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.