On 23 March 2026, Finance Minister Nirmala Sitharaman introduced the Corporate Laws (Amendment) Bill, 2026 in the Lok Sabha. Bearing Bill No. 85 of 2026, it has since been referred to a Joint Parliamentary Committee (JPC) for detailed scrutiny.
It amends both the Companies Act, 2013 and the Limited Liability Partnership Act, 2008 – simultaneously and its reach extends across small companies, multinationals, startups, GCCs, IFSC/GIFT City entities and the audit and valuation professions.
However, this is a Bill, not yet an Act. It is before a JPC for review. Individual provisions may change before final enactment.
The Big Picture: Two Tracks Running Simultaneously
The Bill is not simply about easing compliance. It is doing two things at the same time and it is important not to read only one of them.
Track 1 — Relief: Decriminalising routine procedural defaults, raising thresholds for small companies and CSR, enabling hybrid meetings and introducing digital compliance.
Track 2 — Accountability: Tightening director eligibility, expanding NFRA’s enforcement powers, restricting post-audit non-audit services, strengthening related party transaction consequences and centralising valuation oversight under IBBI.
The risk – for any business – lies in focusing on Track 1 while overlooking Track 2. The Bill is an integrated strategy and the relief and scrutiny elements are inseparable.
Change 1: Decriminalisation – 21 Offences Shifted from Criminal to Civil
One of the most consequential philosophical shifts in the Bill is the removal of criminal prosecution risk for procedural and technical defaults. The Bill decriminalises the following offences, replacing criminal consequences with civil monetary penalties:
- Wilful failure to furnish information related to the affairs of a producer company
- Contravention of Rules under the Companies Act
- Failure to furnish information or documents required by the Registrar
- Violation of requirements on maintenance of books of account
- Failure to comply with a requisition (other than summons) of the Registrar
- Defaults relating to issuance of a prospectus
- Failure to comply with requirements on inter-corporate loans
How the New Penalty Structure Works:
A new electronic In-House Adjudication Mechanism (IAM) replaces court proceedings for these offences. The penalty structure follows a defined framework:
- ₹1,00,000 for the initial contravention
- ₹500 per day for continuing defaults
- Capped at ₹5,00,000
What this Means in Practice:
For directors, promoters, and KMPs, procedural lapses will no longer carry the risk of arrest, criminal records, or prolonged court litigation. However, decriminalization is not noncompliance. The IAM will function electronically; penalties will still be real, and the tightening of governance obligations on auditors and directors means the overall regulatory environment is becoming more sophisticated, not more lenient.
Change 2: Small Company Thresholds – Doubled
Under the Companies Act, 2013, a small company is defined as one with paid-up capital not exceeding ₹10 crore and turnover not exceeding ₹100 crore.
The Bill increases both limits:
- Paid-up capital: ₹10 crore → ₹20 crore
- Turnover: ₹100 crore → ₹200 crore
Small companies enjoy significantly reduced compliance obligations across multiple provisions – simpler board meeting requirements, relaxed financial statement formats, fewer mandatory disclosures and now potentially, exemption from mandatory auditor appointment.
Change 3: CSR – Threshold Raised, Flexibility Added
India’s mandatory CSR framework under Section 135 of the Companies Act requires companies meeting certain thresholds to spend 2% of their average net profit over the preceding three years on CSR activities. The current thresholds are a net worth of ₹500 crore or more, a turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more – any one of which triggers the obligation.
The Bill makes two targeted changes:
Net profit threshold raised: From ₹5 crore to ₹10 crore. Companies previously just above the ₹5 crore net profit line and therefore subject to the full CSR regime will no longer be covered.
Unspent CSR funds deadline extended: The deadline for transferring unspent CSR funds to the Unspent Corporate Social Responsibility Account has been extended from 30 days to 90 days at the end of the financial year.
Additionally, companies meeting prescribed conditions will not be required to comply with CSR provisions at all. The specific conditions are yet to be notified through subordinate legislation.
Change 4: Directors – Personal Accountability Significantly Strengthened
While the Bill eases compliance for companies broadly, it simultaneously tightens the screws on directors in three specific ways. This is where many readers stop paying attention – which is precisely when they should be paying more.
4a. Fit and Proper Mandate – Section 164
An amended Section 164 introduces a “fit and proper” mandate, requiring boards to assess and document that every director meets prescribed criteria. Board composition shifts from a commercial judgment to a statutory compliance obligation.
