Impact of Companies Bill on a Private Limited Company

Impact of Companies Bill 2012 passed by Rajya Sabha on a Private Limited Company

a. The maximum number of members in a private company has been increased from 50 to 200. This will definitely cheer up the corporate world as it enables the private companies to increase the number of members without becoming a public company which has to follow more stringent norms.

b. 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.

c. The Bill provides for mandatory rotation of auditors every five years. 

d. The provision for establishment of Serious Fraud Investigation Office (SFIO) by the Central Government is another significant feature of the Bill. Clause 212 empowers the Central Government to assign the investigation into the affairs of the said company to the SFIO.

e. Capping director’s remuneration at 5% of the net profits of the company

f. The maximum number of directors in a private company has been increased from 12 to 15, which can be increased further by special resolution.

g. Companies will have to disclose ratio of remuneration of each director on the board to the average of employees’ salary.

h. Every company with net worth of INR 5,000 million or more or turnover of INR 10,000 million or more or a net profit of INR 50 million or more during any financial year to constitute a CSR Committee consisting of three or more directors, out of which at least one director shall be an independent director. The Committee to recommend CSR policy and CSR expenditure and to monitor the CSR policy.

i. Companies will be allowed to declare dividends out of their current profits even when they have substantial accumulated losses of earlier years.

j. Companies permitted to keep books of account or other relevant papers in electronic mode in the prescribed manner.

k. Annual financial statements of every company (except one person company, small company or dormant company) to include a cash flow statement also.

l. Prohibition on auditor rendering specified non-audit services to the auditee company/ its subsidiary/holding company e.g. accounting and book keeping services, internal audit, design and implementation of any financial information system, investment advisory services, investment banking services, management services etc. Existing companies to get a transition period of one year to comply.

m. Disqualification of directors under the present section 274(1) (g) extended to companies other than public companies also.

n. The office of a director would become vacant if he remains absent for all meetings of the Board for a period of 12 months, even where the leave of absence has been obtained.