Capital Formation, Structuring Flexibility, and Operational Reforms Under the Corporate Laws (Amendment) Bill, 2026

The Companies Act, 2013, arrived with ambitions of world-class governance but created a compliance architecture so dense that it triggered over a decade of piecemeal fixes: decriminalisation waves in 2018 and 2020, procedural relaxations during COVID-19, and gradual National Financial Reporting Authority (“NFRA”) empowerment through notifications. The Corporate Laws (Amendment) Bill, 2026, introduced in Lok Sabha on March 23, 2026, and now under Joint Parliamentary Committee review, represents the government's first effort to move beyond reactive corrections toward a cohesive, execution-oriented regulatory philosophy.

This Bill is best read as a blueprint for capital formation and operational efficiency. It proposes to double small company thresholds, halve Corporate Social Responsibility (“CSR”) friction for mid-sized entities, create foreign-currency operating infrastructure for International Financial Services Centre (“IFSC”) companies, formalise Restricted Stock Units (“RSUs”) and Stock Appreciation Rights (“SARs”) as recognized compensation instruments, liberalise buy-back rules to permit two transactions annually, and streamline merger approval thresholds from 90% to 75%. For CFOs, the significance lies not in any single provision but in the underlying shift: from form-heavy compliance to outcome-based, risk-aligned regulation.

1. Small Company Thresholds: Widening the Relief Perimeter

Section 2(85) of the proposed Bill, 2026 seeks to revise the definition of a “small company” by increasing the paid‑up capital threshold from INR 10 crore to INR 20 crore and the turnover limit from INR 100 crore to INR 200 crore. If enacted, this change would significantly broaden the scope of companies eligible for compliance relaxations, with potential implications for how promoters plan growth trajectories, time capital infusions, and structure subsidiaries. For CFOs, the proposal signals the possibility of retaining operational agility for a longer period by deferring the transition to the more demanding compliance framework applicable to larger entities.

2. CSR Rationalisation: Sharper Thresholds, Lower Friction

The proposed amendments to Section 135 introduce calibrated, rather than merely cosmetic, changes to the CSR framework. The Bill seeks to double the net‑profit trigger from INR 5 crore to INR 10 crore, extend the timeline for transferring unspent CSR amounts relating to ongoing projects from 30 days to 90 days, and raise the threshold for constituting a CSR Committee from INR 50 lakh to INR 1 crore, while also empowering the Central Government to prescribe a higher threshold. In addition, the Bill proposes to allow exemptions for prescribed classes of companies subject to specified conditions.

For business leaders, these proposals signal a shift away from a blanket, one‑size‑fits‑all obligation towards a more proportionate accountability regime. If enacted, smaller or scaling companies may benefit from additional breathing space; however, expectations from investors and customers around ESG alignment and responsible conduct are likely to remain intact, transforming CSR governance into a strategic consideration rather than a purely statutory compliance exercise.

3. IFSC Reforms: A Foreign-Currency Operating Framework

New Section 43A is among the Bill’s most commercially significant inserts. It allows IFSC companies to issue and maintain share capital in permitted foreign currency, prepare books and financial statements in that currency, and use foreign currency for specified filings, while fees, fines, and penalties remain payable in Indian rupees. Parallel LLP amendments allow specified IFSC LLPs to receive and disclose partner contributions in permitted foreign currency and maintain books in that currency, including conversion of pre-existing structures within the prescribed period.

The Bill also inserts definitions for IFSC, IFSCA, permitted foreign currency, and specified IFSC LLP, and links them to naming, office, and filing rules. A specified IFSC LLP must maintain its registered office in the IFSC and include “International Financial Services Centre LLP” in its name. For globally oriented businesses, this reduces currency-conversion distortion and makes IFSC structures more realistic for treasury, fund, fintech, and financial services planning.

4. LLP Rationalisation: Better Fit for Regulated Financial Entities

The proposed LLP amendments proceed on the recognition that regulated financial entities do not operate in the same manner as conventional, closely held partnerships. For prescribed LLPs regulated by SEBI or IFSCA, the Bill proposes to permit reporting of partner changes on an annual basis instead of upon every change, and to allow modifications to LLP agreements to be filed in the manner prescribed by rules rather than under the standard filing framework—an adjustment that is particularly relevant for AIF‑style structures where frequent partner churn would otherwise result in disproportionate compliance friction.

The Bill further proposes to introduce a new Section 33A, applying the valuation principles under Section 247 of the Companies Act to LLP contributions, assets, net worth, and liabilities, while Section 32(2) expressly addresses partner contributions made in foreign currency. In addition, an appellate mechanism against Registrar decisions is proposed through new Section 68B, alongside provisions enabling suo motu penalty adjudication and a structured transition from criminal to civil penalties under Section 76A. Collectively, these measures signal a policy intent to upgrade the LLP framework into a more robust and credible institutional vehicle for regulated, investment‑facing, and cross‑border platforms.

5. Trust-to-LLP Conversion: A New Pathway for AIF-style Platforms

The proposed insertion of Section 57A, read with the Fifth Schedule, introduces a structured pathway for the conversion of specified trusts registered with SEBI or IFSCA into LLPs. The eligibility framework is intentionally narrow, and the conversion process is designed to be rigorous, requiring an application by the trustees, prescribed disclosures, approval of three‑fourths of the beneficiaries or investors, and certification by the Registrar. Upon conversion, all assets, rights, liabilities, and undertakings of the trust are proposed to vest in the resulting LLP, the trust would stand dissolved, and the trustees would continue to remain jointly and severally liable along with the LLP for obligations incurred prior to conversion.

