Companies Bill 2012 - Salient features

After 7 long years of deliberation at the government level and another 5 years at the parliamentary stage, the Lok Shabha has finally approved the Companies Bill 2011, in a bid to amend the 5 decade old Companies Act 1956. It still needs to be approved by Rajya Shabha.

The government has tried plug loop holes and streamline the act to some extent.

Structural difference:-

Companies Act 1956	Companies Bill 2011
13 parts 750 + sections 15 schedules	29 chapters 470 clauses or sections 7 schedules

Among the significant changes brought in are:-

Clause 2) Changes in definitions:-

• 'Abridged Prospectus' - Now stands as specified by SEBI
• New concept of  'Associate Company'
• Concept of  'Interested Director' clarified
• New concept of  'Key managerial personnel' - which includes the CEO, CFO, Company Secretory, Whole time director, etc. who are to be mandatorily appointed and considered an officer of the company by default.
• New concept of  'One person company' - Where only one person is a member
• 'Financial Year' - Now means 31st March for all companies. All existing companies to align their financial year with 2 years
• 'Small company' - Now means companies other than public companies having:-
• Paid-up capital between 50 laks to 5 crore rupees
• Turnover between 2 to 20 crores
• Will have less stringent regulations
• 'Private company' - can now have 200 members (earlier 50)
• 'Promoter' - further clarification provided
• 'Private placement' - further clarification provided
• 'Service of documents' - Can now be done by speed post, courier and electronically also (Clause 20)

Other important changes:-

1.     Maximum number of directors increased to 15

2.     At least one director to stay in India for not less than 182 days

3.     Concept of 'Independent Directors' introduced. 1/3rd of the directors to be independent directors

4.     Specific companies to have at least one woman director

5.     Min. 7 days advance notice for board meeting (for every company)

6.     Directors not be hold directorship in more than 15 companies

7.     Companies with more than 1000 share/debenture/deposit/other security holders to have 'Stakeholders Relationship Committee'

8.     Mandatory rotation of auditors after every 5 years (brought in after the Satyam scandal)

9.     Government to constitute National Financial Reporting Authority to oversee audits and compliance

10. Only Banking and NBFCs can accept deposit from public.

11. Valuation of a company's assets including shares, property, debetures, securities, networth or goodwill by experienced and registered valuers only

12. Corporate Social Responsibility made mandatory for companies having networth of at least Rs. 500 crores or turnover of Rs. 1000 crores or Net Profit of Rs. 5 crores and spend at least 2% of the average net profit of the last 3 years

13. In order to curb frauds being done to or with banks, the Clause 36 (earlier Sec 68) now includes criminal liability for fraudulently inducing any person to enter into an agreement with a bank or financial institution in order to avail credit facility.

14. Minimum rate of interest on inter-corporate loans to be the prevailing rate of interest on dated government securities.

15. Transfer of share and non-payment of dividend by listed companies or companies going for listing to be handled exclusively by SEBI

16. Government to establish 'Serious fraud investigation office'

17. 'Insider Trading' & 'Price Sensitive Information' specifically defined

18. Duty of companies to register charges created on properties or other assets or undertakings, tangible or otherwise here or outside India.

19. Tribunal can freeze assets of companies on inquiry and investigation

20. 'Fraud' has been specifically defined and various types of frauds, non-compliance and misrepresentation has been made non-cognizable and non-bailable offences.