The Ministry of Corporate Affairs has today introduced the much awaited Companies Bill 2011in the Lokh Sabha. The new bill is all set to replace the 55 year old Act.

The promulgation of the new Act is a step towards globalization and is a successful attempt to meet the changing environment and is progressive and futuristic duly envisaging the technological and legal developments.

The new law surely promises investor democracy and  addresses the public concern over corporate accountability and responsibility and alongside introduces some industry friendly provisions.

The major highlights of the new Companies Bill is summarized herein below: 

Chapter I- Preliminary

• A very substantial part of the Bill will be in form of rules, which will be prescribed separately

• The Government of India, has the power to notify different provision of the Act at different point of time.

• The Bill prescribes 33 new definitions.

• Some of the major new definitions introduced are 

• Associate Company 

• Small Company

• Employee Stock Option

• Promoter

• Related Party

• Turnover

• Chief Executive Officer

• Chief Financial Officer

• Global Depository Receipt 

• The Financial Year of any Company can be only from April-March and companies only certain conditions can have a different financial year with the approval of Tribunal. Under the Companies Act 1956, there was no restriction on the period of financial year.

• The maximum number of members, which a Private Company can have, is increased from 50 as provided in the Companies Act 1956 to 200.

• The scope of officer under default has been broadened. The share transfer agents, registrars and merchant bankers to the issue or transfer related to issue of shares & Chief Financial Officer are also brought under its ambit. Directors who aware of the default by way of participation in board meeting or receiving the minutes without objecting to the same will also be included in this category even if company has Managing Director /Whole Time Director / other Key Managerial Personnels . 

Chapter II- Incorporation of Company and Matters Incidental Thereto

• The concept of One Person Company has been introduced and the said company will be formed as a private limited company. This concept has been introduced for the first time.

• In the Memorandum of Association of the Company, there is no requirement as to bifurcation of the objects clause into main, ancillary and other objects. Only objects for which company is incorporated along with matters considered necessary for its furtherance shall be mentioned. The Company cannot provide for other object clause. 

• Articles of Association of the Company may contain  provision with respect to entrenchment whereby the specified provisions of the article can be alerted only if the  more restrictive conditions or procedures as compared to those applicable in case of special resolution have been met with.

• For commencement of business by public/private company, following needs to be filed with the registrar of companies

1.     A declaration by director in prescribed form by its director providing that the subscribers have paid the value of shares agreed to be taken by them, and

2.     A confirmation that the company has filed with the Registrar a verification of its registered office, has to be filed.

• Company, which has raised money from public through prospectus and still has any unutilised amount out of the money so raised, shall not change its objects unless a special resolution is passed by the company and other requirements of advertisement and exit opportunity to dissenting shareholders is complied with, there was no such requirement under the Companies Act 1956 

Chapter III- Prospectus and Allotment of Securities 

• The Bill governs the issue of not only shares but all types of securities, under the Companies Act 1956, only shares and debentures are covered. 

• The Bill provides that a public company can only issue securities by following the provisions related to public offer or Private Placement or by way of bonus or right issue

. 

• A private company may issue securities only through private placement by complying with the provisions of Part II of Chapter III.

• The Power of SEBI to administer the sections of the Companies Act related to listed company and company, which is intending to  get itself listed, has been extended to include the provisions related to Share Capital , which were not provided in the Companies Act 1956.. 

• The content to be prescribed the Prospectus has now been made more detailed.

• A company which has varied the terms of contract referred to in prospectus or objects for which it is issued shall not use any amount raised by it through prospectus for buying, trading or otherwise dealing in equity shares of any other listed company and shall also provide an exit opportunity to the dissenting shareholders, the said

requirement was not there under the Companies Act 1956. 

• The Bill provides provisions with respect to offer of sale by existing shareholders.  

• The companies who can file shelf prospectus will be prescribed by SEBI, under the Companies Act 1956, only Public Financial Institution, Public Sector Banks and Scheduled Bank can issue Shelf Finance. 

• Now any person (including group or association) who  is affected by any misleading statement or any inclusion or omission of any matter in the prospectus can file any suit or take any action under clause 36 or 36 providing for civil liability for misstatement in prospectus and Punishment for fraudulently inducing persons to invest money. 

• A person shall also be liable for impersonation, in case he makes multiple applications in different name or in different combination of surnames for acquiring or subscribing the securities of the company.

• In addition to shares, return of allotment is required to be filed for all types of securities. 

• Companies may now issue Global Depository Receipt by passing the special resolution and subject to such conditions as may be prescribed. 

• The number of persons to which company may make an offer or invitation of securities to a section of the public otherwise than through issue of a prospectus, by way of private placement basis and maximum investment size in such case, shall be prescribed

by way of rules, under the Companies Act 1956 the maximum number of persons prescribed was 50. 

• QIB shall be not covered under the provisions related to Private Placement . 

• If a company, listed or unlisted, makes an offer to allot or invites subscripttion, or allots, or enters into an agreement to allot, securities to more than the prescribed number of

persons under clause (a), whether the payment for the securities has been received or not or whether the company intends to list its securities or not on any recognised stock exchange in or outside India, the same shall be deemed to be an offer to the public and shall accordingly be governed by the provisions provided in this regard by SEBI. 

• Any company making any offer or invitation of securities under private placement has to allot the securities within 60 days of receipt of application money. 

Chapter IV- Share Capital and Debentures

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