After a long wait, the Parliament has passed the First Amendment in the Companies Act 2063 which is a positive development. However, an analysis of what the government had originally proposed as the Bill and what the parliament added in the final version is worth making.
The 10 year old Act was long due for amendments to accommodate provisions required to suit the time. While introducing the Bill, the government objectives were mainly two: One, improving the Ease of Doing Business Index by easing the entry and exit of the companies. Second, incorporating provisions to fulfill the international obligation related to anti-money laundering. So, the amended Act has provision to accept electronic filing of applications and reports and to formalize presence in the meetings through video conferencing or similar methods. Similarly, it has made it easy for companies to get out of the registry of the Office of Company Registrar (OCR) as it has reduced the fee and penalty applicable for companies that want to exit. But this last provision is temporary as it is specifically for those companies only which are registered but not in operation when this new provision comes into effect. And they have to apply for this within two years of this amendment's enforcement.
More meaningful amendments have been inserted by the Parliament for which the MPs deserve praise. For example, the MPs have reduced the time limit from 15 days to seven days within which the OCR has to complete the registration of a company. They have also added a provision to recognize digital signature for authentication of documents. These make company registration easier. Also noteworthy in this connection is that the Ministry of Industry has already made arrangement such that the industrial companies don’t need to submit the documents again in the Department of Industry after they have been submitted to the OCR.
In another improvement, the maximum number of shareholders in a private limited company can now be 101 as compared to 50 till now. This makes it easy for such group of promoters who are in big number but still want to keep their company private. Under existing rule, they would be forced to make their company public which may cause additional burden that may not be necessary or even cause trouble for the type of business they want to operate.
However, there are two provisions inserted by MPs that look populist rather than necessary. Under the existing provision in the Section 12 of the existing Act, financial institutions can be operated only under public limited company. The amendment has added to this list telecom companies with paid capital higher than Rs 50 million. In fact this entire section is unnecessary in Companies Act. It is better to include such provision in the respective sectoral law. Another such populist provision is to have at least one woman member in the Board of Directors in each company that has at least one woman shareholder. There may be hardly any company without one woman shareholder (this is certainly so in case of public companies). Therefore, it is a sort of reservation for the women. This opens way for demands for other types of reservation as well in the company’s boards.
There are some important missing points as well. At present, there is a requirement to have at least one independent member in the Board of Directors if the total number of directors is seven or more. The experience so far is such that these independent directors have not been able to play any important role. And the promoters of the company feel that appointment of such director only adds to the cost of the company. And nothing has been amended in the provision regarding the foreign company (Chapter 16 of the existing Act).