New Delhi: The Union cabinet on Friday cleared the Companies Bill, 2008, that calls for stricter disclosure norms, speedier incorporation of companies, more powers to shareholders and streamlining businesses.
The new Bill is also leaner with the number of provisions—norms related to different aspects of doing business—being halved to 400.
The current Companies Act came into effect in 1956 when Indian firms totalled just 30,000, government data shows. Today, there are more than 700,000 companies doing business in a far more complex and liberalized scenario that has seen a surge in international transactions in recent times.
“Self-regulation, shareholders’ democracy and minimal interference by the government, in other words, reducing approvals needed from the government, besides huge penalties for non-compliance are some of the main features of the proposed Bill,” said minister of corporate affairs Prem Chand Gupta.
The new Bill will streamline the approval process for mergers and acquisitions, or M&As. For smaller, private and family-owned businesses, there will be a provision for so-called deemed approval. Currently, each M&A needs to be approved by a high court.
The new Bill, vetted by the law ministry, is likely to be placed in Parliament that begins a session on 17 October.
Under the proposal, partnership firms can have 100 members compared with 20 now, offering scope for expanding their businesses considerably.
“This will further facilitate limited liability partnership firms (Llp), the Bill for which is already in the Parliament,” said Gupta.
An Llp is an alternative business structure combining the limited liability benefits of a company with the flexibility of partnerships.
To enable an individual to start and manage his or her own enterprise, a provision of “one person company” has been introduced in the Bill. Under existing laws, at least two people are needed to start a company.
It has also introduced so-called class action suits, through which minority shareholders can challenge the management as a group.
“Minority stakeholders will benefit from class action, as also guidelines specified for fair valuation of companies through independent professionals such as cost and work accountants, chartered accountants and company secretaries,” said Sumant Batra, member of the managing committee of industry lobby Associated Chambers of Commerce and Industry of India.