Category: 2020

Private Placement

TAKE A NOTE ON CFSS AND LLPSS

When your client is having any pending compliance for sake of huge penalty, you can advice them to complete it within CFSS and LLPSS now. Along with AOC-4, MGT-7, Form 3, 4, 8, 11 LLP, there are 76 forms allowed to get filed without any penalties. For more clarification on these schemes, check into MCA’s FAQ section.

In this edition, we will be seeing about Private Placement. Considering the length of the article and the tremendous notifications at the emergency situation, our usual Legal Terms and News Bites related to notifications by MCA, SEBI, RBI, IT and GST follows the article.

 

CEO CS Saranya Deivasigamani,

CEO

Private Placement

When the Board of Directors decide to issue shares to a selective group of individuals or company or both, they can opt to issue the shares through Private Placement.

Section 42 of the Companies Act, 2013 provides the guidelines related to Offer or Invitation for Subscription of Securities on Private Placement.

Eligibility and Limitations

Any company can make private placement be it a listed or unlisted.

The offer shall be made to the selective group of persons (“identified persons”) who shall not exceed 50 or such higher numbers as shall be prescribed [excluding the QIBs and employees of the company being offered securities under a ESOP.]

If the company makes an offer more than the prescribed number of persons,, whether the payment for the securities has been received or not or whether the company intends to list its securities or not on any recognised stock exchange in or outside India, the same shall be deemed to be an offer to the public and shall accordingly be governed by the provisions of Part I of Chapter III of the Companies Act, 2013.

Private Placement Offer

When the Board decides to make a Private Placement, it shall prepare private placement offer and application that does not carry any right of renunciation. The Board has to collect such forms in such manner as may be prescribed to the identified persons. The Board has to maintain proper records of the names and addresses of the identified persons.

Every identified person willing to subscribe to the private placement issue shall apply in the private placement and application issued to such person along with subscription money paid either by cheque or demand draft or other banking channel and not by cash. The company shall not utilise such monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar in accordance with sub-section (8).

Fresh Offer

The company cannot make any fresh offer or invitation to fresh private placement offer unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company, subject to the maximum number of identified persons under sub-section (2), a company may, at any time, make more than one issue of securities to such class of identified persons as may be prescribed.

Allotment

A private placement offer should be allotted within 60 days from the date of receipt of application money for such securities.

If the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within 15 days from the expiry of 60 days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of 12% per annum from the expiry of the 60th day.

The application money shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than—

(a) for adjustment against allotment of securities; or

(b) for the repayment of monies where the company is unable to allot securities.

No Public Notice

The company shall not release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about the private placement issue.

ROC Filing

As like any allotment, the company shall file with the Registrar a return of allotment in PAS-3 but within 15 days from the date of the allotment including a complete list of all allottees, with their full names, addresses, number of securities allotted and such other relevant information as may be prescribed. If a company defaults in filing the return of allotment within the prescribed period, the company, its promoters and directors shall be liable to a penalty for each default of one thousand rupees for each day during which such default continues but not exceeding twenty-five lakh rupees.

Defaults

If a company violates or make any private placement that is not in compliance of any of the provisions mentioned in Section 42 of the Companies Act, 2013, the offer shall be deemed to be a public offer and all the provisions of the Companies Act, 2013 and the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 shall be applicable.

If a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount raised through the private placement or two crore rupees, whichever is lower, and the company shall also refund all monies with interest to subscribers within a period of 30 days of the order imposing the penalty.

Legal Term

Comperuit ad diem

A plea in an action of debt on a bail bond that the defendant appeared at the day required.

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Business Continuity Plan

GIVE YOUR SUGGESTIONS IN TIME

​There were several Amendment Bills came for a public comments this month. The latest one that have the last date on 28th March 2020 to register your comments is on draft Companies (Corporate Social Responsibility Policy) Amendment Rules,2020. Hurry up and give your expert advice to make the legislation better.

