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Why India is adding fewer new companies...
Fri, 12 Dec Pre-Open

The number of new companies getting registered in the country are witnessing a dwindling trend. The number of registrations done during the first five months of 2014-15, was almost half as compared to the previous year during the similar time period,

As per an article on Business Insider, the corporate affair minister - Arun Jaitley has mentioned, the prime reason for such a steep decline is largely attributable to stricter rules. Further he also added, the turn down is also on account of introduction of new e-forms.

It is important to note, post the introduction of New Companies Act 2013, the companies are bound to follow the new guidelines in order to register themselves. Hence the time taken by professionals to become familiar with such forms has impacted the registration rates.

Decline in registration of new companies
Month2014-152013-14
April Less than 1000 9,026
May 1,789 10,546
July 7,229 8,784
August 6,676 7,181
Data Source: Business Insider, Equitymaster

Undoubtedly, the new Companies Act 2013, is progressive and forward looking. It includes various corporate governance norms, increased transparency and accountability by the promoters. Amongst various proposals, notable ones include enhanced disclosure of remuneration policies, mandatory constitution of mandatory and nomination committee, rotation of auditors and compulsory whistle blower policy. These norms will further strengthen corporate governance in the country and provide the investing community higher powers to act as a check on a company's affairs. Not only that, the minority shareholders may find some relief in the new Companies Act 2013.

The government's approach is a reformist one, and might prevent from the scandals likes of Satyam Ltd. The new rules have given regulators more teeth in ensuring compliance through new agencies and stricter penalties. But on the other hand, the regulator also needs to act upon the issues the companies are facing to get themselves registered. As per the above table, though the recent months indicate better pick up in the registration rate. However, the regulator needs to take steps to simplify the procedure and eliminate the issues that could thwart India's growth prospects.

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