4b. RPT Disqualification – A New Form of Personal Liability
Related party transaction (RPT) defaults under Section 188 now trigger directorship disqualification, extending liability directly to the individuals who approved the transactions.
This is a fundamental change in the personal risk profile of being a director. A director who approved an RPT in violation of Section 188 – even if they were acting on management advice – now risks losing directorship eligibility entirely.
4c. KMP Resignation Process – Section 203A
A new Section 203A establishes a formal, transparent process for the resignation of whole-time Key Managerial Personnel who are not directors – covering CFOs, Company Secretaries and similar roles.
This addresses a genuine governance gap where senior KMPs could exit abruptly without structured handover obligations, creating continuity risks for the company and information gaps for regulators.
Change 5: RSUs and SARs – Formal Recognition Under Indian Corporate Law
Currently, Indian companies wishing to grant Restricted Stock Units (RSUs) or Stock Appreciation Rights (SARs) to employees have had to work around the Companies Act’s ESOP-centric framework. Many structure these through cash-settled schemes, phantom stock or overseas holding company grants specifically to avoid statutory uncertainty.
The Bill formally recognises instruments linked to the value of share capital – including RSUs and SARs – across multiple provisions:
- Preferential allotment to employees under Section 62(1)(b) is expanded to cover such instruments
- Allottees under such schemes are excluded from private placement limits under Section 42(2), since shareholder approval is already obtained
- Buy-back of such securities is enabled under Section 68(5)(c)
This aligns Indian corporate law with global executive compensation practices. For Indian subsidiaries of foreign multinationals – including GCCs whose Indian employees receive RSU grants from the parent company – this has direct implications for compensation structuring, the FEMA treatment of such grants and the board approval process required under Indian law.
Change 6: Buy-backs – Higher Limits, Greater Frequency
The Bill proposes higher buy-back limits for prescribed classes of companies beyond the existing 25% cap on aggregate paid-up capital and free reserves. More significantly, it permits up to two buy-back offers per financial year – subject to a minimum six-month gap between them – compared to the current limit of one. It also extends buy-back eligibility to securities issued under RSU, SAR and sweat equity schemes, not just traditional ESOPs.
For listed companies and large unlisted entities with employee share schemes, the ability to conduct two buybacks per year provides meaningfully greater capital management flexibility – particularly for companies that wish to return cash to shareholders or manage dilution from equity compensation schemes on a more frequent schedule.
Change 7: Mergers – Thresholds Revised, Processes Clarified
Fast-Track Merger Approval Thresholds
For fast-track mergers, the simplified merger route for small companies and wholly owned subsidiaries – the Bill revises approval thresholds significantly:
- Member approval: Reduced from 90% of total shares to a majority of members present and voting who hold at least 75% of shares in value
- Creditor approval: Reduced from 90% to 75% in value
The previous 90%-member approval threshold was operationally very difficult to achieve – particularly in companies with dispersed shareholding or passive investors. The revised 75% threshold makes fast-track mergers genuinely accessible for the companies they were designed to serve.
IBC Separation
The Bill deletes references to the Insolvency and Bankruptcy Code, 2016 in Section 230(1), thereby excluding companies undergoing IBC liquidation from initiating compromises or arrangements under the Companies Act. All applications under Sections 230 to 233 must now be filed with the NCLT having jurisdiction over the transferee or resultant company.
This separation of IBC proceedings from Companies Act restructuring is a long-overdue clarification that removes a source of jurisdictional confusion.
Change 8: Auditors – Independence Tightened
The Bill tightens auditor independence requirements in two ways that move in opposite directions from the relief-focused provisions:
Restriction on post-tenure non-audit services: Prescribed classes of auditors are prohibited from providing non-audit services to the company, its holding company, or subsidiaries for three years after the audit engagement ends. This is a significant cooling-off requirement – preventing audit firms from pivoting immediately to lucrative advisory or consulting work for the same group they just audited.
Mandatory NFRA registration: Auditors of prescribed company classes must register with the NFRA (National Financial Reporting Authority) and file periodic returns. Penalties apply for non-compliance or false filings.
Exemption from mandatory auditor appointment: At the same time, certain categories of companies – expected to be primarily small companies – may be exempted from the requirement to appoint auditors altogether, subject to prescribed conditions. This is targeted relief for companies for which mandatory audits create costs disproportionate to the governance benefit.
