In India, the Companies Act 2013 governs the formation and operation of corporations or companies. The Companies Act 1956 was the first Act that governed corporate entities in the country. The Bhabha Committee’s suggestions were incorporated into the 1956 Act.
This Act has since been changed several times, with the most recent revision being in 2013. India is one of the first countries to pass a law that makes corporate social responsibility (CSR) spending mandatory under Section 135 of the 2013 Act.
The following are the types of companies specified in this Act:
One-person company: A one-person company is one which has only one director and one shareholder.
Private company: A private company is a corporation with a maximum membership of two hundred (in case of a one-person company), and a minimum membership of two.
A private company’s minimum share capital can be any amount that the members determine.
Public company: A public company is one that can sell stock to the general public and has minimum liability. A public company must have a minimum of seven members.
Comparison between Companies Act, 1956 and Companies Act, 2013
Companies Act 2013 has replaced the 1956 Act. The features of the Companies Act 2013 that are different from the 1956 Act are indicated in the table below:
Companies Act 1956
Companies Act 2013
Companies Act 2013 highlights
The major highlights of the new Companies Act 2013 are given below:
- A private company may have a maximum of 200 shareholders, which was previously 50.
- One-person company concept was created.
- The following two tribunals have been made mandatory:
- Company Law Appellate Tribunal
- Company Law Tribunal CSR
Features of the Companies Act 2013
Some features of the Companies Act 2013 are as follows:
- The notion of ‘Dormant Companies’ has been introduced. Companies that have been inactive for more than two years are considered dormant.
- The National Company Law Tribunal was established as a result of it.
- It is a quasi-judicial organisation in India that decides on business disputes. It took the place of the Company Law Board.
- Rather than relying on official approval, it allows for self-regulation in terms of disclosures and openness.
- Documents must be stored digitally in an electronic format.
- For companies with net assets of up to 1 crore, official liquidators have adjudicatory powers.
- Merger and amalgamation procedures have been simplified and made speedier.
- This Act allows cross-border mergers (international companies combining with Indian companies and vice versa), albeit with consent from the Reserve Bank of India.
- The idea of a one-person business has been proposed. This is a novel sort of private corporation that can only have one shareholder and one director. A private corporation must have at least two directors and two stockholders, according to the 1956 Act.
- For public corporations, having independent directors has become a legal obligation.
- Female directors are required for a specific class of corporations.
- The Act allows the articles of association to be entrenched (given further legal protection). The Act requires that board meetings be called with at least seven days’ notice.
- The functions of a Director are defined under this Act. The roles of ‘Key Managerial Personnel’ and ‘Promoter’ have also been specified.
- Public enterprises need to have a rotation of auditors and audit firms. The Act also prohibits auditors from providing the corporation with non-audit services. An auditor faces significant criminal and civil penalties if he or she fails to comply with the law.
- The entire procedure of company rehabilitation and liquidation in the event of a financial crisis has been made time-limited.
- Companies must organise CSR committees and develop CSR policies as a result of the Act. Certain firms have been required to make mandatory CSR disclosures.
- One director should be appointed to represent small shareholders in publicly traded corporations.
- During an investigation, there is a provision for the search and seizure of papers without the need for a magistrate’s order.
- Accepting deposits from the general public is now subject to stricter regulations.
- The establishment of the National Financial Reporting Authority (NFRA) is planned. It is responsible for establishing and enforcing accounting and auditing standards, as well as overseeing the work of auditors.
- If a key manager or director is reasonably believed to have access to price-sensitive information, the Act prohibits them from purchasing calls and putting options on the company’s stock.
- The Act gives shareholders more authority by requiring shareholder approval for many important transactions.
Companies (Amendment) Bill, 2020
The Parliament passed this Act in March 2020. The following are the amendments recommended by the most recent update to the Companies Act:
The Bill gives the government the authority to allow certain types of public corporations to list securities in foreign jurisdictions (as determined by the government).
The Bill gives the central government the authority, in conjunction with the Securities and Exchange Board of India, to exempt corporations that issue certain types of securities from the definition of “listed company.”
The Act creates exceptional arrangements for paying remuneration to a company’s executive directors (including the managing director and other full-time directors) if the company’s profits are insufficient or non-existent in a given year.
The Companies Act 2013 carries a lot of significance in the business landscape in India. It consists of several definitions and sections that need to be thoroughly studied and abided by all the companies in India. Each year, the Companies Amendment Bill is passed, which proposes new changes in the Act that are in line with the changing economic and business scenario in India.