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What all could change in Companies Act

02 February, 2016

In what could be a major reform measure to improve ease of doing business, a government committee has recommended an overhaul of the Companies Act 2013 on Monday.

In its report presented to the government, the committee suggested 100 amendments to 78 sections of the Act that include liberalising of fundraising norms for startups and issues of remuneration to senior management.

The committee, constituted in June 2015 was chaired by corporate affairs secretary and consisted of nine other members including Reva Khetrapal, a retired Delhi High Court judge; Y.M. Deosthalee, chairman of L&T Finance Holdings Ltd; N.S. Vishwanathan, executive director at the Reserve Bank of India; and P.K. Nagpal, executive director from the Securities and Exchange Board of India.

Here are some of the key changes recommended by the panel:

What is an associate company and a subsidiary

The panel recommended that ‘equity share capital’ be made the basis for deciding holding company-subsidiary relationship rather than both equity and preference share capital.

While equity share capital and preference shares both receive dividends, holders of equity shares have the right to vote and participation in management.  

A simplified and transparent private placement of shares

The committee highlighted that the private placement process should be substantially simplified. It suggested doing away with a separate offer letter and making valuation details public. It said details of applicants can be kept by company and should be filed as part of the return of allotment only. It also wanted to reduce the number of filings to the registrar.

Easier incorporation process

It suggested that the incorporation process should be made easier to allow greater flexibility to companies. It pointed out that an unrestricted objects clause should be allowed in the Memorandum of Association dispensing with a detailed listing of objects and that self-declarations should replace affidavits.

More ESOPs

The panel wanted employee stock options, or ESOPs, to be given to promoters working as employees/directors to help the company retain employees.

Startup bonanza

The committee recommended an increase in the limit of sweat equity from 25 per cent of paid-up capital to 50 per cent for startups. It also suggested giving more incentives for innovations.


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What all could change in Companies Act

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