Companies Act, 2013.
Any company formed under any law for the time being in force duly constituted according to law and consisting of two or more members may at any time register under this Act as a company. This registration shall not be invalid by reason only that it has taken place with a view to the companies being wound up. We have discussed these provisions of Section 366 of the Companies Act, 2013 as amended and updated earlier here.
The Companies (Authorised to Registered) Rules 2014 supplement the provisions of the Companies Act 2014. Till 5th July 2018 with effect from 15th August 2018 these rules had no provision of conversion of society and trust to the company as discussed earlier here.
In this series of posts, we will discuss these rules as amended by the Companies (Authorised to Registered) 2nd Amendment Rules, 2018.
Posted in Chapter II - CA2013, Chapter XXI - CA2013, Companies Act 2013
Tagged Companies Authorized to registered, Form URC – 1, Limited Liability Partnership, Partnership Firm, Society, the Companies (Authorised to Registered) 2nd Amendment Rules 2018, The Companies (Authorised to Registered) Rules 2014, trust
Shareholders in General Meeting
To be legally correct I will say, all Members of a company may attend a General Meeting including the Annual General Meeting of a company. I will discuss, related aspects in brief.
Member
In legal terminology Section 2(55) of the Companies Act, 2013 defines the term member:
“member”, in relation to a company, means—
(i) the subscriber to the memorandum of the company who shall be deemed to have agreed to become a member of the company, and on its registration, shall be entered as a member in its register of members;
(ii) every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company;
(iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository.”
Members are those shareholders who got shares registered in their name.
A shareholder, who has recently purchased, inherited or received a gift of shares of a company may not become shareholders unless shares are registered in its name. Likewise, a member who has recently sold, died or given a gift of shares may continue as members til such shares are registered in the name of another person.
Please note in case of de-materialised shares, such registration happened immediately.
Notice of (Annual) General Meeting
According to Section 101(3)(a) of the Act, the notice of every meeting of the company shall be given to every member of the company, legal representative of any deceased member or the assignee of an insolvent member.
Quorum
Normally the quorum of a general meeting:
(a) in case of a public company,—
(i) five members personally present if the number of members as on the date of the meeting is not more than one thousand;
(ii) fifteen members personally present if the number of members as on the date of the meeting is more than one thousand but up to five thousand;
(iii) thirty members personally present if the number of members as on the date of the meeting exceeds five thousand;
(b) in the case of a private company, two members personally present shall be the quorum for a meeting of the company.
There is no discrimination among member, who may present. Every member person who received the notice of a general meeting may attend it.
Voting
In normal circumstances, only members who are equity shareholder may vote as per defined voting rights. According to Section 47(1)(a) of the Act, every member of a company limited by shares and holding equity share capital therein, shall have a right to vote on every resolution placed before the company. Presently, it is possible to have different classes of equity shareholders with differential voting rights.
Members, who are preference shareholders may vote in certain circumstances only. Every member of a company limited by shares and holding any preference share capital therein shall, in respect of such capital, have a right to vote only on resolutions placed before the company which directly affect the rights attached to his preference shares and, any resolution for the winding up of the company or for the repayment or reduction of its equity or preference share capital and his voting right on a poll shall be in proportion to his share in the paid-up preference share capital of the company. Where the dividend in respect of a class of preference shares has not been paid for a period of two years or more, such class of preference shareholders shall have a right to vote on all the resolutions placed before the company.
Board report for OPC and Small Companies
This was a long-standing demand to have less compliance for one person and small companies. Rule 8A introduced with effect from 31st July 2018 by the Companies (Accounts) Amendment Rules 2018. Let us discuss.
Circular Inviting Deposit
The Companies (Acceptance of Deposits) Amendment Rules, 2018 amended the Principal Rules the Companies (Acceptance of Deposits) Rules, 2014 with effect from 15th August 2018. These amendment rules indicate government acceptance of no availability of a product called deposit insurance deposits accepted by companies. This also indicates that corporate deposits are the most humble and vulnerable class of small investors. In this post, we will discuss, advertisement or circular required to be issued for inviting public deposits by the companies.
Option for Verification of Registered Office
What kind of lease deed should I make for a new private limited company before incorporation?
This is one of the practical question, promoters and professionals facing at the time of incorporation.
No Sense Notice!!
This is a very interesting query received recently.
One existing independent director is going to be retired at the conclusion of the upcoming Annual General Meeting of the company. The company (read management) do not want to renew the tenure of independent director. The name of another independent director has already been proposed by the management in the notice of the Annual General Meeting. Now, there is a proposal to call a Board Meeting just after (or next day) the conclusion of Annual General Meeting. As per the law and the articles of the company, there is a requirement of 7 days notice or 48 hours shorter notice for calling the Board Meeting. The outgoing independent director should receive notice of the Board Meeting. Will it really serve any purpose in law?
Ratification of auditor in 2018
One of the frequently asked questions these days is, should a company need to ratify the appointment of an auditor in the Annual General Meeting 2018. Should I explain my affirmative reply?
Posted in Chapter X - CA2013, Companies Act 2013
Tagged Appointment of Auditor, Auditor
Form DIR – 3 – KYC
With all executive overreach, Form DIR – 3 – KYC is present before us this early morning of pleasant rainy monsoon day. I welcome it with all my reservation about working of the ease of doing business with actual ease. Every individual who has a Director Identification Number (DIN); whether using, abusing, not using or disqualified from using; need to fill this form within 49 days time from today 14th July 2018 with an exception of individuals who received their Director Identification Number (DIN) after 31st March 2018. Let us discuss more the rule and the form.
[Update: with the introduction of Form DIR-3-KYC-WEB discussed here, the law stated herein has slightly changed. Please read both posts together.]
Chairman, Managing Director, CEO, Proprietor – the Difference
Difference between various business positions is quite confusing for the general public. Here, we will discuss, what is the difference between a chairman, a managing director, a CEO, and a proprietor?
Audit Committee – Post 7th May 2018
The Companies Amendment Act, 2017 read with Notification S.O. 1833(E) dated 7th May 2018 amended law related to the audit committee. Certain transactions shall be voidable unless ratified by the audit committee. In this post, we will discuss updated law related to Audit committee.
Seeking information of Significant Beneficial Ownership
Section 90 of the Companies Act 2013 substituted by a new set of law. It is a drastic change to understand and need urgent attention for all companies. Amended Section 90 and rules made thereunder has already been notified with effect from 13th June 2018 and 14th June 2018. The significant deadline is on 12th September 2018. Earlier, we discussed Significant Beneficial Interest, declaration, register and return related thereto here and here. Seeking a declaration from a significant Beneficial Ownership is debatable otherwise but the law provides some remedies discussed in this post.
Declaration by Significant Beneficial Owner
The law stated in this post was valid from 14th June 2018 till 7th February 2019. The post on the law applicable from 8th February 2019 is posted here.
Section 90 of the Companies Act 2013 substituted by a new set of law. It is a drastic change to understand and need urgent attention for all companies. Amended Section 90 and rules made thereunder has already been notified with effect from 13th June 2018 and 14th June 2018. The deadline is on 12th September 2018. In last post here, we discussed Significant Beneficial Interest. In this post, we will discuss the declaration, register and return of Significant Beneficial Ownership.
AishMGhrana 