The Companies Act 2013 is a sanctioned revision of the Companies Act, 1956. It has partially altered the given Companies laws of 1956. The new law has articulately met the demands of the changing times. The 2013 Act is divided into 29 chapters containing 470 sections. There have been some major changes in the new Companies Act of 2013 which monitors the incorporation of a company, encompasses the vast stretches of the company’s responsibilities, its directors – nature, types and authority granted, and the winding of the company.
The Companies Act overlooks all the different areas of functions. It has specifically laid notification as to the maximum and minimum strength of the board members, the relaxation in age and posing stringent laws for the companies to follow the academic calendar. All this has been brought under the Companies Act domain because of the need to have a specific business module.
The Act caters to the Indian company law and was incorporated by the President of India in 2013. The Ministry of Company Affairs have since then made improvisations and have recently exempted private companies from the ambit of various sections under the Companies Act. New terms like “one person company”, “ dormant company”, and “small company” have been re-introduced with their scope and underlying constraints in the business domain.
The Act consolidates and amends the laws relating to governing business companies. The Companies Act 2013 takes into account a fairer, more systematic and transparent corporate governance. It aims at enhancing and enriching the process of doing business in India through an accountable procedure as stated under the Indian law. The Act has almost redefined every aspect of business models including CSR, audit rotation, e – management etc. This article aims at enlisting prominent features of the revised Indian Companies Act, 2013.
Foundational theory of One Person Company (OPC)
The concept of One Person Company in India was introduced through the Companies Act, 2013 to help support entrepreneurs who are competent enough to start a business venture on their own. This underlines the laws governing and allowing a sole person to start and run a business and create a single person economic entity. OPC is different from sole proprietorship as the latter is not legally bound.
A small company : definition and membership
Private limited company that can be classified as a small company are generally start-ups that have a total paid up capital of less than Rs.50 lakhs and also an annual sales turnover of less than five crore rupees. The 2013 Act provides exemptions to Small Companies basically from certain requirements relating to board meeting, presentation of cash flow statement and certain merger process.
The Act has also increased the limit of the number of members from 50 to 200. The minimum members a private company can assign has now been increased to 200 in regard of the growing market and self-independent private companies.
Alignment of the Fiscal Year
The former Companies Act had provisions for electing a financial year. But with the revision of the Companies Act 1956, the existing flexibility has been done away with. The 2013 Act provides that the fiscal year of all companies should end on 31st March. Although, Certain exceptions have also been granted by the National Company Law Tribunal. Companies need to correspond to the financial year dates.
Revisions made for Managing Director & Board of Members
Given the growth in young entrepreneurial regime, the new law has revised the lower age limit from 25 years to 21 years.
It is a welcome step that the government of India is identifying the potential and is keen observant of the changing market structure. To boost female participation and adequate representation of women in key strategic positions the Companies Act, 2013 prescribes the appointment of at least one woman director on the board.
The compulsion on a Resident Director
The law underlines the fact that a company should have at least one resident director, that is, one who has stayed in India for a total period of not less than 182 days in the previous calendar year.
The stress on board meetings
The Act suggests that board meetings should be held at least 4 times in a fiscal year. The notice for a board meeting should be issued 7 days prior to the meeting. There should not be a gap of more than 120 days between two consecutive meetings.
The companies Act 2013 dictates the removal of a director if he/she fails to attend any of the board meetings held in the stretch of a year.
Fostering corporate social responsibility
The companies act has mandated the formation of a CSR committee of the board and to invest 2% of the average net profits of the last three financial years in corporate philanthropy. It is high time that business giants invest in a better and sustainable future. It aims at promoting entrepreneurial ecosystem in India.
The refined Indian Companies Act 2013 aims at a business model which will help India rise to international platform with a more systematic, accountable and transparent business environment.