The Companies Bill 2012 has been tabled in the Rajya Sabha and is expected to be passed in the monsoon session. Business Standard brings you some key facts you need to know about the bill.
FOLLOWING ARE THE KEY HIGHLIGHTS OF THE BILL:
Around 193 recommendations have been included in the Companies Bill by the Parliamentary Standing Committee and with passing of this Bill, the Companies Act of 1956 will be replaced.
1. The proposed legislation would ensure setting up of SPECIAL COURTS for speedy trial and stronger steps for transparent corporate governance practices and curb corporate misdoings.
2. The new law would require companies that meet certain set of criteria, to spend at least two percent of their average profits in the last three years towards CORPORATE SOCIAL RESPONSIBILITY (CSR) activities. But only companies reporting Rs 5 crore or more profits in the last three years have to make the CSR spend.
3. As far as the mandatory CSR clause is concerned, it 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.
4. The Bill allows companies the freedom to choose areas of work for CSR and the mandate of a rotation in auditors every 5 years gives the process added credibility.
5. In case, entities are unable to comply with the CSR rules, they would be needed to give explanations. Otherwise, they would face action, including penalty.
6. The amended legislation also limits the number of companies an auditor can serve to 20 besides bringing more clarity on criminal liability of auditors.
7. The new bill also says the rotation of auditors will take place every FIVE years, , while an audit firm cannot have more than two terms of five consecutive years. It also makes auditors subject to criminal liability if they knowingly or recklessly omit certain information from their reports.
8. The term for INDEPENDENT DIRECTORS have been fixed for five years too. The maximum number of directors in a private company has been increased from 12 to 15, which can be increased further by special resolution.
9. The new law also makes its mandatory for companies that one-third of their board comprises independent directors to ensure transparency. Also, at least one of the board members should be a WOMAN.
10. The new bill will speed Amalgamations And Mergers
11. The bill provides for class action suit, which is key weapon for individual shareholders to take collective action against errant companies. The move is being seen as a positive as it empowers small shareholders to seek answers in case they feel that a company’s management or its conduct of affairs is prejudicial to its interests or its members or depositors.
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| Highlights (courtesy: ET) |
12. The Companies Bill also states that corporate must disclose the difference in salaries of the directors and that of the average employee. This will protect the interest of shareholders as well as employees.
13. The new law mandates payment of two years’ salary to employees in companies which wind up operations.
14. The law also gives more statutory powers to the government’s investigative arm Serious Fraud Investigation Office (SFIO) to tackle corporate fraud.
You can DOWNLOAD the whole bill with click here.
There may be some things, which you want to know about the Companies Bill 2012.
Why do we need a new company law?
When the existing company law - The Companies Act, 1956 was passed, Bill Gates was a few months old. Many of our own corporate leaders were toddlers. Sachin Pilot, the corporate Affairs minister, was not even born. It is a relic of an era bygone. The law, though amended 25 times, is perceived to be not in sync with the new corporate world. Hence, the new bill.
How long has it taken to change the law?
An entire term of the government. It was first introduced as Companies bill 2009 in Loksabha on August 3, 2009. It was referred to standing committee on finance a month later. It came back to the house as Companies Bill 2011. But was referred to the standing committee again.
What is the course the latest version of the bill took?
More than 7 months have passed since Lok Sabha passed the Bill. More than 12 months have passed since the submission of second report on Companies Bill by Parliamentary Standing Committee on Finance.
What happens if the Rajya Sabha does not pass it in this session?
With the elections looming large, the bill may not get another chance. If it is not passed in the upper house, being a finance bill it will lapse with this Lok Sabha and has to reintroduced in the lower house all over again.
What are the key changes?
The law has been rewritten extensively with several new provisions for investor protection, better corporate governance and corporate social responsibility etc. It defines a number of new terms that have come into vogue in recent times.
What are the new corporate terms defined in the bill?
The Bill prescribes 33 new definitions. Some of these are:
Associate Company
Small Company
Employee Stock Option
Promoter
Related Party
Turnover
Chief Executive Officer
Chief Financial Officer
Global Depository Receipt
What are the investor protection measures?
The bill provides for class action suit, which is key weapon for individual shareholders to take collective action against errant companies. Better disclosure requirements in financial statements and disclosure of interests of directors etc. It has also streamlined procedures relating to disclosure of transactions with parties related to directors, promoters etc.
What are the anti-fraud measures?
It provides for prohibition on forward dealings in securities of company by key managerial personnel, insider trading rules and restriction on non-cash transactions involving directors.
How does it help ease of doing business?
It provides for new concepts such as a single person company. Cap on number of persons in a private company raised to 200. E-voting has been recognized.
What happens after Rajya Sabha passes the bill?
The bill goes for presidential assent. The draft rules on the companies act will then be made public and the act comes into effect with notification by Ministry of Corporate Affairs.
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