In this edition, we will be seeing about Business Continuity Plan (BCP). The most needed strategy for business owners, which we the professionals can guide them in creating a better plan. We will have our usual Legal terms and News Bites related to notifications by MCA, SEBI, RBI, IT and GST from this month whenever possible.

CEO CS Saranya Deivasigamani,

CEO

BUSINESS CONTINUITY PLAN (BCP) 

When a Company faces an expected or unexpected potential threat in continuation of business, a proper Business Continuity Plan (BCP) helps the Company survive in the turmoil.

A proper Business Continuity Plan enables the Company to protect it’s personnel and assets and ensure that they are able to function quickly in the event of disaster.

BCP typically contain a checklist that includes supplies and equipment, data backups and backup site locations. It also involves in identifying plan administrators and include contact information for emergency responders, key personnel and backup site providers. BCP is a document that provides detailed strategies on how business operations can be maintained for both short-term and long-term outages.

Anatomy of a BCP

The first step to start a BCP is to assess the business process, determining which areas are vulnerable, and the potential losses if those processes go down for a day, a few days or a week. This is essentially a Business Intelligence Analysis.

To develop a BCP there are six steps in general:

  1. Identify the scope of the BCP.
  2. Identify key business areas.
  3. Identify critical functions.
  4. Identify dependencies between various business areas and functions.
  5. Determine acceptable downtime for each critical function.
  6. Create a plan to maintain operations.

One common BCP tool is a checklist that includes supplies and equipment, the location of data backups and backup sites, where the BCP is available and who should have it, and contact information for emergency responders, key personnel and backup site providers.

Remember that the Disaster Recovery Plan (DRP) is part of the BCP, so developing a DRP e should be part of the process. If the organization already have a DRP, it need to be sure that restoration time is defined and “make sure it aligns with business expectations.”

As a process of creating BCP, the organization shall consider interviewing KMP in organizations who have gone through a disaster successfully. People generally like to share “war stories” and the steps and techniques (or clever ideas) that saved the day. Their insights could prove incredibly valuable in helping you to craft a solid plan.

Testing BCP

Testing a BCP is the only way to truly know it will work.

The organization have to rigorously test a plan to know if it’s complete and will fulfill its intended purpose. Many organizations test a BCP for two to four times a year. The schedule depends on the type of organization, the amount of turnover of KMP and the number of business processes and IT changes that have occurred since the last round of testing.

Common tests include table-top exercises, structured walk-throughs and simulations. Test teams are usually composed of the recovery coordinator and members from each functional unit.

A table-top exercise usually occurs in a conference room with the team poring over the plan, looking for gaps and ensuring that all business units are represented therein.

In a structured walk-through, each team member walks through his or her components of the BCP in detail to identify weaknesses. Often, the team works through the test with a specific disaster in mind. Some organizations incorporate drills and disaster role-playing into the structured walk-through. Any weaknesses should be corrected and an updated plan distributed to all pertinent staff.

It’s also a good idea to conduct a full emergency evacuation drill at least once a year. This type of test lets you determine if you need to make special arrangements to evacuate staff members who have physical limitations.

Lastly, disaster simulation testing can be quite involved and should be performed annually. For this test, create an environment that simulates an actual disaster, with all the equipment, supplies and personnel (including business partners and vendors) who would be needed. The purpose of a simulation is to determine if you can carry out critical business functions during the event.

During each phase of business continuity plan testing, include some new employees on the test team. “Fresh eyes” might detect gaps or lapses of information that experienced team members could overlook.

Review BCP

Much effort goes into creating and initially testing a BCP. Once that job is complete, some organizations let the plan sit while other, more critical tasks get attention. When this happens, plans go stale and are of no use when needed.

Technology evolves, and people come and go, so the plan needs to be updated, too. Bring KMP together at least annually to review the BCP and discuss any areas that must be modified.

