Key Highlights of "The Companies Bill, 2012"

The much awaited Companies Bill, 2012 (Bill) was passed by the Lok Sabha on December 18, 2012, replacing 56-year-old Companies Act, 1956. The Bill seeks to consolidate and amend the law relating to the companies and intends to improve corporate governance and to further strengthen regulations for corporates.

The Bill is divided into 29 chapters, 470 clauses and 7 schedules.

Some of the key highlights of the Bill are listed below:

  

Ø  One Person Company

·         The concept of One Person Company has been introduced.

·         One Person Company is defined as a company which has only one person as a member.

Ø  Private Company

• Number of permissible members in a private company has been raised to 200 from 50.

Ø  Share Capital

  

• Companies are prohibited from issuing shares at discount except in case of issue of sweat equity shares.
• Reduction in Share Capital is permissible only after the permission of National Company Law Tribunal (NCLT). Further, in case of listed companies, NCLT will give notice of every application made to it for reduction of share capital to the Central Government, Registrar, SEBI and creditors of the company for taking into consideration any representation on the proposed reduction.  

  

Ø  Directors

  

• Every company shall have a Board of Directors with a minimum number of three directors in the case of a public company, two directors in the case of a private company, and one director in the case of a One Person Company; and a maximum of fifteen directors.
• Introduction of a class of companies (to be specified by the Govt) where at least 1 woman director to be there on the board.
• Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year.
• Every listed public company shall have at least one-third of the total number of directors as independent directors and the Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies.
• A person can hold directorship of up to 20 companies, of which not more than 10 can be public companies.
• Duties of the directors towards a company are prescribed in the Bill.

• The Bill has introduced the concept of Independent director. Clause 149 lays down that every listed public company shall have at least one-third of the total number of directors as independent directors and the Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies.
• The company and independent director are required to abide by the provisions specified in Schedule IV.
• The clause seeks to provide that an independent director shall not be entitled to any remuneration, other than sitting fee, reimbursement of expenses for participation in Board meeting and profit related commission as approved by the members. The clause further provides for the provisions of rotation of independent director.
• An independent director shall hold office
for a term up to five consecutive years on the Board of a company, but shall be eligible for re- appointment on passing of a special resolution by the company.

  

Ø  Auditors

  

• The Bill provides for mandatory rotation of auditors every five years. 
• No listed company shall (a) appoint an individual as auditor for more than one term of five consecutive years and (b) an audit firm as auditor for more than two terms of five consecutive years. 
• Empowers members of the company to decide by resolution that the auditing partner and his team (of an audit firm appointed by the company) shall be rotated every year or that audit shall be conducted by more than one auditor.

Ø  Corporate Social Responsibility

  

• The most debated concept of corporate social responsibility (CSR) has been introduced.
• Accordingly, every company having net worth of Rs.500 crore or more, or turnover of Rs.1000 crore or more or a net profit of Rs.5 crore or more during any financial year is required to constitute a Corporate Social Responsibility Committee.
• The Corporate Social Responsibility Committee will formulate a Corporate Social Responsibility Policy.
• Such a company is required to spend at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.
• If the company fails to spend such amount the Board shall give in its report the reasons for the same making it a binding obligation on the Board.

  

Ø  Serious Fraud Investigation Office

  

• The provision for establishment of Serious Fraud Investigation Office (SFIO) by the Central Government is another significant feature of the Bill.
• Clause 212 empowers the Central Government to assign the investigation into the affairs of the said company to the SFIO.

Ø  Some other features of the Bill include:

   

• Financial year will be uniform for all companies i.e April – March
• Restriction on buyback of shares within one year from the last buy back
• The provision of participation of directors in a meeting through video conferencing or other audio visual means
• Voting through electronic means
• Capping director’s remuneration at 5% of the net profits of the company
• The Concept of Dormant Company has been introduced
• Establishment of National Company Law Tribunal and National Company Law Appellate
• Special Courts for speedy trials

 Click Here to Download The Companies Bill, 2012