Companies Bill seeks to put limit on number of subsidiaries

The draft Companies Bill seeks discretionary powers for the government to stop a company from setting up multiple subsidiaries if it is found abusing this right. Presently, Companies can  establish any no. of subsidiaries, which could in turn set-up their own subsidiaries, and so on.  The  ministry of corporate affairs (MCA)  is of the view that such a layered structure makes it difficult to read corporate accounts.

The Companies Bill is expected to be introduced in the monsoon session of Parliament. Former finance minister Yashwant Sinha had suggested that subsidiaries may not be allowed to have subsidiaries. It was further considered  that the mechanism of inter-corporate loans/investments and resultant transfer of funds to subsidiaries etc. should be  an instrument of  growth rather than a means  for diversion of funds from a healthy company to a other group companies.

The draft Bill has also proposed to restrict  an individual from becoming an independent director on the Boards of more than 10 companies and has made companies responsible to their shareholders for a 2% voluntary spending of their net profits on social works. But, companies need to disclose corporate social responsibility activities in their Annual General Meetings,explaining reasons why the spending was less than 2%.

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