Change 9: IBBI as Valuation Authority
The Bill designates the Insolvency and Bankruptcy Board of India (IBBI) as the Valuation Authority under the Companies Act. IBBI will be responsible for:
- Granting certificates of registration and recognition to valuers
- Making recommendations to the Central Government on valuation standards
- Ensuring compliance across the valuation profession
For M&A transactions, related party valuations, buy-back pricing, and insolvency proceedings, this will mean more uniform and enforceable valuation standards.
Change 10: IFSC / GIFT City Framework – Internationalised
The Bill introduces a dedicated framework for Specified IFSC LLPs, allowing LLPs established in International Financial Services Centres to operate with significantly greater flexibility:
For global financial institutions, fund managers and multinationals using GIFT City as their India entry point, this is a structurally important change. The ability to maintain capital and financial records in foreign currency removes a fundamental friction in the current framework – where IFSC entities must maintain INR-denominated records even for predominantly foreign-currency operations.
Change 11: Trust to LLP Conversion – A Landmark for AIFs
A new Section 57A alongside the Fifth Schedule introduces a structured mechanism for specified trusts to convert into LLPs. This applies to trusts that are registered with SEBI or the IFSC Authority and engaged in prescribed activities – primarily targeting SEBI-registered Category I and II Alternative Investment Funds (AIFs), which are predominantly structured as trusts.
The framework is structured as follows:
- Only existing trustees may become partners in the newly formed LLP – external parties cannot join during the conversion phase.
- Explicit consent from at least 75% of the trust’s investors is required.
- All assets, liabilities, rights, obligations, contracts, approvals and legal proceedings transfer automatically to the LLP on conversion
- The trust is deemed dissolved upon successful conversion.
- Trustee liability for pre-conversion obligations is retained as a safeguard.
For AIF managers, the ability to convert to an LLP structure provides access to pass-through taxation and reduced compliance friction – without triggering a forced restructuring of existing investments, contracts or fund terms.
Who Does This Affect Most
Small companies and startups gain the most from the relief measures – doubled thresholds, decriminalisation, potential auditor exemption, and CSR relief.
Mid-sized companies that were previously just above the small company or CSR threshold will find significant compliance burden lifted once the new thresholds apply.
Listed companies and large corporates will experience the greatest governance tightening – through NFRA’s expanded powers, mandatory auditor registration, non-audit service restrictions and stricter director accountability.
Foreign companies and GCCs will benefit from a clearer distinction between procedural defaults and substantive governance failures, making compliance risk more predictable. The RPT disqualification provision and fit-and-proper requirement for directors warrants specific attention for entities with nominee directors on Indian boards.
AIFs and fund managers structured as trusts now have their first clear statutory conversion route to LLP status.
IFSC/GIFT City entities gain a genuinely internationalised operational framework that removes INR-conversion friction.
How FinPracto Can Help
At FinPracto, we advise startups, foreign companies, multinationals, GCCs, AIFs and HNI founders on corporate compliance, entity structuring, director governance and regulatory transitions across India.
As the Corporate Laws (Amendment) Bill, 2026 progresses through the JPC process and moves toward enactment, we are actively monitoring every provision – particularly the subordinate rules and threshold notifications that will determine practical applicability.
CS Ankit Kishore Sinha, Corporate Law Expert at FinPracto, says that the proposed amendments are expected to significantly reshape the compliance and governance landscape for companies operating in India, making it critical for businesses to proactively assess the impact of the evolving framework and align their structures and processes accordingly.
Our services relevant to this Bill include:
- Company Law Compliance Review – Assessing the impact of new thresholds on your entity and identifying relief available under the new framework
- Director Governance Advisory – Fit and proper assessment frameworks, RPT review and disqualification risk analysis for nominee directors
- Employee Compensation Structuring – RSU, SAR and ESOP redesign for compliance with the new statutory framework under Section 62(1)(b)
- IFSC / GIFT City Structuring – Entity setup and compliance under the Specified IFSC LLP framework
- AIF and Trust Advisory – Eligibility assessment and planning for trust-to-LLP conversion under Section 57A
- CSR Compliance Review – Threshold assessment and unspent funds management under revised 90-day timelines
- M&A and Merger Advisory – Fast-track merger planning under the revised 75% approval threshold
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