Company Law: Company Law Committee Suggests Issuance of Fractional Shares, Easier Fundraising Standards for Struggling Cos

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Authorizing the issuance of fractional shares, easing the standards allowing companies in difficulty to raise funds and recognizing special purpose acquisition companies as well as allowing their listing on the stock exchange are among the recommendations made by the corporations set up by the government.

The panel, currently chaired by Corporate Affairs Secretary Rajesh Verma, also suggested banning the transformation of co-operative societies into a corporation and replacing the requirement to provide affidavits with the filing of a self-certification/declaration.

The Company Law Committee (CLC) has been set up by the Department of Corporate Affairs to make recommendations on changes to facilitate and promote greater ease of doing business as well as to ensure the effective implementation of the Companies Act 2013 and the Limited Liability Companies Act 2008.

The ministry has invited comments from stakeholders until May 6 on the CLC report, which was submitted to the government last month.

Other suggestions from the panel include the possibility for some companies to revert to the accounting year followed in India, the possibility for some companies to communicate with their members only in electronic form, the possibility for companies to hold general meetings in virtual, physical or hybrid mode, and the creation of an electronic platform for the maintenance of statutory registers by companies.

According to the committee, company law can be amended to insert provisions allowing the issue, holding and transfer of fractional shares. These shares must only be issued in dematerialized form.

“For listed companies, such prescriptions can be made in consultation with Sebi. It is also specified that this recommendation only concerns cases which would involve a new issue of fractional shares by the company and not cases where fractional shares are created for the moment due to an action taken,” the report said.

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