Company Law Committee Report: Proposed Changes to Companies Act, 2013

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In June 2015, the Company Law Committee was set up to recommend changes to the compliance-ridden Companies Act, 2013. The committee has now submitted its changes — to 78 sections, which will result in 100 amendments, and 50 amendments to the rules. The recommendations are now just proposals, and still need to be passed in Parliament, but here’s a look at some of the changes it could bring:

1. Easier Compliance: The committee has suggested an easier process for private placements, mainly by reducing the number of compliances, and permitting companies and their subsidiaries to hold their AGM anywhere in India, no matter the location of their registered office. The need for annual ratification of auditor will also be removed.

2. Equity: There are changes to both sweat equity regulations, as well as ESOPs. While sweat equity was permitted only up to 25% of paid-up capital earlier, this has now been increased to 50%. Furthermore, ESOPs can now be offered to employees and directors.

3. Capital Contribution: For the first five years, a private limited company’s members may now offer it deposits. Also, a removal of restrictions on layering of subsidiaries has been proposed (currently, a company cannot make investments through more than two layers). The Deposit Repayment Reserve account can be maintained at 15% each for the last two years to 20% during the maturing year.

4. Object Clause: Finally India will be on par with the rest of the world in this regard. The committee has suggested universal objects, as opposed to a long object clause.

5. Loans to Directors: A company may now lend to its directors or an entity in which its director has an interest, subject to the passing of a special resolution. However, fraud of an amount over Rs. 10 lakh will be a compoundable offence.

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