Companies Act (Amendment) Bill, 2016

The Companies Act (Amendment) Bill, 2016 was introduced in Lok Sabha on March 16, 2016. It seeks to amend the Companies Act, 2013 which regulates incorporation, regulation and winding up of companies. The proposed changes are:

Private placement

Companies are allowed to raise capital by selling securities, shares & debentures to investors. This is called private placement. The companies Act, 2013 mandates the companies to submit a separate offer letter disclosing certain information about the company, when a private placement is offered to an investor.  The Bill simplifies the process by doing away with filing of the separate offer letter.

Forward dealing and insider trading

Forward dealing or forward contract is the act of purchasing securities of a company for a specific price for specific future date. The companies Act, 2013 prohibits directors and key managerial personnel of a company from engaging in forward dealing. But the new bill proposes to remove this provision of the Act. Similarly, the Bill seeks to remove provisions of the Act, which prohibit insider trading in companies. Insider trading is the act of publicly trading stocks of a company by a person who has confidential information about the company, not known to the public.

Managerial remuneration

The present Act mandates for the companies to obtain approval of the central government and the shareholders for payment of managerial remuneration in excess of prescribed limits. The Bill proposes to remove the requirement of obtaining approval of the government for the same.

Loans to directors and other interested persons

The present Act prohibits provision of loans by a company to its directors, or its holding companies, etc. The Bill seeks to limit this prohibition by requiring passage of a special resolution in some of these cases.

Memorandum of company

The present Act requires that the memorandum of association of a company must state the objects behind incorporating (forming new corporation) the company. The Bill removes this requirement, and requires the companies to state that it will only engage in lawful activities or businesses.

Investments made to a company through investment companies:

The Companies Act, 2013 prohibits investments made to a company through layers of more than two investment companies. The Bill removes this provision.

Number of subsidiary companies

The Companies Act, 2013 provides a limit on the number of subsidiary companies, some companies can have. The Bill removes this provision.

Ratification of auditors

The Companies Act, 2013 requires that the appointment or continuance of auditor of a company should be ratified annually by the members of the company. The Bill seeks to omit this requirement.