companies act bill

7/29/2019 Companies Act Bill

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Companies Act 1956

Introduction

Types of Companies

Companies Bill 2012

Background

Loopholes: Companies Act 1956

Adaption

Structure

Key Highlights


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The Companies Act 1956 was enacted with the object to consolidate theexisting corporate laws and to provide a new basis for corporateoperation in independent India.

With enactment of this legislation in 1956, the act has since provided the

legal framework for corporate entities in India.

Section 3(1)(i) of the Companies Act, 1956 defines a company as: acompany formed and registered under this Act or an existing Company.

Characteristics of a company

Separate legal entity Limited liability

Perpetual succession

Common seal

Transferability of shares

Separate property


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The need for streamlining this Act was felt from time to time as

the corporate sector grew in pace with the Indian economy, with

as many as 24 amendments taking place since 1956.

Major amendments to the Act were made based on

recommendations of various committees.

The Companies Bill 2012 is an embodiment of the changes/

revisions required to reflect the new corporate scenario in India.

Modernization & regulatory harmony in the wake of corporate

scandals (Satyam Saga & Sahara OFCDs issue)


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OFCD - Optionally fully-convertibledebentures

Two firms of Sahara Conglomerate:

Sahara Housing Investment Corporation

Sahara India Real Estate Corporation.

These Issued OFCD to collect money frominvestors. ~23 million people, mostly from villages and

small towns subscribed to this scheme. Theyinvested ~24,000 crores rupees in theseOFCDs of SAHARA.

SEBI Issued warning for violation of OFCDprocess ( to be completed in 10 days) SAHARA These are unlisted companies, so

not under SEBI jurisdiction SEBI OFCD is a security. So under my

purview


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Singapore-based company MLM company Speak Asia Charged a membership fee is Rs 11,000 for a year. The members were

expected to conduct online surveys for clients of the firm. It was reported to violate Section 591 of Companies Act, 1956

This act is applicable on companies incorporated outside India and hasestablished a place of business within the country

According to the act, companies who are incorporated outside India andStill doing business in India, must get permission and registration fromROC before doing business in India.

Also, later scrutiny found the company is not based in Singapore as theyclaim but in British Virgin Islands and the real owners are Podium RingInternational Ltd. [Business Today]

It came as a huge shock that a company, involving financial transactionswith 2 million people, could operate in India for so long without any

scrutiny
http://businesstoday.intoday.in/story/speak-asia-market-research-agencyvirgin-islands/1/15629.htmlhttp://businesstoday.intoday.in/story/speak-asia-market-research-agencyvirgin-islands/1/15629.html


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Massive increase in number of Companies from about 30,000 in1956 to nearly 8 lacs (How many active and compliant!!!)

The existing Companies Act, 1956 is a voluminous document with781 sections containing provisions that cover aspects which areessentially procedural in nature.

This format has also resulted in the law becoming very rigid sinceany change requires an amendment of the law through theparliamentary process.

The law has failed to take into account the changes in the nationaland international economic scenario speedily.


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470 Clauses

29 Chapters

95 Definitions

7 Schedules


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

The concept of One Person Company has been introduced.

Provisions relating to further issue of capital to be applicable to all companies.

Shares cannot be issued at a discount except sweat equity shares.

Time gap between 2 buy-backs shall be minimum 1 year.

Any deposit accepted before the commencement of 2012 Act or any interest duethereon to be repaid within 1 year from the commencement of 2012 Act or from

the date on which such payments are due, whichever is earlier.

Stringent norms provided for acceptance of fresh deposits including creation ofdeposit repayment reserve account of 15% of the amount of deposits maturing inthe Current Year and the next Financial Year.


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Directors

The new law also makes its mandatory for companiesthat one-third of their board comprises independentdirectors to ensure transparency.

Independent Directors do not own shares in thecompany.

Also, at least one of the board members should be awoman.

One of the directors of a company shall be a personwho has stayed in India for 182 days or more.


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2% of average net profits of last 3 years to be mandatorilyspent on Corporate Social Responsibility for specified classof companies.

Mandatory transfer of profits to reserves for dividenddeclaration done away with. Companies may voluntarilytransfer a portion of its profits to reserves.

Individual auditors are to be compulsorily rotated every 5

years and audit firm every 10 years in listed companies &certain other classes of companies, as may be prescribed.

Inability to pay debts will be considered as criteria fordetermining a sick company .


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companies act bill

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