The draft rules of the new Companies Act have specified that a public company with a paid-up capital of Rs 5 crore (Rs 50 million) or a turnover of Rs 20 crore (Rs 200 million) shall have a minimum of seven directors. The existing Companies Act says a public company has to have at least three directors.
Public companies will have six months or time till their next annual general meeting to comply with the new law regarding the number of directors and independent directors once it becomes effective.
Besides, the draft rules spell out that the premium received on issue of shares can also be used by a company to purchase its own shares or other specified securities.
The existing law restricts the use of premium to issue fully paid bonus shares. The law also does not allow writing off of expenses or giving discounts on any issue of share or debenture, and paying premium on redemption of preference shares or debentures.
The rules also stipulate that an independent director will have to be a graduate from a recognised university, having studied subjects relating to the main business activity of a company.
In case this criterion is not met, the aspirant has to be qualified in the fields of finance, accounts, commerce, engineering, banking, information technology, law, art, sciences or any other field which justifies the working of the company.
Further, the rules provide that independent directors shall have post-graduate experience of not less than five years in related fields, and that they be appointed in a manner that diversified talent in these fields is represented on the board of a company.
The draft rules have proposed that advocates, chartered accountants, cost accountants, company secretaries, doctors, architects and engineers be allowed to form alliances having up to 50 partners. This is aimed at facilitating Indian firms to take on foreign firms.
The rules provide that the allotment of a company's name and confirmation for a change in name, or an application to this effect, has to be dealt with within three days by the registrar of companies.
Further, no change will be allowed in the name of an existing company within five years of a public issue. This is to stop fly-by-night operators from doing the vanishing act after gathering monies through public issues.
It has also been made clear that a change in the name of a company will be allowed only if the name indicates the company's business, such as insurance, chit funds, bank and loans.
No name will be approved if it has a close phonetic resemblance to that of another company. For example, the name Jay Kay Industries will not be allowed because of the existence of JK Industries.
Companies can look forward to having names starting with small alphabets, like i2 Technologies etc., as such names are being increasingly used by companies in other countries.
Besides, a company will be allowed to use words such as "Venture Capital, Venture Capital Company, Venture Capital Fund, Venture Capital Finance Company" or similar words in its name only if its promoters obtain approval from the department of economic affairs.
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