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Rule tweak to help new entrepreneurs

The Narendra Modi-government has taken another step towards reducing the pain of doing business in India.

By Our Special Correspondent
  • Published 30.04.15

New Delhi, April 29: The Narendra Modi-government has taken another step towards reducing the pain of doing business in India.

On Wednesday, the Union cabinet clearedan amendment to the Companies Act 2013 that will free a newbie company from theneed to file a mandatory declaration with the Registrar of Companies before commencing operations.

It also approved changes to fast track the approval process for draft notifications aimed at granting exemptions from various provisions of the Companies Act.

The amendments approved at a meeting of the Union cabinet, chaired by the Prime Minister, will now form part of the Companies (Amendment) Bill, 2014.

The amendments include "doing away with the requirement for filing a declaration by a company before commencement of business or exercising its borrowing powers".

It also plans to rationalise "the procedure for laying draft notifications granting exemptions to various classes of companies or modifying provisions of the Act in Parliament, in order to ensure speedier issue of final notifications," an official release said.

"These amendments will address issues related to the ease of doing business and put in place a speedier process for approval of draft notifications for providing exemptions from specific provisions of the Act to a class of companies," the ministry of corporate affairs said.

India ranks a lowly 142 in World Bank rankings in terms of ease of doing business and the Modi government has resolved to nudge the country up the charts so that it can rank among the top 50.

Under section 11 (1) of the Companies Act 2013, a company having share capital cannot commence any business or exercise any borrowing powers unless "a declaration is filed by a director ...with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and

the paid-up share capital of the company is not less than Rs 5 lakh in case of a public company and not less than Rs 1 lakh in the case of a private company on the date of making of this declaration".

Last December, the government moved an amendment to the Companies Act 2013 that seeks to drop the minimum capital requirement for public and private companies spelt out in section 11.

Section 11 also says that a company that defaults in complying with the requirements "shall be liable to a penalty which may extend to Rs 5,000 and every officer who is in default shall be punishable with fine which may extend to Rs 1,000 for every day during which the default continues".

Now that the Modi government has scrapped the requirement for a mandatory declaration before commencing operations, the burden and risk of penalties also falls away.