The Companies Bill 2012 passed in the Lok Sabha Highlights of the Bill

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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 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:
  
One Person Company

  • The concept of One Person Company has been introduced. Clause 3(1)(c) provides for the same.
  • Clause 2(62) defines a One Person Company as a company which has only one person as a member.

 
                Private Company

  • Number of permissible members in a private company has been raised to 200 from 50 by vitue of clause 2 (68) (ii)

 
Private Placement  
 

  • Provisions for offer or invitation for subscription of securities on private placement basis have been revised to ensure more transparency and accountability.
  • Clause 42 lays down that an offer or invitation of securities through private placement may be made in the form and manner prescribed subject to compliance with the following conditions prescribed:

 
(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
  
Share Capital
  

  • Clause 58(2) of the Bill provides that the securities of a public company shall be freely transferable subject to the provisions that any contract or arrangement between two or more persons shall be enforceable as contract.
  • By virtue of clause 53, companies are prohibited from issuing shares at discount except in case of issue of sweat equity shares.
  • Clause 66 deals with reduction of share capital. It mandates approval of National Company Law Tribunal (NCLT) for the same. 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.  

  
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 under clause 166.

 
Independent Directors
  

  • The Bill has introduced the concept of Independent director and is defined in Clause 2(47). 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.

  
Committees of Board of Directors
  

  • The Board of Directors is required to constitute an Audit Committee (Clause 177), Nomination and Remuneration Committee [Clause 178 (a)] and Stakeholders Relationship Committee [Clause 178 (5)].
  • These committees shall have Independent Directors/non-executive directors to bring more independence in the functioning of the Board and for protection of interests of minority shareholders.

 
Auditors
  

  • The Bill provides for mandatory rotation of auditors every five years. 
  • Clause 139 (2) prescribes that 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. 
  • Clause 139 (3) 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.