Economy

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Wire: Economist Intelligence Unit (EIU) Date: Aug 23 2013 19:19:09 India economy: Quick View - New corporate rules finally see the light of da

Event Aug. 23 (Economist Intelligence Unit) -- Parliament has ratified one major piece of legislation in its current session-the Companies Bill of 2012-which is now awaiting approval from the president, Pranab Mukherjee. Once approved, the bill, which will become the Companies Act, 2013, will replace the largely archaic Companies Act, 1956. Analysis The new legislation will introduce significant changes to corporate governance for both public and private companies, as its major provisions include strengthening investor protection, easier provisions for mergers and acquisitions, more business-friendly rules, new anti-fraud measures, and fresh corporate social responsibility (CSR) requirements. The bill, which gained political traction following a high-profile accounting scandal in 2009, is particularly tuned to preventing fraud. Shareholders will be granted the right to file class action lawsuits against the management of companies. The bill also lays down requirements for independent directors, whereby at least one-third of a company's board of directors must comprise members who have no financial stake in the company and at least one of them should be a woman. Along with strengthening protection for minority stakeholders, the new rules will also increase the accountability of auditors who could face criminal liability charges if they violate provisions of the act. The law also incorporates rules that will govern the employment of auditors. The bill broadens federal authority to investigate corporate crimes and requires public companies to provide a mechanism for protecting whistle blowers. Another key innovative, and controversial, component of the new act is that companies worth Rs5bn (US$88.3m) or with a turnover of Rs10bn will have to put aside 2% of their net profits for CSR activities. The law is expected to change every aspect of how business is conducted in India, although comprehending the long, complex document will pose its own challenges. The law will also need to be integrated with existing legislation, including those pertaining to the management of foreign exchange and India's income tax laws. However, the regulations to increase transparency and accountability in companies and the provisions for protecting shareholder rights will ensure that the law will have a positive impact on the business environment. -0- Aug/23/2013 23:19 GMT -----------------------------====================-----------------------------Copyright (c) 2013 ################################ END OF STORY 1 ##############################

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