Setting up a business is an exciting and rewarding experience for many. When we think of establishing a business, we would think about the products/services to be offered, logistics, packaging, and whatnot. However, the thought of legalizing the business and having a specific business structure comes last to our minds. This can be considered the reason why the number of registered companies in India as of January 2022 stands at 1.43 million only (Source).
If you have plans to start a business in India, you might want to know what differentiates a registered company from an unregistered company. While there are several structural differences, there lies the adherence to the Companies Act 2013 at its core.
Here, we will cover the Companies Act 2013 in detail to understand its features and benefits for businesses in India.
What is Companies Act 2013?
As an Act of the Parliament in India, the Companies Act 2013 regulates the formation of companies, responsibilities of directors, and their dissolution. The 2013 Act replaced the Companies Act 1956 partially after receiving the assent of the Indian President in Aug 2013, and its Section 1 came into force on Aug 30, 2013. Other than Section 1, 98 different Sections of this Indian Companies Act came into force on Sep 12, 2013.
The Companies Act 2013 is divided into 29 Chapters that contain 470 Sections against 658 Sections in its predecessor and has seven schedules. Furthermore, the Ministry of Corporate Affairs also published a notification to declare exemption of private companies from the limits of various Sections under this Act.
Companies Act 2013 Vs. Companies Act 1956
The following table covers the differences between the Companies Act 2013 and the Companies Act 1956:
|Companies Act 2013||Companies Act 1956|
|It contains 29 Chapters, 470 Sections, and 7 Schedules.||It contains 13 Parts, 26 Chapters, 658 Sections, and 15 Schedules.|
|The maximum number of shareholders in a private company is 200.||Previously, the maximum number of shareholders in a private company was capped at 50.|
|It introduced the concept of One Person Company.||It does not cover One Person Company.|
|A subsidiary can hold shares in the holding company as a trustee.||A subsidiary was not allowed to hold shares of a holding company.|
|The government can prescribe the types of companies that can issue shelf prospectus.||Only public financial institutions, scheduled banks, or public sector banks were allowed to issue the shelf prospectus.|
Major highlights of Companies Act 2013
- Introduction of One Person Company concept
- Company Law Tribunal and Company Law Appellate Tribunal
- Mandatory requirement of CSR in Companies Act 2013
Salient features of Companies Act 2013
- The 2013 Act introduced the concept of ‘Dormant Companies’ which refers to the entities that are not engaged in business for two consecutive years.
- It introduced the National Company Law Tribunal, which is a quasi-judicial body to adjudicate various issues related to the companies. This body has also replaced the Company Law board.
- It has allowed document maintenance in electronic form.
- It has given official liquidators adjudicatory powers for companies with net assets of up to Rs. 1 crore.
- It has led to faster mergers and amalgamations.
- The Companies Act 2013 also allowed cross-border mergers (Indian companies merging with a foreign company) with the permission of the RBI.
- The Act has also introduced the concept of One Person Company – a type of private company that has one director and one shareholder. Previously, the 1956 Act required a private company to have two directors and two shareholders.
- It has made having independent directors a statutory requirement for public companies.
- For a certain class of companies, women directors are mandatory.
- The Act also mandates at least seven days of notice to call board meetings.
- The duties of a Director, Key Managerial Personnel, and Promoter have been defined under this Act.
- The Companies Act 2013 also prevents auditors from performing non-audit services for any company.
- It has made it mandatory for companies to form CSR committees and related policies.
- It has also banned the directors and key managerial personnel from buying the call and put options on the company’s shares if they are expected to have access to price-sensitive information.
- It offers more power to the shareholders of a company by providing for their approval in major transactions.
Types of companies under this Act
The following types of companies are mentioned in the Companies Act 2013:
|Type of company||Description|
|One person company||Having only one person as its member|
|Private company||Having up to 200 members (minimum of two members)|
|Public company||Having 51% or more shares held/regulated by either the state or central government|
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Incorporation of a Company under Companies Act 2013
This 2013 Act also details the essential rules and regulations to be followed at the time of registering a company. These include:
- The company must have a suitable name with its last name being private limited (for a private company) and limited (for a public company).
- The company name must not be similar to any other company registered under this Act. Moreover, the name should not be offensive or undesirable under law.
- The members of the company also need to ensure that the company name does not violate the provisions related to names and emblems that are stated under the Improper Use Act, 1950. The name can be checked by using the name-checking services provided on the website of the Ministry of Corporate Affairs.
- To register a company under the Indian Companies Act 2013, an application along with the required documents and fee needs to be submitted to the registrar for approval and name reservation. Besides this, the members need to fill out different forms to apply for registration.
- The memorandum of association and related articles need to be drafted and then verified by the registrar. These documents should be stamped and signed by all the members of the company in the presence of a witness.
- All the members also need to furnish details, such as occupation, address, shares subscribed, etc. at the time of company registration.
- Once the above-mentioned steps are completed, applicants need to log in to the web portal to submit various forms, memorandum of association, and other relevant documents.
Important Sections under Companies Act 2013
Given below are some of the most important Sections covered under the Companies Act 2013: