Companies Act 2013

Company is a peculiar model for setting up a business. Some of the attractive features of forming this model of business are:

  • Limited liability of members
  • Transferable Shares
  • Separate ownership of the property
  • Capacity to sue or being sued
  • Perpetual Existence etc.

In India, companies are regulated through Companies Act 2013. Companies Act 2013 (‘Companies Act’ or ‘Act’) is divided into 29 chapters with 7 Schedules & 470 sections. The Companies Act 2013 is the latest law in relation to regulation of companies after significant revamp of erstwhile Companies Act, 1956, enforced as on 12 September, 2013.

The Act empowers shareholders and gives high value to Corporate Governance. The 2013 Act introduces significant changes in the provisions related to compliance, governance and enforcement, disclosure norms, director’s responsibility, dissolution of a company etc. Also, new concepts such as one-person company (OPC), small companies, dormant company, and corporate social responsibility (CSR) have been included.

Salient features of the Companies Act 2013

  1. Class action suits for Shareholders:Section 245

Bringing more power to shareholder. This is entirely a new concept making stakeholders more aware of theirs rights and power.

  1. National Company Law Tribunal:

For improving justice system The Companies Act 2013 introduced National Company Law Tribunal and the National Company Law Appellate Tribunal to replace the Company Law Board and Board for Industrial and Financial Reconstruction.

  1. Fast Track Mergers:

The Companies Act 2013 proposes a fast track and simplified procedure for mergers and amalgamations of certain class of companies such as holding and subsidiary, and small companies after obtaining approval of the Indian government.

  1. Limit on Maximum Partners:

The maximum number of persons/partners in any association/partnership may be upto such number as may be prescribed but not exceeding one hundred. This restriction will not apply to an association or partnership, constituted by professionals like lawyer, chartered accountants, company secretaries, etc. who are governed by their special laws. Under the Companies Act 1956, there was a limit of maximum 20 persons/partners and there was no exemption granted to the professionals.

  1. Women empowerment in the corporate sector:

Now under new companies act, 2013 at least one woman Director on the Board is mandatory (for certain class of companies).

  1. Corporate Social Responsibility:

Section 135 of The Companies Act 2013 stipulates certain class of Companies to spend a certain amount of money every year on activities/initiatives reflecting Corporate Social Responsibility.

  1. Increase in number of Shareholders:

The Companies Act 2013 increased the number of maximum shareholders in a private company from 50 to 200.

  1. One Person Company:

The Companies Act 2013 provides new form of private company, i.e., one person company. It may have only one director and one shareholder. The Companies Act 1956 requires minimum two shareholders and two directors in case of a private company.

  1. Indian Resident as Director:

Every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year.

  1. Independent Directors:

The Companies Act 2013 provides that all listed companies should have at least one-third of the Board as independent directors. Such other class or classes of public companies as may be prescribed by the Central Government shall also be required to appoint independent directors. No independent director shall hold office for more than two consecutive terms of five years.

  1. Serving Notice of Board Meeting:

The Companies Act 2013 requires at least seven days’ notice to call a board meeting. The notice may be sent by electronic means to every director at his address registered with the company.

  1. Duties of Director defined:

Under the Companies Act 1956, a director had fiduciary (legal or ethical relationship of trust) duties towards a company. However, the Companies Act 2013 has defined the duties of a director.

  1. Liability on Directors and Officers:

The Companies Act 2013 does not restrict an Indian company from indemnifying (compensate for harm or loss) its directors and officers like the Companies Act 1956.

  1. Rotation of Auditors:

The Companies Act 2013 provides for rotation of auditors and audit firms in case of publicly traded companies.

  1. Prohibits Auditors from performing Non-Audit Services:

The Companies Act 2013 prohibits Auditors from performing non-audit services to the company where they are auditor to ensure independence and accountability of auditor.

  1. Rehabilitation and Liquidation Process:

The entire rehabilitation and liquidation process of the companies in financial crisis has been made time bound under Companies Act 2013.


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