This opens an important structuring route for fund and investment platforms. Used carefully, it can improve operational flexibility and continuity, but only if sponsors are prepared to manage investor-consent logistics, migration sequencing, and residual liability analysis.

6. Share-Linked Compensation: Formal Recognition of Restricted Stock Units (RSUs) and Stock Appreciation Rights (SARs)

The Bill moves Indian company law beyond an Employee Stock Option (ESOP) only mindset. Section 62 now recognises further issue of securities not only under employee stock option schemes but also under other schemes linked to the value of share capital, and Section 42 expands private placement from “shares” to “securities,” expressly accommodating structures such as RSUs and SARs. This is a significant development for start-ups, listed entities, and multinational employers designing more flexible executive compensation architecture.

The reform is not merely enabling; it also integrates these instruments into the buy-back restriction framework. Sections 68(5)(c), 68(8), and Explanation I extend the relevant prohibitions and references to scheme-linked instruments as well. Compensation committees therefore gain flexibility, but governance, disclosure, and liquidity planning become even more important.

7. Buy-back Liberalisation: More Responsive Capital Return Planning

The proposed buy‑back reforms seek to provide companies with greater flexibility in managing their treasury and capital allocation strategies. The Bill proposes to permit prescribed classes of companies to undertake two buy‑backs within a financial year, subject to the condition that the second buy‑back is not initiated earlier than six months from the closure of the first. It also proposes to allow a higher prescribed percentage limit, clarify that the 25 per cent equity cap is to be computed with reference to total paid‑up equity capital, remove the requirement for filing an affidavit as part of the solvency declaration, and decriminalise contraventions by shifting from criminal liability to a civil penalty regime.

If enacted, these changes could enable boards and CFOs to deploy buy‑backs as a more agile and responsive capital management tool rather than a rigid, once‑a‑year exercise. This would be particularly relevant for listed companies seeking to manage valuation signals and for cash‑rich companies aiming to optimise balance‑sheet efficiency while responding more dynamically to market conditions.

8. Mergers and Restructuring: Lower Thresholds, Clearer Lanes

The Bill reduces the member and creditor approval threshold for fast-track mergers from 90 percent to 75 percent under Section 233. It also exempts demergers from the requirement to file the scheme with the Official Liquidator, clarifies that compromise and arrangement proceedings under the Companies Act are unavailable once IBC liquidation has begun, and mandates filing before the NCLT bench having jurisdiction over the transferee or resultant company.

A new Section 233A deals expressly with cross-holdings by requiring disposal or cancellation of certain shares held by the transferee company in its own name or in the name of a trust within three years, failing which cancellation follows. NCLAT jurisdiction is also extended to valuation authority orders. For dealmakers, the message is efficiency with discipline: faster approvals are being matched with tighter treatment of legacy structural anomalies.

9. IEPF Reforms: Wider Sweep, Clearer Refund Logic

The proposed amendments also seek to expand and refine the Investor Education and Protection Fund (“IEPF”) framework. Under the Bill, unpaid or unclaimed buy‑back proceeds that remain outstanding for seven years or more would be required to be credited to the IEPF. The scope for refunds is proposed to be widened, procedural requirements are intended to be prescribed with greater clarity, and the IEPF Authority is proposed to be expressly empowered to delegate its functions. If enacted, these changes would be particularly relevant for companies managing long‑tail shareholder claims, historic corporate actions, and ageing records, which often create operational friction in ongoing investor servicing and compliance.

10. Procedural and Digital Simplification

The Bill proposes a set of targeted changes to modernise routine compliance while tightening the regime for substantive defaults. New Section 12A seeks to require prescribed companies to maintain a website, email address, and other specified modes of electronic communication, and to notify the Registrar of any changes thereto. Section 20 is proposed to mandate electronic service of documents for prescribed classes of companies, charge‑registration timelines are proposed to be relaxed for prescribed categories such as small companies, Section 88 is proposed to prohibit the recording of trust notices in the register of members, and realignment of the financial year may be permitted on specified commercial grounds.

In parallel, the Bill proposes to raise the Regional Director’s compounding jurisdiction to INR 1 crore, recalibrate the strike‑off and restoration framework, confer express power on the Central Government to issue clarificatory circulars under a new Section 466A, and increase the minimum penalty for fraud under Section 447. Read together, these proposals reflect a two‑track legislative philosophy: meaningful simplification and digitisation of everyday compliance on the one hand, and sharper consequences for serious misconduct on the other.

Key takeaways

• Group Structuring and Threshold Planning: Revisit group structures and thresholds; more companies may now fit within the small company relief framework.

• CSR and ESG Positioning: Treat CSR as a strategic reputation question even where statutory burden reduces.

• IFSC and Cross‑Border Platform Strategy: Reassess IFSC vehicles for cross-border capital raising, treasury, and reporting efficiency.

• Fund and Investment Vehicle Design: Review LLP and trust-based fund structures; the Bill creates more credible institutional pathways.

• Employee Incentives and Capital Planning: Modernise employee incentive plans to account for RSUs, SARs, and linked buy-back implications.

• Capital Management and Transaction Readiness: Update buy-back and restructuring playbooks; the law now supports faster capital and transaction decisions, but only with stronger planning discipline.

Disclaimer

The note is prepared for knowledge dissemination and does not constitute legal, financial or commercial advice. AK & Partners or its associates are not responsible for any action taken based on its contents.

For further queries or details, you may contact:

Ms. Kritika Krishnamurthy

Founding Partner

AK & Partners

info@akandpartners.in