Highlights of New Companies Bill

The Rajya Sabha on 8th August 2013 approved the new Companies Bill as The Lok Sabha had passed the Bill in December 2012.  The passage of the bill, which is spread across nearly 30 sections and over 300 pages, was widely welcomed by stakeholders, including industry bodies, political leaders and consultants. It has been almost three years since the submission of first report on the Companies Bill by the Parliamentary Standing Committee on Finance. The new Companies Bill, which replaces the decades-old Companies Act of 1956, requires President Pranab Mukherjee’s assent to become law of the land.

Things to know about the Companies Bill are as follows:

  • It will improve transparency and accountability in the companies and will encourages self-regulation
  • It makes contribution of 2% of profits toward corporate social responsibility (CSR) mandatory, among other changes. mandatory CSR clause of 2% spend would be mandatory for companies with a net worth of more than Rs 500 crore or a turnover of more than Rs 1,000 crore or a net profit of more than Rs 5 crore.
  • The Bill protects the interests of minority shareholders while expanding the responsibility on auditors who will face criminal liability if they fail to report corporate fraud.
  • It seeks to strengthen the institution of independent directors. Rules would be tightened for appointment of independent directors.
  • The Bill also seeks to make mergers and acquisitions easier, clearer and speedier.”On the mergers and acquisitions front, the new Act permits both inbound and outbound merger. It would also help group re-organisation, as it provides for direct merger as well as a more robust process for considering merger.
  • New Bill provides about three dozen new definitions, including terms such as frauds, promoters, turnover, related parties (to promoters), small companies, associate companies and employee stock options.
  • It provides for a uniform financial year (April-March) for all companies.
  • The concept of one-person company has been introduced for the benefit of small entrepreneurs.
  • The new Bill proposes strong checks against fraudulent money-collection activities through issuance of various securities.
  • The Bill requires auditors to be changed every five years to avoid collusion with the management.
  • The Bill provides for “faster winding up” of firms as also for speedier clearances to businesses.