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Update: Companies Act Amendment October 2023

Updated: Oct 31, 2023

The Ministry of Corporate Affairs (“MCA”) on the 27th of October 2023 notified two major amendments to rules under the Companies Act, 2013. These include the Companies (Management and Administration) Second Amendment Rules, 2013 (“MA Rules 2023 ”) and the Companies (Prospectus and Allotment of Securities) Second Amendment Rules. 2023.( “PAS Rules 2023”). These amendments have been introduced to ensure greater transparency in the administration of corporate affairs and come into effect on the date of their publication in the Official Gazette, ensuring prompt implementation.

We are sharing with you an initial brief summary of the changes being implemented under these rules which will be followed up with impact analysis pieces later in the week.

Designated person to be responsible for reporting the Significant Beneficial Owner:

The amendments under the MA Rules 2023 have introduced the concept of a “designated person” with respect to beneficial ownership in the shares of a company (where the beneficial owner of the share is different from the registered owner of the share). Rule 9 of the Companies (Management and Administration) Rules, 2014 has been expanded to include sub-rules (4) to (8). Sub-rule (4) mandates that every company must designate a person responsible for providing information to the Registrar or any authorized officer regarding beneficial interests in the company’s shares. Sub-rule (5) outlines the choices for designating a responsible person, which may include a company secretary, key managerial personnel (other than the company secretary), or every director (where there is no company secretary or key managerial personnel).

  1. Responsibility of the Designated Person: The Designated Person shall be responsible for furnishing, and extending co-operation for providing information to the Registrar or any other authorised officer with respect to beneficial interest in shares of the company.

  2. Deemed Designated Person: Further, until a person is officially designated as per Sub-rule (4), certain individuals are deemed to have been designated, as specified in Sub-rule (6).

    1. The company secretary;

    2. Managing Director, or Manager (where there is no company secretary); or

    3. Every director (where there is no company secretary or managing director or manager),

  3. Reporting of details of the Designation Person: Sub-rule (7) mandates that every company must inform the details of the designated person in its Annual Report. Lastly, if a company decides to change its designated person at any time, it must inform the Registrar by submitting e-form GNL-2 as per the Companies (Registration Offices and Fees) Rules, 2014.

Next Steps:

  1. Appoint a Designated Person and Reporting: Every company should appoint a designated person by passing a board resolution and report in the annual return in Form MGT-7. If the filing for FY 2022-23 has already been completed, this can be reported in the filings for next financial year.

  2. Complete Pending Beneficial Ownership Filings (if any): Every company should ensure all beneficial ownership filings (including related to the shares held by nominee shareholders) are reported.

Mandatory dematerialization for private companies:

The amendments under the PAS Rules 2023 introduce mandatory dematerialsation on all securities of every private company, excluding small companies and government companies. This provision was only applicable to public companies until now. A timeline of 18 months is provided from the closure of the respective financial year during which such companies shall comply with the mandatory dematerialisation requirements. For example, a private company (other than a company that is a small company as on 31st March, 2023) is required to comply with mandatory dematerialisation of securities within a period of 18 months from the end of FY 22-23, i.e., on or before 30th September 2024.

Furthermore, Private companies falling under these rules must ensure that the entire holding of securities of their promoters, directors, and Key Managerial Personnel has been dematerialized before any offer for the issuance of securities, buyback of securities, or the issuance of bonus shares or rights offers.

Next Steps:

A private company, covered under this Amendment will be required to:

  1. Obtain International Securities Identification Number (“ISIN”) for all existing securities issued by the Company;

  2. Facilitate dematerialisation of all existing securities (as and when request is received from the holder of such securities);

  3. Ensure that the entire holding of its promoters, directors and KMPs are held in dematerialised form only, prior to making any offer for issuance or buyback of securities on or after September 30, 2024;

  4. From October 1, 2024, issue all securities in dematerialised form only; and

  5. File half-yearly returns with the Depository and the Ministry of Corporate Affairs in relation to the return of shares held in demat form.

Shareholders of private companies covered under this Amendment will be required to:

  1. Obtain a Permanent Account Number, which is an Income Tax Identification Number (if not already obtained);

  2. Obtain a demat account with a Depository Participant in India;

While the shareholders of a private company can continue holding their shares in physical form even after September 30, 2023, from October 1, 2024, the shares of a Company can only be issued to a shareholder, if such shareholder has a demat account. Further, any transfer of shares from October 1, 2024, can only be done in demat mode.

Bearer share warrants under the erstwhile Companies Act, 1956:

The amendments under the PAS Rules 2023 introduce changes for public companies that had previously issued share warrants before the commencement of the Companies Act, 2013 (i.e., under the erstwhile Companies Act, 1956). These companies are required to take specific actions within specified timelines. The Amendment Rules seek to eliminate bearer share warrants due to the difficulty in tracing ownership. However, the concept of share warrants issued to identified individuals and following legal transfer procedures remains intact.

Next Steps:

  1. Report details of share warrants issued: Within three months of the Amendment’s commencement (i.e., by January 27, 2024), public companies must inform the Registrar about the details of such share warrants using Form PAS-7.

  2. Inform Share Warrant Bearers of mandatory conversion of share warrants: Within six months of the Amendment’s commencement (i.e., by April 27, 2024), these companies must request bearers of the share warrants to surrender them and get equity shares of such company in dematerialized form. This requirement involves placing a notice on the company’s website and publishing the same in local and English newspapers.

  3. Failure to surrender share warrants: Failure to surrender the share warrants results in their conversion into dematerialized form and transfer to the Investor Education and Protection Fund.


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