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Companies Act likely by May 2005

25th November 2004: The government said it would introduce the Bill for the Companies Act in the Budget Session next year and the new Act was expected to be in place by May 2005. "We will introduce the bill for the new Companies Act in the Parliament in the later session of the Union Budget and the new act was expected to come into being by May 2005," Union Company Affairs Minister PC Gupta said at the National Accounts Convention. The committee comprising chambers of commerce, Sebi, RBI and Ministry of Law and finance officials headed by JJ Irani would look into the comments and views received on the concept paper and submit a report to the consumer affairs ministry in 90 days.

Gupta said the government has proposed to reduce the provisions of the Companies Act to 289 from the present 781. He said the government wanted to free the corporate world of bureaucratic hurdles and provide it with a level playing field for competition with multinational companies. It was taking strong action against vanishing companies and would rope in the services of NGOs for building investor confidence and education. Two major scams had hit the credibility of the stock market and had shaken investor confidence, he said, adding, without the two scams, there would have been 20 crore small investors in the market.

RBI eases share transfer within sectoral limits

The Reserve Bank of India (RBI) said that prior permission of the Foreign Investment Promotion Board (FIPB) is not required for transfer of shares/convertible debentures of a domestic company, by way of sale, from residents to non-residents. At present, transfer of shares to non-residents requires prior permission of the FIPB, followed by RBIís approval. However, the revised norm will not be applicable to companies in the financial service sector i.e. banks, non-bank finance companies and insurance, RBI said in a notification.

The exemption from the government approval for such transfer will be subject to certain conditions. The conditions are: the activities of investee company should be under the automatic route, under foreign direct investment (FDI) policy, non-resident shareholding after the transfer should comply with sectoral limits, under FDI policy and the price at which the transfer takes place should be in accordance with the pricing guidelines prescribed. As a measure for simplifying procedures, increase in foreign equity participation by fresh issue of shares and conversion of preference shares into equity capital have been put under general permission, provided such increase falls within the sectoral cap and are within the automatic route, RBI said. The general permission does not include transfer of shares from residents to non-residents of entities in the financial sector like banks, non-banking finance companies and insurance companies, it added.

What do you mean by an ADR issue?

15 November 2004: ADR stands for American depository receipt. ADRs enable investors based in the US to invest in stocks of non-US companies trading on a non-US exchange. ADRs are denominated in dollars. A depository bank issues an ADR and each ADR represents one or more shares. Simply put, US brokers purchase shares of a foreign company, say Infosys, on behalf of their clients. The shares are delivered to a custodian bank which in turn brings the Depository Banks into the picture. The depository bank then issues a certificate called the ADR with each ADR representing a fixed number of shares. The ratio of number of shares to an ADR is decided in such a way that American investors find it comfortable. ADRs are subsequently listed on US stock exchanges.

Are there different types of ADR issues?

Yes. ADRs can be sponsored or unsponsored. Sponsored ADRs are those in which the company actively participates in the process. Sponsored ADRs can be Level I, Level II or Level III. There is also what is called Rule 144A ADRs. ADRs were first offered in the US in the 1920s. Many Indian companies have issued ADRs. Infosys is the first Indian company to use the ADR route to raise funds overseas.

Is an ADR different from ADS?

No, the words are often used interchangeably. The individual shares represented by an ADR are called American Depository Shares.

What advantages do an ADR issue offer?

To the company issuing ADRs, it provides access to American market. A company can therefore raise additional resources. To an American investor it provides the opportunity to invest in stock of companies not listed in the US. ADRs neutralise the problems caused in the course of offering shares belonging to a company in any country in US. Huge operational, custodial and currency conversion issues can come into play if the ADR route is not used.

Advantages of L-1 over an H-1B

3rd November 2004: Student visas of the US are described with the alphabet and numerical number F-1. To be eligible to receive the same, a foreign student should show that he has been granted admission in a recognised university of the US. The university should issue to that student a computer generated SEVIS mode Form I-20.

Along with the same, the student, whilst applying for a student visa, has to show to the consular officer that his intention in traveling to the US is bonafide to study there and he has sufficient funds to meet with the expenses of tuition fees, lodging, boarding and other miscellaneous expenses during his study in the US. He also has to show that he has no intention of permanently residing in the US or to illegally work there. The student has to show his strong family and financial ties in his home country.

What are the requirements to receive H-1B visas?

The first and foremost requirement to receive an H-1B visa is the availability of the quota number. As of today, the 65000 yearly quota for the fiscal year 2004, i.e. for the period October 1, 2004 to September 30, 2005, are exhausted. Anyone who wants to receive an H-1B visa now will have to wait for a year. To be eligible to receive this visa, one should be a graduate or having equivalent work experience, three yearsí work experience is counted as one yearís college education. There should be a job available in USA, which needs a degree holder.

The employer has to then file a labour condition application with the labour department, informing it that it is intending to offer that job to a foreigner and that the salary offered is not less than the current market rate and the foreigner is not invited to displace an existing American worker or to break the prevailing strike. Thereafter, the US employer has to file a petition with the concerned USCIS officer in whose jurisdiction it is carrying on its business operations.

After the petition is approved, the foreign employee has to apply for an H-1B visa at the American Consulate in whose jurisdiction he resides. He has to satisfy the consular officer about his credentials. Thereupon, he would be issued an H-1B visa.

What is the advantage of an L-1 visa over an H-1B visa?

The advantage of an intracompany transferee L-1 visa over the speciality occupation H-1B visa is that any quota numbers does not restrict L-1 visas. They can be issued in any number in a year. The employee is not required to be paid the salary at the current market rate. He can be paid the salary in his home country also. If the employee is a manager or an executive and receives L-1 visa, he can work in USA for one year more than the employee on a H-1B visa.

SEBIís draft rules for the collection of securities transaction tax

2nd November 2004: The Securities and Exchange Board of India (SEBI) has published the draft rules for the collection of the Securities Transaction Tax (STT). According to the draft rules, value of the taxable securities would be computed on the volume-weighted-average price of the transaction.

The volume-weighted-average price of the transaction would be computed in the following manner, the quantity of shares purchased or sold in each trade of the equity share executed by the person on that day, shall be multiplied by the price at which the trade has executed, to determine the trade value of each trade; the aggregate trade value will then be divided by the total quantity of the equity shares traded by the person on that day, to determine the volume-weighted-average price of the equity share for that person for that day.

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