The Company Law Act Amendment

The Company Law Act Amendment- How it Affects Corporate India

Organizations and companies in a nation or society are subject to scrutiny as well. When organizations or companies are held accountable for their actions according to a set of regulations, it is called compliance. It refers to an organization adhering to a set of laws and rules that governs how it does business. Statutory Compliance takes care of how an organization treats its staff, the payment of wages, and the treatment of its consumers — thus making corporations behave responsibly. 

Major Compliances in India:

Businesses and organizations must adhere to certain compliances before beginning a new venture. Some of the significant compliance include:

  • The Companies Act, 2013 – The Companies Act, 2013 lays down clear-cut guidelines as to the effective functioning of a company. The act clearly defines when a company is a company, to the times a year the board of directors should meet, the composition of the board, appointment/retirement/ removal of directors, interactions with shareholders, registration, and so on. This is also inclusive of CSR- corporate social responsibility 
  • Labour Law Compliance – Labour law compliancerefers to a series of regulations that regulate the working conditions of employees. It discusses how employees should be paid and how the management should treat employees. This includes acts such as the ESIC, the Contract Labour Act, The Worker’s Compensation act, and so on. Labour law complianceis necessary for protecting the interests of the workers in an organization. Labour law compliance failure can cost companies dearly.
  • Other Regulations – Other compliances would include aspects such as Environment Protection act, 1986, and even stamp and tax and stamp duties that regulate how organizations do business. These are but some of the other compliances an organization is expected to follow. 
  • They can stay compliant by statutory compliance outsourcing, where they outsource any compliance-related tasks to third party concerns who are designated to handle them. 

The Indian Government’s Plans for 2020

The Indian government is lowering penalties under The Companies act, 2013, in a bid to improve compliance. The government is also looking to offer incentives and concessions to small companies, startups, and farmer concerns. The move that is finalized by the Company Law Committee is part of a few amendments about the running of organizations within the country. Sixty amendments are a part of the committee’s recommendations. Out of those, 45 of them are related to dropping criminal prosecution. The government is seeking to reduce the provisions for criminal action from 81 to 66. This comes in the wake of corporates being overly critical of existing government policies related to compliance. The government also stated that once the amendments were in place, the Ministry of Corporate Affairs would have an in-house mechanism to deal with civil offenses. The registrar of companies would lead this. However, some companies would have to settle civil disputes in court.

What This Means

  • The Company Law Committee halved penalties on organizations for startups and small organizations and even single-person companies. In a country with over 50,000 startups and 11 lakh registered companies, this is a welcome move. 
  • This will even benefit cottage industries and farmer-driven 
  • Loss-making entities breathe easy. The relaxation of certain aspects, such as compensation, will help companies make decisions on the hiring of executive and non-executive directors.
  • Most startups operate at a loss. This relaxation will help them as they find it challenging to comply with all aspects of the Company Act, 2013. 
  • The lowering of penalties will help organizations stay more compliant. The government insists that the move is to improve compliance and reduce the burden on more companies.

In a move that is seen as welcome by corporate India, how it will affect aspects of business and compliance such as payroll tax compliance and Labour Law compliance in the days ahead remains to be seen.

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