Parliament has passed a new bill which is the first major overhaul of company law in more than 50 years.
The legislation strengthens accounting standards and shareholder rights, and makes it mandatory for companies with market capitalisation of more than Rs. 500 crore to spend 2 per cent of their annual net profits on corporate social responsibility (CSR), such as social work or charity.
Here are some of the salient features of the bill:
- Companies are required to spend at least two per cent of their net profit on Corporate Social Responsibility.
- To help in curbing a major source of corporate delinquency, introduces punishment for falsely inducing a person to enter into any agreement with a bank or financial institution to obtain credit facilities.
- The limit of the maximum number of companies in which a person may be appointed as auditor has been pegged at 20.
- Appointment of auditors for 5 years shall be subject to ratification at every Annual General Meeting
- Independent directors to be excluded for the purpose of computing one-third of retiring directors
- Whole-time director has been included in the definition of the term key managerial personnel.
- Maximum number of directors in a private company increased from 12 to 15 which can be further increased by a special resolution.
- The term private placement has been defined to bring clarity.
- Financial year of any company can only end on March 31. The only exception is for companies which are a holding/subsidiary of a foreign entity requiring consolidation outside India.