Sub Heading : Encourages self-regulation, entrepreneurship; curbs insiders; Parliament nod expected in October
The Bill, expected to replace the existing Companies Act, 1956, does away with the criteria of minimum paid-up capital to start a company, provides for appointment of minimum 33% independent directors on board, and allows a single person to set up a company to encourage start-ups and entrepreneurship.
Currently, entrepreneurs find it difficult to start new ventures in form of companies as the law asks them to have partners.
The Bill also restricts corporations from issuing shares at a discount to prevent promoters from accumulating stake for a lesser price.
The Bill is expected to be introduced in the coming session of the Parliament in October.
It proposes relaxation in restrictions limiting the number of partners in entities such as partnership firms and banking companies to a maximum 100, with a ceiling on professions regulated by Special Acts.
"The Bill seeks to enable the corporate sector in India to operate in a regulatory environment of best international practices that fosters entrepreneurship, investment, and growth," science and technology minister Kapil Sibal said after the Cabinet meeting.
"It recognises insider trading by company directors as an offence with criminal liability," he said.
The Bill proposes that rights of investors over dividend or security not claimed for more than 7 years be not taken away, so as to protect shareholders' interests.
The chief executive officer, the chief financial officer and the company secretary will be recognised as the key management personnel. This, experts believe, will bring in more accountability into corporations' actions.
A more effective regime has been provided for by inspection and investigations, and provisions of recovery and disgorgement have been included.
The Bill also provides for special courts to deal with offences.
It also proposes empowering the government to simplify the compliance regime for such companies.
In other measures to promote simplicity, the Bill suggests ensuring speedy incorporation and promoting e-governance including filing of documents. It also suggests that the investor education and protection fund be administered by a statutory authority.
As per the Bill, companies will not have the restriction on the number of subsidiaries. It proposes to make the consolidation of financial statements of subsidiaries with those of holding companies mandatory.
Shareholders groups will be enabled to take legal actions in case of any fraudulent action. Further, regulation of insolvency, winding up and liquidation, have been made more effective.