Companies Bill 2012 – Major Changes

The government gave a facelift to 56-year-old companies act. On 18th Dec., 2012 the Lok Sabha companies bill 2012 Changespassed the Companies Act 2012 which will replace existing Companies Act,1956.The Primary aims of this bill is to improve Corporate Governance and it also contains provision to strengthen regulations for corporate as well as auditing firms and more rights to shareholders against the C0mpanies and Directors. The Major Changes in the Companies Bill are as Follows;


  • New Definitions like – Accounting standards, Associate company, CFO,CEO,GDR,IDR, Independent Director, Key Managerial Personnel, Promoter etc has been introduced.
  • In case of Private Company, maximum number of members has been increased from 50 to 200.


  • One Person company (OPC Limited) & small company with less stringent regulations has been introduced.
  • Registration process faster with e-governance.
  • Company shall not commence business or exercise borrowing power unless declaration is filed with registrar by a Director which prescribed that every shareholder to the memorandum has paid the value of shares agreed and paid up capital is not less than Rs. 5 Lacs in case of public company and one Lac in case of private company.

Prospectus & Allotment of Shares

  • Explained terms “Public offer” and “Private Placement”.
  • “Private Placement” means any offer of securities or invitation to subscribe securities to a selected group of persons by a company other than public offer.
  • To curb major sources of corporate delinquency, provision proposed for punishment for fraudulently inducing person (knowingly or recklessly make any statement, Forecast which is false, conceals any material facts) to invest money.

Share Capital & Debentures

  • Company cannot issue shares at discount except issue of sweat equity shares.
  • Company who issues Duplicate share certificates with intent to defraud, is liable for punishable with fine – Higher of a) not less than 5 times of face value of such shares involved and may to the extent of 10 times of face value of such shares b) Rs. 10 Crs.
  • Every company should deliver debenture certificate within six months of allotment.
  • Reduction of share capital to be made subject to the confirmation of Tribunal.


  • Proposed e-governance in areas like – Books of Accounts, Maintenance and inspection of documents in electronic form, Voting, Board meetings through electronic form etc.

Board of Directors

  • Minimum Directors : Public Co.- 3 Nos, Private Co.- 2 Nos, OPC.- 1 No. Maximum Directors – 15 Nos (12 Nos earlier). No of directors can be increase by passing special resolution without central Government approval.
  • Maximum No of Directorship allowed is in 20 Companies (not more than 10 Public Companies)
  • Every company should have at least one woman director on board.
  • Every company should have at least one resident director (stayed in india for the period not less than 182 days in previous calendar year).
  • Class or classes of companies as may be prescribed shall have whole time Key Managerial personnel (KMP).
  • Unless article provide otherwise, company cannot carry multiple businesses, single individual cannot be chairperson as well as MD or CEO at the same time.
  • Company Secretary is a whole time KMP appointed by resolution by the Board with terms & conditions of appointments (including remuneration).
  • Vacated office of any KMP should be filled by the Board within period of six months from the date of vacancy.
  • Failure to this, penalty will be imposed – a) company – one lacs upto 5 lacs b) Every director and defaulted KMP –Rs 50,000 and Rs 1,000 per days till default continues.
  • All listed companies and such other class and classes of companies prescribed by central government shall have at least one-third of Board as Independent Directors.
  • Nominee directors cannot be deemed to be as an Independent Director.
  • Independent Director not entitled to any remuneration other than sitting fees, reimbursement of expenses pertains to meetings or profit related commission as may be approved by the members.
  • Director may resign from his office by giving notice in writing. Company should intimate to registrar and place the same in the subsequent AGM. Director also required to forward copy of resignation along with reason to registrar.
  • Participation in Board meeting of directors by Video-conferencing and other electronic media is permitted.
  • Seven days notice (may send by electronic means to every director at registered address with company) is required to be given for board meeting.
  • Shorter notice can be allowed subject to at least one independent director attend meetings or ratification of decision made by at least one such director.
  • Bill defines duties of Directors which includes- Act in good faith & in accordance with article of the company, do not involve interest in conflict with company`s interest, not achieve any undue gain directly or indirectly etc.

