Recent Amendments in Companies Act

Radhika M

The Companies (Amendment) Act, 2020 brought many changes in the existing Companies Act, 2013 (hereinafter as Principal Act). The Amendment Act removed many of the penal provisions embedded in the principal Act. It also empowered the Central Government to exempt certain classes of companies from the definition of ‘listed companies’. It also eased the Corporate Social Responsibility of companies by allowing the companies which spent more than the required amount in CSR activities, to carry it forward in the subsequent financial years through an Amendment to section 135 of the Act.

It also exempted the companies which were required to spend less than fifty lakhs in CSR activities from forming CSR committees and allowed the Board of Directors to discharge the functions of the Committee. The Amendment Act also empowered the Central Government to exempt certain class of persons from making declarations relating to their interests in beneficial ownership by the insertion of clause 11 to Section 89 of the Principal Act.

Many of the provisions in the Amendment Act,2020 was brought into operation by Notifications issued in 2021. In addition to the Amendment Act, 2020 many of the Rules were also amended. It was need of the hour, to bring a positive change in the economy. To push the economy which crumbled during the pandemic, it was necessary to loosen some restrictions. The rules were amended with an intention to loosen the grip over certain business transactions.

Some of the important amended Rules are:

Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021

The amended rules introduced a new term called ‘Administrative Overheads’. Rule 2 (b) defines Administrative Overheads as the expense incurred by the company for the general management and administration of Corporate Social Responsibility. However it would not include the expenses incurred in the course of designing, implementation or evaluation of a particular Corporate Social Responsibility programme.

And as per (d) of the rule 2, Corporate Social Responsibility activity undertaken by the company would not include:

  • Activities undertaken by the company in its normal course of business. But as an exception, a company which is engaged in the research and development of vaccines, drugs etc may undertake the research and development of vaccine and drugs related to Covid 19 in collaboration with the institutions mentioned in item ix of the Schedule VII of the Act.
  • Activities undertaken by the company in a foreign country except for training sports persons who represent India or any State or Union Territory in an international level.
  • Contribution to any political party
  • Activities for the benefit of the employees of the company
  • Activities conducted on sponsorship basis for obtaining marketing benefits for its products or services
  • Activities undertaken to fulfil the obligations under any other law.

Under rule 4, the company may undertake the CSR activities by itself or with the assistance of any other institutions. Such institutions can be a public trust, registered society or any entity established under an Act of Parliament or State legislature.

As per the rule, now it has became mandatory to all the entities intending to undertake CSR activities to register themselves with the Central Government. An e-portal has been prepared by the Central Government for the same and the entities will get their CSR registration code after submitting the relevant information electronically.

This will be effective only from 01-04-2021 and the programmes or projects undertaken before the date would not be affected by the rules. The company may also collaborate with other companies in undertaking CSR activities, provided that they have to constitute separate committees and reports. The company may also engage with international organisations for the effective implementation of CSR activities.

The CSR committee shall formulate annual action plan and recommend it to the Board. The plan should consist of the list of the activities approved, their mode of execution, utilisation of fund, monitoring mechanism, impact assessment etc. The Board may change the plan at any time as per the recommendation of the Committee.

Rule 7 of the Amendment mandates that the expenses on administrative overheads shall not exceed 5% of the total CSR expenditure of the financial year. Any surplus from the CSR activities shall not form the business profit of the company. Such fund shall only be used for undertaking CSR activities.

So any surplus shall be ploughed back in to the same activity or shall be transferred in to Unspent CSR account. Otherwise, it has be transferred in to a Fund mentioned in Schedule 7 of the Act within 6 months after the expiry of financial year.

Also, a capital asset may be created or acquired by the company with the CSR fund but it should be held by the entities which has undertaken CSR activities or by the beneficiaries of the CSR programme (self-help groups, collective etc) or any public authority.

The annual report of a Board which is obliged to follow CSR rules shall contain a report on CSR. Every company which has a CSR obligation above ten crore rupees shall prepare an impact assessment for the CSR projects which has a value over one crore or more. Such impact assessment must be done by an independent agency. Any company which has undertaken impact assessment may adjust the expenses towards CSR expenditure provided that it shall not 5% of the CSR expenditure or 50 lakhs whichever is less.

The Board shall cause the information regarding the CSR policy, projects undertaken, CSR Committee to be put on display, if possible, on a website.

Companies (Specification of Definitions Details) Amendment Rules, 2021

A company is a small company if it is paid up share capital and turnover is within the prescribed limits and is not

  • Public Company
  • Holding company or subsidiary company
  • Registered under section 8 of the Act ( Companies formed with Charitable objects)
  • Governed by a special Act.

As per the Amendment, the old prescribed limit of paid up share capital and turnover of a small company has been altered. Now the paid up capital of a small company shall not exceed two crores and its turnover shall not exceed twenty crores.

Companies (Share Capital and Debentures) Amendment Rules, 2021.

Where the company is proposing to raise its share capital by issuing of shares, it shall first make an offer to the existing equity shareholders. An offer letter shall be send to such person along with a notice specifying the number of shares being offered and the time limit for intimating the acceptance.

Now as per the amended rules, such time period shall not be less than seven days from the date of offer.

Companies (Incorporation) Second Amendment Rules, 2021

Rule 6 of the Act made some changes regarding the conversion of One Person Company (OPC) to any other category of companies.

One Person Company has only one person as it is shareholder. And such person should be a natural person and an Indian citizen, and he should be present in India for at least 182 days. But now as it stands, the condition of 182 days is substituted with 120 days and a Non Resident Indian can form a One Person Company.

Also previously One Person Company had to compulsorily convert either in to a public company or private company if their paid up capital or turnover exceeded the prescribed limits. Now they can be converted, even if they have not exceeded the prescribed limits.

They can be converted by altering their Articles of Association, Memorandum of Association and after passing a resolution to that affect. Also the number directors and members should be changed in accordance with the category they are choosing.

There shall be minimum three directors and seven members in the case of a public company. And there shall be at least two directors and two members in the case of a private company. Also the requirement of minimum amount of share capital and turnover has been omitted. On furnishing the required documents with the Registrar of Companies, the certificate to that effect will be provided.

Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2021

As per the amended Rule stands, a scheme for merger or amalgamation may be entered in to by

  • two or more start-up companies; or
  • one or more start-up company with one or more small company

The inclusion of these classes of companies is to speed up the merging process.


The purpose of all the amended rules was to ease the way of doing business. As a developing economy, we need investments. We cannot afford even a slight dip in the GDP. But as the trend shows, winds are not blowing in our favour.

A declining economy coupled with pandemic is something which requires immediate actions. The long list of legal compliances which need to be performed by the companies sometimes act as hindrance. Especially it is necessary for the start-ups. While exploring their development options, rules which doesn’t make sense shall not make a hindrance for them. Also attract global investments, we need to relax the norms. Even though we had CSR norms for a while, it is a disappointing fact that neither the companies nor the authorities are taking with the seriousness needed. But the amended rules, for sure act as a ray of hope.


  • Companies Act, 2013
  • Companies (Amendment) Act, 2020
  • Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021
  • Companies (Share Capital and Debentures) Amendment Rules, 2021
  • Companies (Specification of Definitions Details) Amendment Rules, 2021
  • Companies (Incorporation) Second Amendment Rules, 2021
  • Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2021

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