Prior to the review, solicit feedback from staff to incorporate into the plan. Ask all departments or business units to review the plan, including branch locations or other remote units. If you’ve had the misfortune of facing a disaster and had to put the plan into action, be sure to incorporate lessons learned. Many organizations conduct a review in tandem with a table-top exercise or structured walk-through.

How to ensure BCP support, awareness

One way to ensure that the BCP is not successful is to adopt a casual attitude toward its importance. Every BCP must be supported from the top down. That means senior management must be represented when creating and updating the plan; no one can delegate that responsibility to subordinates. In addition, the plan is likely to remain fresh and viable if senior management makes it a priority by dedicating time for adequate review and testing.

At the emergency situation like this when the government requests employers to allow work from home option and other sudden inconvenient situations, BCP policy in an organization helps it to continue the business without any hurdles. Management understanding the importance of BCP and communicating the awareness with it’s employees will have a greater impact on all employees, giving the BCP more credibility and urgency.

As a professional advising the top management, we should be aware of the policy and guide the management in creating a best BCP suitable for their organization.

Legal Term

Aid and Abet

To aid and abet means to assist another person in the commission of a crime by words or conduct actively, knowingly, and intentionally. 

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MCA Updates

Declaration of Dividend

ONCE AGAIN A FRESH START

MCA have recently launched a fresh incorporation procedure that reduces Procedures, Time and Cost for all new companies inorder to facilitate the young entrepreneurs. A glimpse of the incorporation procedure follows the article.

In this edition, we will be seeing about procedure for declaration of Interim and Final Dividend which is suggested by CS Gayatri Vaibhav Phatak. We will have our usual Legal terms and News Bites related to notifications by MCA, SEBI, RBI, IT and GST from this month whenever possible.

CEO CS Saranya Deivasigamani,

CEO

DECLARATION OF DIVIDEND

Declaration and payment of dividend is ruled under section Chapter VIII of Companies Act, 2013 and section 115O of the Income Tax Act, 1961.

General provisions as per Companies Act

As per section 123, Dividend can be declared only out of profit after depreciation and other deductions of the current or previous financial years.

While computing profits any amount representing unrealised gains, notional gains or revaluation of assets and any change in carrying amount of an asset or of a liability on measurement of the asset or the liability at fair value shall be excluded. For govt. companies, it shall be the money provided by Central or State Government for payment of dividend.

While there is a loss, dividend shall not exceed the free reserves.

Dividends can be paid only out of free reserves and only after set off accumulated losses from the previous years against the profits of current year.

As per section 51, if the Article permits, the Company can pay  dividend in proportion to it’s paid-up capital.

Declaration of Dividends out of Reserves

When there are inadequacy or absence of profits for the current year, the Company can declare dividend only out of free reserves on abiding the following conditions:

  • The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the three years immediately preceding that year: (shall not be applicable if not declared any dividend in each of the three preceding financial year.)
  • The total amount to be drawn from such accumulated profits shall not exceed 1/10 of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement.
  • The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which dividend is declared before any dividend in respect of equity shares is declared.
  • The balance of reserves after such withdrawal shall not fall below 15% of its paid up share capital as appearing in the latest audited financial statement.

Interim Dividend

  • Can be declared anytime from closure of financial year till holding of AGM.
  • Shall be on surplus in the profit and loss account for the previous quarter.
  • In case the company has incurred loss during the current financial year up to the end of the previous quarter, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years.

Restrictions

  • Dividend cannot be paid in form of shares (except for bonus issue or paying up amount of unpaid shares) or any consideration other than cash.
  • Payment can be made cheque or warrant or in any electronic mode to the shareholder entitled to the payment of the dividend.
  • A company which fails to comply with the provisions of sections 73 and 74 i.e. defaults in deposits shall not, so long as such failure continues, declare any dividend on its equity shares.

