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Important Amendments Incorporated by the Companies Amendment Act 2000

1 Private, Public and Deemed Public Companies

Private and Public Companies

Section 3 of the act has been amended to include in the definition of Private
Companies :-
(1) a private company shall have a minimum paid - up share capital of Rs 100,000
(2) shall by its articles prohibit invitation or acceptance of deposits from persons
other than its members , directors or their relatives.
A Public company is
(1) not a private company
(2) has a minimum paid-up share capital of Rs 500,000
(3) is a private company which is a subsidary of a company which is not a private
company.
§ All private companies will have to increase their paid-up capital to Rs 100,000
within a span of 2 years from the Amendment Act ie. by 14/12/2002.
§ They will have to include a fourth restrictive clause in their articles relating to
acceptance of public deposits. This can be done by convening an EGM
immediately and passing a special resolution.
§ All public companies will have to increase its paid-up capital to Rs 500,000
within a period of 2 years.
§ If they fail to do so they will be considered as defunct companies and the name
of the company will be struck off the register.
§ The capital may be increased by a bonus issue subject to the fulfillment of the
provisions relating to bonus issue.
§ Where the existing authorised capital of the company is less than Rs 100,000 or
Rs 500,000 , the authorised capital will have to also be increased. This may be
done by passing an ordinary resolution.

Deemed Public Companies

The concept of deemed public companies has been removed by the Amendment
Act,2000.
A Deemed Public Company from the commencement of the Amendment Act has the
following options:-
(1) Where the number of members is less than 50 and it does not intent to accept
deposits from the public it can convert itself into a private company by
§ Maintaining its share capital to atleast Rs 100,000
§ Maintaining the number of members upto 50
§ Retaining the restrictive clauses relating to membership, public subscription etc.,
in its articles and inclusion of the fourth restrictive clause relating to public
deposits.
§ Inform the registrar and get its name altered
(2) Remain as it is and
§ increase its share capital to Rs 500,000 within a span of 2 years.
§ Remove the restrictive clauses in its articles.

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§ Increase the minimum number of members to 7 and directors to 3 and amend its
articles for this clause also.
A Private Company which is a subsidary of a public company has to convert itself
into a public company.

2 Interim Dividend

The definition of dividend now includes interim dividend ( Section 2 (14A) )

and the provisions of section 205,205A,205C,206,206A and 207 apply to
interim dividend also.
The implications are:-
§ The Board of Directors may declare the interim dividend and the same must
be deposited in a separate bank account within 5 days of the declaration.
§ The dividend must be paid within a period of 30 days ( reduced from 42
days) of declaration by the board.
§ Within 7 days of the expiry of the 30 days for payment of dividend the
unpaid dividend must be transferred into a separate unpaid dividend
account.
§ Where dividend has been declared but not paid other than the directors
liability , the company will be liable to pay simple interest @ 18 % p.a. for
the period of default.
§ The company must now provide for estimated depreciation and abide by the
transfer of profits to reserves rules prior to declaring interim dividend.

3 Small Depositors ( Section 58 AA)

This section has been introduced to protect the interests of small depositors.
§ A small depositor is a person who has invested in a financial year a sum not
exceeding Rs 20,000.
§ The company has to intimate on a monthly basis within 60 days from date of
default to the Company Law Board any default in repayment to small
depositors ( interest or principal)
§ The company cannot accept any more deposits from small depositors unless
all previous dues to small depositors have been repaid.
§ In all advertisements accepting deposits the company will have to state the
total number of small depositors and amount due to them where there are
defaults.
§ Any loan taken for working capital will first be utilised to repay pending
dues to small depositors.

4 Board's Report

The board's report shall now include a responsibility statement that

§ In the preparation of the financial statements all accounting standards have
been complied with
§ Accounting Standards have been applied consistently and judgements and
estimates made are reasonable and prudent to reflect a true and fair view of
the state of affairs of the company.
§ Adequate records have been maintained in accordance with the act and to
safeguard the assets of the companyand detect frauds and irregularities.
§ Annual accounts have been prepared on a going concern basis.

