The concept paper on the new Companies Act has proposed stringent disclosure norms for promoters in order to protect the interests of small shareholders.
The proposed changes come after millions of investors have lost their money to fly-by-night operators in sectors such as NBFCs, plantations and software exports.
All directors in a new company will have to give an affidavit that they have not been convicted of any fraud or financial malpractice.
In other words, the doors to the corporate world will be shut for businessmen found guilty of siphoning off the money of small investors.
More importantly, the concept paper also states that the promoters of a company will have to bring in their money quickly and it cannot be shelved forever.
"The amount of share capital subscribed by the subscribers to the memorandum, shall be paid within a period of one month from the date of incorporation," the paper said.
Also, a failure to bring in the required amount could lead to a penalty.
"In case a public or a private company fails to have a paid-up capital in accordance with the provisions of Section 2(66) or Section 2 (69), the liability of every director, manager and every member of such company shall remain unlimited till the company is struck off by the registrar under Section 207," the Paper reads.
In order to check vanishing companies, the concept paper has also proposed to make the guidelines related to changing of names more stringent.
In fact, companies are proposed to be barred for a period of five years from changing their names.
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