By: Dhirendra Kumar
Notwithstanding the Corporate Social Responsibility (CSR) provision, the new Companies Bill is a step forward to empowering shareholders and increasing transparency. The Companies Bill has been a decade in coming, but that's not much of an eyebrow raiser nowadays.
The Direct Taxes Code, the Real Estate Regulation Bill or the GST amendment could easily break this record of delays. However, now that the Bill is law — or will be as soon as the President signs it — it's time to look ahead to the impact it will have. The Companies Bill is a large and complex document that will affect practically every aspect of how businesses are organised and operated.
Many effects and side-effects of the new laws will become evident only slowly as businesses (and their lawyers and accountants) deal with the countless edge cases that will turn up. No doubt there will also be a great deal of activity of finding workarounds for the more onerous measures that are now incorporated in the law.
There's also some puzzling disconnects between what is being said about the Bill and what is actually there. Take the much-discussed CSR provision. Everyone says that the CSR spend section of the Bill is voluntary. However, the language of the law lays down no choice. It clearly says that if a company has more than a certain net profit or revenue or net worth, it 'shall constitute a Corporate Social Responsibility Committee of the Board'.
And then, it goes on to say that the board 'shall ensure that the company spends, in every financial year, at least 2% of the average net profits' etc. It says 'shall ensure' , not something like 'shall endeavour to' . Anyhow, no one seems to be losing much sleep over the 2% CSR. Basically, it's a licence for the management to take out 2% of the profits that belong to shareholders and give away to someone for something. Depending on the management, this could be something useful, or merely something convenient.
On balance, compared to the earlier law, the new one is a positive step forward. While much will depend on the actual working rules that are formulated under the Act, the general thrust is on more transparency and better information flow. This is bound to be beneficial for shareholders while not causing too much trouble for companies that are not actively trying to hide something from shareholders.
Notwithstanding the Corporate Social Responsibility (CSR) provision, the new Companies Bill is a step forward to empowering shareholders and increasing transparency. The Companies Bill has been a decade in coming, but that's not much of an eyebrow raiser nowadays.
The Direct Taxes Code, the Real Estate Regulation Bill or the GST amendment could easily break this record of delays. However, now that the Bill is law — or will be as soon as the President signs it — it's time to look ahead to the impact it will have. The Companies Bill is a large and complex document that will affect practically every aspect of how businesses are organised and operated.
Many effects and side-effects of the new laws will become evident only slowly as businesses (and their lawyers and accountants) deal with the countless edge cases that will turn up. No doubt there will also be a great deal of activity of finding workarounds for the more onerous measures that are now incorporated in the law.
There's also some puzzling disconnects between what is being said about the Bill and what is actually there. Take the much-discussed CSR provision. Everyone says that the CSR spend section of the Bill is voluntary. However, the language of the law lays down no choice. It clearly says that if a company has more than a certain net profit or revenue or net worth, it 'shall constitute a Corporate Social Responsibility Committee of the Board'.
And then, it goes on to say that the board 'shall ensure that the company spends, in every financial year, at least 2% of the average net profits' etc. It says 'shall ensure' , not something like 'shall endeavour to' . Anyhow, no one seems to be losing much sleep over the 2% CSR. Basically, it's a licence for the management to take out 2% of the profits that belong to shareholders and give away to someone for something. Depending on the management, this could be something useful, or merely something convenient.
On balance, compared to the earlier law, the new one is a positive step forward. While much will depend on the actual working rules that are formulated under the Act, the general thrust is on more transparency and better information flow. This is bound to be beneficial for shareholders while not causing too much trouble for companies that are not actively trying to hide something from shareholders.
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