5 Minimum number of directors ( Section 252)

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A public company having paid-up share capital of Rs 5 crores or more and 1000
or more small share-holders shall have atleast one director elected by such small
share-holders
A small share-holder is a person holding shares whose nominal value is less
than Rs 20,000.

6 Disqualification of directors ( Section 274)

A person will be disqualified from being appointed as a director of a public

limited company if he is already a director of a public limited company which
has
§ Not filed annual returns for a consecutive period of three financial years
commencing from 01/04/99 or
§ Has failed to repay its deposits or interest or pay dividend or repay its
debentures for a period of one year or more
The said director will not be eligible for appointment in any other public limited
company for a period of 5 years.

7 Ceiling on number of audits ( Section 224(1B))

The number of audits that an auditor / firm can accept has been amended as
follows:-
§ In the case of Public Limited Companies:-
where the paid-up capital is less than 25 lakhs - upto 20 companies
otherwise upto 10 companies where the paid -up capital exceeds 25 lakhs
and 10 other companies

§ Any number of Private Limited Companies.

8 Additional Reporting Requirement - Auditors ( Section 227)

The auditor's report shall now state :

§ In thick types or italics the observations or comments of the auditors which
have any adverse effect on the functioning of the company.
§ Whether any director is disqualified from being appointed as director under
section 274(1)(g) ( See point 6 above).

9 Number of companies in which a person can be a director ( Section 275)

The number of public limited companies in which a person can be a director has
been reduced from 20 to 15. The person can however be a director in any
number of private limited companies. A person who is a director in more than
15 Public Limited Companies shall choose the 15 directorships that he wishes to
retain and resign from the other public Limited Companies within 2 months of
the Amendment Bill, 2000.

10 Depreciation for Managerial Remuneration ( Section 350)

Depreciation for Managerial remuneration can now be calculated based on the

depreciation provided in the books. Therefore if a company is following straight
line method of calculating depreciation it need not add back the depreciaiton
and provide for depreciation on written down value basis.

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11 Certain Companies to have secretaries ( Section 383A)

§ A company having a paid-up share capital of Rs 50 lakhs or more shall have

a whole time secretary
§ A company with a paid - up capital of Rs 10 lakhs or more shall file a
certificate with the registrar of companies from a secretary in practice as to
whether the company has complied with all the provisions of the Companies
Act and a copy of the certificate shall be annexed to the Directors Report.

10 Kinds of Share Capital

Equity share capital with differential rights as to dividend, voting or otherwise

subject to such rules as may be prescribed have been introduced.

11 Other Amendments

§ Confirmation of regional director required for change of registered office from

the jurisdiction of one registrar to another within the same state.
§ SEBI to administer provisions relating to issue , transfer of securities in the case
of listed securities.
§ Introduction of shelf prospectus and information memorandum for financial
institutions and banks.
§ If a private offer is made to subscribe to the shares /debentures of a company and
such offer or invitation is made to more than 50 persons ,it will be construed as a
public issue.
§ Every listed company making an initial public offer of securities for Rs. 10
crores or more shall issue the same only in dematerialised form.
§ Provisions relating to debenture trust deed, appointment of debenture trustees
and creation of debenture redemption reserve which was already required as per
SEBI ( Disclosure and Investor Protection) Guidelines,2000 have now been
introduced.
§ Abolition of the office of the public trustee.
§ Introduction of the postal ballot.
§ Every Public limited company having a paid-up capital of Rs. 5 crores or more to
constitute an audit committee.
§ All fines have been increased upto 10 times by the Amendment Act ( for eg:
Failure to hold annual meeting in accordance with the provisions of section 166
has been increased from Rs. 5000 to Rs. 50,000.)

12 Amendments introduced by the Amendment Act, 1999.

§ To allow companies to buy back shares

§ Provide for nomination facility for investors
§ Setting up of investor education and protection fund
§ To allow companies to issue sweat equity in lieu of intellectual property to
employees and directors
§ Permit intercorporate investment without prior approval of the Central
Government
§ Constitution of National Advisory Committee on Accounting Standards

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