Income Tax Approach

Under Section 115O of the Income Tax Act, 1961 dividend can be declared on profit at the rate of 15% Dividend Distribution Tax (DDT). If the dividend is paid to a foreign subsidiary then Section 115BBD has to be followed.

DDT shall be paid on declaration or distribution or payment of dividend whichever is earliest.

Key Points on Incorporation Procedures

SPICe+ is an integrated Web form offering 10 services by 3 Central Govt Ministries & Departments. (Ministry of Corporate Affairs, Ministry of Labour & Department of Revenue in the Ministry of Finance) and One State Government (Maharashtra)

Mandatory requirements
  • SPICe+, SPICe+ MOA, SPICe+ AOA and AGILe+ to be filled on webform, downloaded into pdf, affix DSC and upload again in the system along with supporting documents.
  • Application of PAN and TAN through SPICe+.
  • Application for Bank Account through AGILe Pro (Only the preferred bank has to be chosen, the branch will be allotted by the bank on availability of the region of registered office)
  • GSTIN, EPFO, ESIC through AGILe Pro.
  • URC-1 is mandatory for Section 366 of the Companies Act, 2013 and Rule 3(2) of the Companies (Authorised to Register) Rules, 2014—Part I Company incorporation
Maximum Limits
  • 5 times the Application can be modified even after generating pdf and affixing DSC but before submission. After which fresh application has to be started.
  • 2 names are allowed in SPICe+ Name application.
  • 20 Directors DSC can be affixed in INC-9.
  • 3 Directors for DIN allotment by others and 5 for Producer Company.
  • 2 resubmissions allowed after uploading the forms.
  • 20,000 character limit for Main Object in filed 3(a) and 1,00,000 in field 3(b).
Other Services
  • Professional Tax Registration, only for the state of Maharashtra.
  • SPICe+ Part A—submit after filing Part A to reserve name or Proceed with Part B to file entire incorporation application.
  • INC-9 will be generated if applicable.
Applicable Fees
  • INR. 1,000 for name application
  • Zero Filing Fees for Authorised Capital upto INR. 15,00,000
  • INR. 66 for PAN (physical PAN will not be dispatched) and INR. 65 for TAN.
  • Stamp duty as applicable.

Legal Term

Pari Passu

adv. a Latin phrase that literally means “with an equal step” or “on equal footing”. Side by side; at the same rate or on an equal footing.

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  • No major updates.

 

Operating Guidelines For IA in IFSC

ZAPPY TURNED 5 THIS JAN 5

Zappy celebrated it’s 5th year of incorporation on January 5, 2020. 5 successful years with various victory is not possible without the support of all the stakeholders.

In this edition, we will be seeing about Operating Guidelines for Investment Advisers (IA) in International Finance Service Centres (IFSC). We will have our usual Legal terms and News Bites related to notifications by MCA, SEBI, RBI, IT and GST from this month whenever possible.

CEO CS Saranya Deivasigamani,
CEO

OPERATING GUIDELINES FOR IA in IFSC

International Finance Service Centres (IFSC) caters to customers outside the jurisdiction of the domestic economy. Such centres deal with flows of finance, financial products and services across borders.

To facilitate and regulate financial services relating to IFSC set up under section 18(1) of Special Economic Zones Act, 2005, SEBI has issued SEBI (International Financial Services Centres) Guidelines, 2015 on March 27, 2015. The IFSC Guidelines provide for a broad framework for operating of various intermediaries (including Investment Advisers (IA)) therein, as defined in Clause 2 (1) (g) of the IFSC Guidelines.

As per the IFSC Guidelines, SEBI can issue guidelines for any entity desirous of undertaking any other financial services relating to securities market. In this view, SEBI has recently issued Operating Guidelines for Investment Advisers defined in International Finance Service Centre Authority Bill, 2019.

Applicability

The applicability of these operating guidelines is subject to such conditions that may be prescribed by the Board, Reserve Bank of India and other appropriate authority from time to time.

