In the 2nd part of our series on the Bill, we deal with key amendments proposed to the Companies Act and the LLP Act in relation to transactions and funding.

Subject Summary of the Amendment 
Buy-back of securities Prescribed class of companies will be permitted to make up to 2 buy-back offers in a year provided there is a minimum gap of 6 months between the two offers. 
Share-based benefits In addition to employee stock option plans, instruments such as Restricted Stock Units and Stock Appreciation Rights which are linked to the value of the share capital of the company have been recognized as permitted modes of executive compensation. Buy-back of such securities is also proposed to be enabled. It would appear that Phantom Stock Options – which are typically settled in cash – are also sought to be regulated since their underlying value is linked to the share capital of the company.
Trust as a member The overarching principle set out in the Companies Act, 1956 viz. no notice of any trust, whether express, implied, or constructive, will be entered in the register of members or debenture holders, finds its way back into the Companies Act.
Schemes of arrangements In schemes of arrangement involving multiple entities which subject to separate NCLT jurisdictions, the NCLT having jurisdiction over the transferee / resulting company may now dispose of the matter.
Fast-track mergers 

The approval requirements for schemes involving fast-track mergers are proposed as follows:

a. In case of members, the scheme must be approved by a majority of members (or class thereof) present and voting at the meeting who hold at least 75% of the value in shares held by such members;

b. In case of creditors, the scheme must be approved by at least 75% in value of the creditors. 

Strike-off 

The grounds for removal of name from the register of companies are proposed to be expanded to include cases: (a) where the company has not made any “significant accounting transaction” (as defined in Section 455 of the Companies Act) during the preceding 2 financial years and in the current financial year; and (b) where the company has not filed financial statements or annual returns for 2 consecutive financial years preceding the previous financial year.

Conversion of trusts into LLPs 

It is proposed to allow a ‘specified trust’ (being a trust established under the Indian Trusts Act, 1882 or under any Central or State Act, and registered with SEBI or the IFSCA, having such activities as may be prescribed) to convert into an LLP in accordance with Chapter X of the LLP Act and the new Fifth Schedule. All partners of the resulting LLP must be the trustees only and the consent of 3/4th of the investors of the trust would be required.