Company Bill-2012 Highlights

The new company bill finally passed in Rajya Sabha on august 8^th 2013 it is already passed in Lok Sabha on December 18^th 2012. The Bill, aimed at enhancing corporate governance, also contains provisions to strengthen regulations for corporate’s as well as auditing firms and promises to ensure an equitable and sustainable growth of the country. The new Bill has introduced numerous changes and concepts which should simplify regulations and bring greater clarity and transparency in managing businesses.

Presenting the bill in Parliament, Corporate Affairs Minister Sachin Pilot termed the passage of the Bill as a new era for corporate law and regulation in Indian economy and said this is a ‘historic moment for the country.”

The bill is divided in 29 chapters and 470 clauses and 7 schedules.

Key Highlights of the Bill

1.      One Person Company-company which has only one person as a member.

2.      Private Company-No. of permissible members of company has been increased from 50 to 200

3.      Private Placement-clause 42 lays down that an offer or invitation to securities through private placement may be made in the form and manner prescribed subject to compliance of given conditions:  

a)      the offer or invitation in a financial year, shall be made to such number of persons, excluding qualified institutional buyers, and on such conditions (including the maximum amount to be raised) as may be prescribed;

b)     the value of such offer or invitation shall be with an investment size of such amount as may be prescribed; and

c)      the company shall not issue any prospectus for such offer or invitation and such offer or invitation shall be made through a private placement offer letter

4.      Share Capital-Clause 58(2) provides that securities of Public company shall be freely transferable where as clause 53 put limitations on issuance of shares on discount except in cases of ESOP(Sweet Equity) and clause 66 deals with reduction of share capital.

5.      Merger-The new bill speedup the merger & amalgamations    

6.      Women Director- The bill requires companies to appoint women director

7.      Independent Director- The new law also makes its mandatory for companies that one-third of their board comprises independent directors to ensure transparency.

8.      Corporate Social Responsibility-The new law would require companies that meet certain set of criteria, to spend at least 2% 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.(Also Read-Corporate Social Responsibility - CSR)

9.       Class action Suit- 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

10.   Auditors-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.-This has been discussed in detail below.

Some other features of the Bill include:

   

i)       Financial year will be uniform for all companies i.e April – March

ii)      Restriction on buyback of shares within one year from the last buy back

iii)     The provision of participation of directors in a meeting through video conferencing or other audio visual means

iv)     Voting through electronic means

v)      Capping director’s remuneration at 5% of the net profits of the company

vi)     The Concept of Dormant Company has been introduced

vii)   Establishment of National Company Law Tribunal and National Company Law Appellate

viii)  Special Courts for speedy trials

Highlights of Companies Bill w.r.t to Auditors.......

v  Appointment of Statutory Auditor

            A company shall appoint an individual or a firm as an auditor at annual general meeting who shall hold office till the conclusion of sixth annual general meeting.

      However, the company shall place the matter relating to such appointment for ratification by members at every annual general meeting.

v  Restriction on Re-appointment

 No listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or re-appoint-

a)      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:

Provided that-

i)       an individual auditor who has completed his term under clause (a) shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term;

ii)       an audit firm which has completed its term under clause (b), shall not be eligible for re- appointment as auditor in the same company for five years from the completion of such term.

Members of a company may resolve to provide that in the audit firm appointed by it, the auditing partner and his team shall be rotated at such intervals as may be resolved by members.

v  Ceiling on No. of Audits (clause 141)

The limit in respect of maximum number of companies in which a person may be
appointed as auditor has been proposed as twenty companies.

v  Restriction on Various Services Provided by Auditor

Auditor cannot render any of the following services, directly or indirectly to the company or its holding company or subsidiary company:
• Accounting and book-keeping service
• Internal audit
• Design and implementation of any financial information system
• Actuarial services
• Investment advisory services
• Investment banking services
• Rendering of outsourced financial services
• Management services
• Other prescribed services

v  Internal Audit(clause 138)

Prescribed class of companies shall be required to appoint an internal auditor to conduct internal audit of the functions and activities of the company.

v  Cost Audit (clause 148)

The Central Government after consultation with regulatory body may direct class of companies engaged in production of such goods or providing such services as may be prescribed to include in the books of accounts particulars relating to utilization of material or labor or to such other items of cost.

If the Central Government is of the opinion, that it is necessary to do so, it may, direct that the audit of cost records of class of companies, which are required to maintain cost records and which have a net worth of such amount as may be prescribed or a turnover of such amount as may be prescribed, shall be conducted in the manner specified in the order.

cost auditing standards’ have been mandated.