Neighbourhood: Draft Company Law of Bhutan

Bhutan proposed to replace its Companies Act of Bhutan, 2000 and new bill is under second reading in parliament. Here, we will discuss some interesting points from the Companies Bill of Bhutan 2014 which may be a great learning for our readers.

Body Corporate

The Act shall apply to every “body corporate” incorporated or registered by or under this Act [Clause 2]. Every company under this Act shall be limited by shares [Clause 5]. There is no concept of unlimited company or company limited by guarantee.

(a) Minimum allotted share capital, (b) at least three directors, (c) a company secretary and (d) intention to offer shares to public is basic characteristics of a public company [Clause 10]. All government companies shall be public companies [Clause 13].

Single Application

Application for incorporation shall be treated as application as taxpayer and for any business license required [Clause 32]. Registrar may share information with all other ministries or agencies for license purposes [Clause 33].


Every company shall issue equity shares [Clause 56] and may issue preference shares [Clause 60].  A company may issue such classes of shares as it considers appropriate and attach different rights and privileges to shares of different classes [Clause 65]. All shares issued to public by public companies shall be in dematerialised form [Clause 80].

If a public company intends to offer its shares or other securities to the public, the company shall apply to the Securities Exchange for listing of its securities at the Securities Exchange [Clause 105].

Independent Director

In all public companies, at least one third directors shall be independent [Clause 131]. A director is not independent if he:

  • has been an employee of the company or group within the last five years;
  • has, or has had within the last three years, a material business relationship with the company either directly, or as a partner, shareholder, director or senior employee of a body corporate that has such a relationship with the company;
  • has received or receives additional remuneration from the company apart from a director’s fee, participates in the company’s share option or a performance-related pay scheme, or is a shareholder of the company’s pension scheme;
  • has close family ties with any of the company’s advisers, directors or senior employees;
  • holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;
  • represents a shareholder;
  • has served on the board for more than nine years from the date of their first election,
  • holds securities of that company; or
  • is affiliated with suppliers or customers for the past five years [Clause 132].


A person may not be a director in more than five public companies [Clause 137].

Every public company shall hold a meeting of its Board of directors at least once in every three months and at least four such meetings shall be held in every year [Clause 142]. Every private company shall hold a meeting of its Board of directors at least once in every six months and at least two such meetings shall be held in every year [Clause 143].

Conflict of interest

No director of a company, other than a private company, shall take part in the discussion or vote on any contract or arrangement entered into by the company in which he is concerned or interested; nor shall his presence count for the purpose of forming a quorum at the time of any such discussion or vote, and if he does vote, his vote shall be void. Any director who violates this section shall be liable for fine equivalent to the amount of loss incurred on the Company [Clause 157].

Standard of care required by directors

For the purposes of section 158, the best interests of the company shall take into account:

  • the likely consequences of any decision in the long term,
  • the interests of the company’s employees,
  • the need to foster the company’s business relationships with suppliers, customers and others,
  • the impact of the company’s operations on the community and the environment,
  • the desirability of the company maintaining a reputation for high standards of business conduct, and
  • the need to act fairly as between shareholders of the company [Clause 159].

Derivative proceedings

A shareholder in a company may apply to the court of competent jurisdiction for leave to bring proceedings in the name and on behalf of the company in respect of an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company [Clause 163].

Shadow directors

If the directors are accustomed to act in accordance with the directions or instructions of some other person, that person shall be treated as a director for the purposes of: (a) Insider trading; (b) No loans to directors; (c) Conflict of interest; (d) Derivative proceedings; (e) Inspection of books of account, etc., of companies; (f) Statement of affairs to be made to liquidator; (g) Power of Registrar to strike off defunct company; and (h) Penalty where no specific penalty is provided, but shall not be treated as a director for the purposes of: (a) Execution of documents; (b) Financial statements prepared; (c) Board’s report; and (d) Annual return [Clause 171].

Board cum Annual General Meeting

In the case of a Government company, the business to be transacted in an Annual General Meeting may be conducted in a Board meeting within the time frame prescribed above. Notice calling the meeting shall refer it as Board cum Annual General Meeting. [Clause 174]

Company secretary

The directors of every listed company and every other company having a paid-up share capital of over Nu 100,000,000 shall appoint a company secretary [Clause 205].  The Ministry may make regulations regarding the qualifications appropriate for a company secretary [Clause 208].

One Nu = One Indian Rupee


Every company shall, at each Annual General Meeting appoint auditors or joint auditors, out of the panel of auditors maintained by the Royal Audit Authority, to hold office from the conclusion of that meeting to until the conclusion of next Annual General Meeting [Clause 247].

My Observation

The draft of Bhutan law is in plain and layman readable language. This seems to be simpler than simple legal English of many Indian laws. There are some good concepts which are present in many jurisdiction but in complex manner. Whole Draft is of less than 100 pages. There are total 411 sections with 12 provisions for Regulations by the Ministry, and only 55 instances of word prescribed. However, many complex issues which are dealt with Indian or other jurisdictions are not dealt with in Bhutan. Life is simple and good for doing business.

Please note: This blog invite readers to share their comments, suggestions, hardship, queries and everything in comment section. This blog post is not a professional advice but just a knowledge sharing initiative for mutual discussion.


No professional query in comments (but in mail). Only academic discussion here. Comments moderated. Sometime, I reply to your mail ID.

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