New Company Law – India

The Companies Act, 1956 which has been governing the Indian companies for the last 57 years, is being replaced with a new law. On 8th August 2013 Rajya Sabha has passed new Company Law. Lok Sabha has already passed the bill on 18thDecember 2012. Now, it is waiting for the assent of Honorable President of India. On receipt of assent, a notification in the gazette will be issued and it will replace existing statute for governance of companies in India, The Companies Act, 1956. It is likely to make altogether different and better experience of company formation in India.

In the views of eminent and distinguished personalities in the field of company management, new law is progressive and forward looking. In their opinion, its implementation will improve corporate governance norms, accountability of company management and auditors will increase, it will ensure high degree of protection for small investors, will have positive impact on transparency and disclosures. There is going to be more emphasizing on corporate social responsibility and shareholder democracy. The new Act will balance the interests of stakeholders, promoters and investors (especially small and medium class). Company formation India is likely to be transformed into a hassle free process.

Some of the salient features of the new bill are:

-The bill has been divided into 29 chapters, 470 clauses whereas existing act has 658 sections.

-The bill is futuristic and empowers the Central Government to make rules through delegated legislation.

-A number of new important chapters have been added such as Registered Valuers, Government Companies, Companies to furnish information on statistics, Nidhis, National Law Tribunal and Appellate Tribunal and Special Courts.

-New definitions have been introduced in the Bill, some of which are accounting standards, associate company, CFO, CEO, Control, Deposit, Employee Stock Option, financial statement, Global Depository Receipt, Indian Depository Receipt, Independent Director, Key Managerial Personnel, Promoter, One person company, small company, turnover and voting right etc.

-Every company with a net worth of at least Rs 5000 Million or minimum turnover of Rs 10000 Million, or profit of Rs 50 Million in a year will have to spend 2% of its average profits of 3 years on Corporate Social Responsibility.

-Small shareholders can form associations and move against promoters and management through Class Action Suits.

-11% is the maximum proportion of net profits that a listed company can pay to its top executives.

-The Serious Fraud Investigation Office will be empowered to arrest persons found guilty of crimes.

-Companies will have to rotate auditors after every 4 years.

-A cap of five years for any person to serve as independent director on a company’s board.

-According to the new law, at least one third of a company’s board should comprise of independent directors and at least one of the board members should be a woman.

-All companies will have to move to a uniform financial year ending March 31. Only companies, which are holding or subsidiary arms of the a foreign entity requiring consolidation outside India, can have a different financial year with the approval of Tribunal.

We hope new Company Bill will open a new era and bring positivity all around.

Varun Bhatia is currently working with Corporateleaps, he is the author & publisher of this article about “TAXATION – COMPANIES IN INDIA”. He is professional content writer and having vast experience in writing articles on various topics like business, banking, accounting, finance, human resources and marketing. He has written many articles about Liaison Office India and these articles became very popular in business industry.

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