Board Committees

  • The Audit committee as well as The Nomination & Remuneration committee has been made mandatory.
  • The Audit Committee – Minimum three directors (with majority of Independent Directors) and should have ability to read and understand financial statement.
  • The Nomination & Remuneration Committee – three or more Non-Executive Directors (one-half or more should be Independent Directors)

Managerial Remuneration

  • Maximum Limit of managerial remuneration up to of 11% of Net profit (No Change).
  • Companies with no profit or inadequate profit the Audit Committee – Minimum three directors (with majority of Independent Directors) and should have ability to read and understand financial statement.

Annual Return :

  • Annual Return shows significant changes in disclosure by focusing more on Non financial information compare to existing formats.
  • In case of all Companies (Except OPC & small Companies ) weather private or public, listed or unlisted, Annual return has to be signed by company secretary in employment or by company secretary in practice if no company secretary is appointed.
  • In case of OPC and small companies Annual Return is required to be signed by company secretary or no company secretary, then one of director of the company.

Board`s Report

  • Additional disclosures-
  • Extracts of Annual Return.
  • Company`s policy on Directors appointment and remuneration.
  • Declarations by independent directors.
  • Explanations and comments by the Board on every qualification, reservation of Auditors.
  • Particulars of Loan, Guarantees, Investments, Contracts or arrangements
  • Conservation of energy, Technology absorption ,Foreign exchange earnings & outgo
  • Statement indicating development & implementation of risk management policy.
  • CSR initiative taken during the year.
  • Sign by chairperson if authorised by board and if not authorised then shall sign by at least two directors (One of them should MD).
  • Every Contract or arrangement entered into related party shall be referred to in the Board`s Report.

Corporate Social Responsibility (CSR) :

  • Corporate Social Responsibility committee ( Consist of three or more directors out of at least one should be Independent Director)
    • Companies Liable –
      • Having Net worth of Rs 500 Crs or more or,
      • Turnover of Rs. 1000 Crs or more or,
      • Net Profit of Rs 5 Crs or more during any Fin. Year.
  • Board should ensure that company spends in every financial year at least 2% of the Average Net profit (base on three immediately preceding Fin. Years).


  • Public company having prescribed Net worth or Turnover can accept deposit from other than members provided fulfil specific conditions mentioned.

Company Secretary

  • Functions of Company secretary is to compliance applicable provisions , rules and other laws to the company
  • Every listed company and some other class of the company as prescribed shall annex with board report, Secretarial Audit Report by CS in practice.
  • Secretarial Standards has been introduced

General meetings :

  • Central government prescribe the class or class of companies in which member may exercise their vote at meetings by electronic means.
  • Listed company should prepare report of AGM and should file with Registrar within 30 days of the conclusion of AGM.


  • A company should appoint an individual or a firm as an auditor at AGM who shall hold office till conclusion of sixth AGM. However ratifications need to do in every AGM.
  • Company cannot appoint or re-appoint an individual as auditor for more than one term of five consecutive years and an Audit firm as auditor for more than two terms of five consecutive years.
  • An individual and an Audit firm who completed their respective terms for five years cannot be eligible for re-appointment as an auditor for the same company for five years from completion of such term.
  • An Individual can be appointed as auditor for maximum twenty companies.
  • Auditor cannot render any following services directly or indirectly to the company or its holding company or its subsidiary company.
    • Accounting
    • Internal Audit
    • Actuarial
    • Investment advisory, Investment banking
    • Management services or any other prescribed services

Investor Protection Measures :

  • SEBI to regularise issue and transfer of securities and non-payment of dividend.
  • Fraudulent inducement of persons to invest money is punishable with imprisonment to the extent of ten years and fine to the extent of thrice the amount involve.
  • Class Action suit can file by specific number of members /depositors/or any class of them, if they are opinion that management or control of the affairs of the company are being conducted in the manner prejudicial to the interest of the company.
  • New clauses in respect of prohibition of insider trading and prohibition of KMP and Directors from Forward dealing in securities of the company.
Courtesy: CA Sandip Ghume

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