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Govt appointed panel suggest sweeping changes to the Companies Act, 2013

02 Feb 2016 Evaluate

Suggesting sweeping changes to the Companies Act, 2013 and making it easier for companies to raise funds and reward senior management and ensuring that steps to enhance shareholder democracy don't cripple the functioning of firms and the businesses they run, a committee set up by the government to review issues arising out of implementation of the Companies Act has suggested changes to improve ease of doing business, encourage startups and harmonise various laws.

The committee, chaired by the corporate affairs secretary Tapan Ray held extensive consultations with stakeholders before making its recommendations and  proposed easing regulations for shareholders’ approval to the managerial remuneration and removal of the restriction on layers of subsidiaries and investment companies, moves that could address concerns raised by corporate groups after the 2013 overhaul of the Act.

Among the major recommendations of the panel are a change in the definition of associate company and subsidiary company to ensure that only “equity share capital” is the basis for deciding holding-subsidiary relationship, instead of “both equity and preference share capital”. It also proposed simplification of the private placement process and doing away with separate offer letter and pitched for easing of the process of incorporation and reducing the number of filings to the Registrar of Companies (RoC).

For managerial remuneration shareholders' approval should suffice and no government nod should be needed. Further, only ordinary resolution, nod from 50 per cent of shareholders, would be enough. At present, approval from 75 per cent shareholders is required. The committee in its report has suggested that the government may also allow issuance of ESOPs to promoters working as employees or whole time directors of startups, which would help promoters to gain from increase in future valuation.  In order to bring the Companies Act in harmony with the Sebi regulations, the panel said that independent director should not have any kind of pecuniary relationship with the company.

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