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Passed by the Union Cabinet, the Companies Bill, 2008, has attracted substantial attention on account of its innovative changes to the mammoth Companies Act of 1956, aiming to provide a less cumbersome corporate regime in India. Most of the proposed provisions have been drafted with the intent to shift from regulatory control to greater functional freedom, but with a higher degree of accountability.

The bill seeks to “enable the corporate sector in India to operate in a regulatory environment of best international practices so that entrepreneurship, investment and growth are encouraged”. The good news is that when the bill finally becomes law, it will reduce the existing provisions by almost half, eliminating clauses that are now redundant in the current business regime. Key features of the bill’s impact on corporate governance are discussed below.

Key provisions

In an effort to bring greater professionalism to the board level, while also moving away from the shackles of traditionally run, family controlled boards; the bill stipulates that 33% of the directors of an unlisted company’s board should be independent (i.e. possess specified attributes of independence) which is lower than the 50% prescribed for listed companies by the Securities and Exchange Board of India.

Priti Suri is the proprietor of PSA.