Companies Bill 2011 - Change on the anvil :: Edel

The Union Cabinet on October 4, 2012 approved the Companies Bill, 2011, after considering the recommendations of the Standing Committee on Finance. The proposed bill will now be introduced in Parliament for final approval. The Companies Bill, 2011, will bring about major changes to address the public concern over corporate accountability besides laying stress on transparency and investor protection.

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The Union Cabinet on October 4, 2012 approved the pending Companies Bill, 2011, which will be introduced in Parliament for final approval. The Companies Bill should go through smoothly since the major opposition party BJP is expected to be in favour of the Bill.

The Companies Act, 1956, in force for 55 years now, has been amended several times since then. Given the dramatic changes in national as well as international markets, and the regulatory environment, the need for a new law was felt for long.

Some of the salient features of the Companies Bill, 2011, are:

·       Concept of corporate social responsibility (CSR) is being introduced (2% of average net profits of last three years to be set aside for CSR. Reasons to be stated in case of no CSR provision)

·       Blanket ban on treasury stock/trust shares. This is likely to impact the promoter voting right/net worth of such companies. It remains to be seen whether this ban will be prospective or retrospective.

·       Central government has been empowered to prescribe restrictions in respect of layers of subsidiaries for any class or classes of companies.

·       Accounts of foreign subsidiaries to be attached for filing them with the Registrar.

·       Stricter and more accountable role for auditor. Auditor can be appointed for a five year term by shareholders. Removal of auditor before expiry of his term will require the Central government approval. New Company’s law also requires compulsory rotation of auditors/firm.

·       Independent directors not to get stock options, but get payment of fees and profit linked commission subject to limits specified in the Rules.

·       Exit option to shareholders in case of dissent for changes in object for which public issue was made.

·       Financial year of the company can be only from April to March. Tribunal can allow different financial year in specific cases.

Analysis Beyond Consensus - Companies Bill 2011 - Change on the anvil

Regards,