Hello friends & members,
The government gave a facelift to 56-year-old companies act. On 18 December, the Lok Sabha passed the Companies Act 2012.
More importantly, the bill gives more teeth to shareholders. Now, they can take legal action against fraud. Also, it closes a window for independent directors as they won’t get any stock options.
Here’s a list of 10 things you must know about Companies Bill:
1) The bill aims at improving corporate governance also contains provisions to strengthen regulations for companies and auditing firms.
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2) Although the bill does not precisely define what constitutes corporate social responsibility (CSR), it will mandatory for profit-making companies to spend on activities related to CSR.
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3) The CSR condition will apply to firms that have a net worth in excess of Rs 500 crore, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more.
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4) The act proposes to tighten the laws for raising money from the public. The move will hit chit funds. Only banking companies, NBFCs and other firms allowed by regulators will be permitted to accept deposits from the public.
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5) A director’s remuneration should not exceed five per cent of a company’s net profit. The new law also aims to strengthen corporate governance. It will be mandatory for independent directors to constitute at least one-third of the board.
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6) If a company winds up operations, it must pay two years’ salary to its employees.
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7) The act provides that: “Shareholders associations or group of shareholders are to be enabled to take legal action in case of any fraudulent action on the part of company and to take part in investor protection activities and class action suits.”
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8) The legislation grants statutory powers to the Serious Fraud Investigation Office (SFIO) to tackle corporate fraud. The SFIO will get a big fillip once the legislation comes into force.
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9) The bill also bans buy back of shares within one year of the last buyback of shares.
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10) Audit firms cannot take up more than 20 assignments at any time. The appointment of auditors for five years to be ratified annually.
Regards: CA Lokesh Pokharna
CAclubindia
