Friday, August 6, 2010

Disclosure of Fund flow statement may soon become mandatory for all companies

Disclosure of Fund flow statement may soon become mandatory for all companies

The government is considering to make it mandatory for all companies to disclose a fund flow statement, an indicator of utilization of financial resources by an entity, along with their annual financial reports. The provisions for mandatory disclosure of fund flow statement is likely to be included in the Companies Bill, which is pending with the Rajya Sabha.

The fund flow statements indicate whether companies are efficiently using financial resource available with them. "The unlisted companies will have to disclose the fund flow statement along with annual results to the Registrar of Companies," a Corporate Affairs Ministry official said. Under the existing laws, the unlisted companies are required to file annual statements with the RoC. The changes, sources said, will be incorporated in the Companies Bill, which has already been approved by Parliamentary Standing Committee and is likely to be taken up for consideration and passage in the current session of Parliament. Besides other things, the new Bill will be shorter and will try to harmonies the company law framework with sectoral regulations.

The proposed Bill will have 480 sections compared to over 600 sections in the Companies Act, 1956, in addition to providing for greater shareholder democracy and less government intervention. The new legislation will try to promote shareholders democracy with protection of rights of minority shareholders, responsible self-regulation with adequate disclosure and accountability and lesser government control over internal corporate processes, said the statement of objects and reasons of the new Bill. It will also make it mandatory for listed companies to have 33 per cent independent directors and provides for formation of One Person Company, while empowering the government to provide a simpler compliance regime for small companies.

The Bill also proposes to make stringent provisions for companies seeking raising money from the public. They would not be allowed to raise deposits from the public without obtaining permission from the relevant regulator. There will be a single forum for approval of mergers and acquisitions, whether domestic or with foreign entities. Also the procedure for merger of holding and wholly-owned subsidiaries would be shortened. The bill also seeks to prohibit insider trading by company directors or key managerial personnel. Such activities will be treated as a criminal offence.

Posted By: Ankitha Singhvi


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