All provisions of the IA Regulations, the guidelines and circulars issued thereunder, shall apply to IA setting up/ operating in IFSC subject to the following paragraphs. Any Subsequent amendments in IA Regulations,  guidelines and circulars issued by SEBI for investment advisers shall be applicable to IA in IFSC.

Registration

An application for grant of certificate of registration shall be made in accordance with the provisions of Chapter II of the Investment Adviser Regulations, accompanied by a non-refundable application fee as:

The following persons shall be eligible to apply for an IA Registration in IFSC to the Board:

Any entity, being a company or LLP, which has the minimum prescribed net worth as specified below at the time of application can act as an IA in the IFSC, in the following forms-

  1. Any recognised entity or entities desirous of operating in IFSC as an IA, may form a company or LLP to provide investment advisory services.

Persons seeking registration under the Investment Adviser Regulations read with these Guidelines shall provide investment advisory services only to those persons referred in Clause 9 (3) of the IFSC Guidelines. Further, persons resident outside India and non-resident Indians seeking advice from IA in IFSC shall comply with the applicable guidelines issued by the relevant  overseas regulator/ authority.

The Board may grant certificate if it is satisfied that the applicant fulfils the requirements as specified in the IA Regulations read with SEBI guidelines.

Compliance Requirements, Conditions and Restrictions

Qualification and Experience Requirement [Corresponding Regulation in IA Regulations-7(1)] Partners and representatives of applicants offering investment advice shall have:

  1. at all times, a professional qualification or post-graduate degree or post graduate diploma (minimum 2 years tenure) in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science from a university or an institution recognized by the central government or any state government or a recognized foreign university or institution or association; and
  2. an experience of at least five years in activities relating to advice in financial products or securities, or fund/ asset/portfolio management, or investment advisory services.

Certification Requirements

Certification Requirement [Corresponding  Regulation in IA Regulations-7(2)] Partners and representatives of the applicants offering investment advice shall have, at all times, a certification on investment advisory services:

  1. in respect of partners and representatives resident in India
  2. from National Institute of Securities Markets (NISM); or
  3. from any other organization or institution including Financial Planning Standards Board India or any recognized stock exchange in India provided that such certification is accredited by NISM.
  4. in respect of partners and representatives resident outside India, from any other organization or institution or association or stock exchange which is recognized/ accredited by a Financial Market regulator in that foreign jurisdiction.

However, certification from NISM shall be mandatory for partners and representatives of applicants who offer investment advice in relation to Indian securities markets.

Net Worth Requirement

In case of applicants referred to in para 3, the net worth requirement shall be as under:

  1. An applicant shall have a net worth of not less than USD 1.5 million.
  2. In case the IA is set up as a subsidiary, the net worth requirement is to be met by the subsidiary itself. However, if the subsidiary does not meet the criteria, the net worth of the parent can be considered.
  3. The IAs shall fulfil the aforesaid net worth requirement, separately and independently for each activity undertaken by it under the relevant regulations.

Annual Audit

An IA shall ensure to conduct annual audit in respect of compliance with IA Regulations and SEBI guidelines from a chartered accountant or a company secretary or its equivalent under the laws in force of the country in which the applicant is registered or incorporated.

The conditions prescribed in Para 2 of Form A of First Schedule of IA Regulations shall continue to apply, except for the following:

  1. In case of overseas applicants, a net worth certificate (not more than 6 months old at the time of filing of application) by a chartered accountant or its equivalent under the laws in force of the country in which the applicant is registered or incorporated, shall be provided. The membership number or any other identification number of the chartered accountant or its equivalent shall be included in the certificate.
  2. In case of overseas applicants, a credit score from a body similar to CIBIL, if existing in the applicant’s jurisdiction, shall be provided.

Legal Term

Quid Pro Quo

n. a favour or advantage granted in return for something.

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