Companies Act 2013

01-May-2021
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A company is a legal entity formed by a group of individuals in order to work towards a common objective. The Act was introduced with the objective of meeting the changed national, international and economic environment and to accelerate the expansion and growth of the economy in India. A company can be a commercial or an industrial enterprise. An identity of a company is separate from the individuals who own, manage and support its operations. Each company has its vision, mission, values, appraisal system, corporate structures and hierarchy. 

Definition of a company Under Companies Act 2013

A company is a registered association denoting an artificial legal person. It has an independent legal entity with perpetual succession, a common capital composed of transferable shares, a common seal for its signatures, and carrying limited liability.

Q1. What is Companies Act 2013?

Ans. The Companies Act 2013 is an Act of the Parliament of India which regulates the incorporation, formulation and functioning of companies India. The Companies Act 2013 is the replacement of Indian Companies Act, 1956. The Act makes comprehensive provisions to govern all the listed and unlisted companies of the country. The Companies Act 2013 empowers shareholders and highlights higher value for corporate Governance. 

Q2. How many sections are there in Companies Act 2013?

Ans. The Companies Act 2013 contains 29 chapters and has fewer sections (470) in comparison to companies Act 1956 (658). It has 7 schedules. 

Q3. What kind of changes is done in Companies Act 2013?

Ans. With the enactment of Companies Act 2013, the financial year ends on 31st March, schedule 3 of format of financial statements is followed, concept of one person company has been introduced which was missing in previous Companies Act. 

Q4. Why was the Companies Act 2013 introduced?

Ans. The Companies Act 2013 was introduced to ease the process of doing business in India and improving corporate governance. Another factor behind the introduction of Companies Act 2013 was to make companies more accountable. 

Q5. How to form or register a company under Companies Act 2013?

Ans. Here are the steps to form or register a company under Companies Act 2013:

Step #1: Application for allotment of Director Identification Number in DIR-3: Apply for the Directors identification number by attaching documents - resistance proof, ID proof, copy of verification by the Applicant in DIR - 4 and specimen signature. 

Step #2: Applicability of name: The name of a company can be reserved by making an application to the registrar.  An application for reservation of name is to be filed through Form No. INC-1 alongwith the fees as provided under the Companies (Registration offices and fees) Rules, 2014.

Step #3: Application of incorporation of company: Filing of application with the Registrar of companies alongwith relevant documents - Memorandum of Association, Articles of Association, Declaration of accepting Table A, Affidavit from each subscriber in INC - 9 and specimen signature in INC - 10. 

#Step 4: Notice of location of registered office of Company under Incorporation INC-22: Proof of registered office addresses (Lease deed/Conveyance/Rent Agreement with the rent receipts).

#Step 5: Intimation regarding its first directors DIR - 12: e-Form DIR - 12 needs to be filed with the registrar within 30 days from the date of appointment/resignation taking place. 

#Step 6: Declaration prior to commencement of business INC-21: Declaration has to be filled by director within a period of 180 days from the date of incorporation. 

Q6. What are the features of Companies Act 2013?

Ans. Companies Act 2013 has introduced new features as given below:

1. Democracy of shareholders: The Companies Act 2013 has introduced new concept of class action suits to make shareholders more knowledgeable and informed about their rights. 

2. More power to shareholders: The Companies Act 2013 has given an eminent importance to shareholders. The Act provides approvals from shareholders on various important transactions. They have been vested with the power to sanction the limit.

3. Corporate social responsibility: The Companies Act 2013 stipulates the class of companies to spend a certain amount on various activities and initiatives to contribute towards corporate social responsibility.

4. Women empowerment: The Companies Act 2013 emphasizes on appointing atleast one woman Director (on certain class of companies). This feature is enacted in order to widen the talent pool enabling big corporation to seek benefits from diversified backgrounds having different opinions. 

5. National Company Law Tribunal: The Act has introduced National Company Law Tribunal and the National Company Law Appellate Tribunal for replacing the Company Law Board and Board for Industrial and Financial Reconstruction. Now, the courts are relieved of their burden, while simultaneously providing specialized justice. 

6. Fast track mergers: The Companies Act 2013 simplifies the procedure of mergers and amalgamations in certain class of companies like - small companies and holding & subsidiary in order to obtain approval of the Indian Government. 

7. Cross borders mergers: The Companies Act 2013 now permits cross border mergers in both ways; a foreign company merging with an India Company and vice versa. But it can only be done with the prior permission of RBI.

8. Strict prohibition on forward dealings and insider trading: The Companies Act 2013 prohibits key managerial personnel and directors from purchasing call and put options of shares of the company. Earlier these regulations were framed by SEBI as the capital market regulator. 

Q7. What are the provisions of Companies Act 2013?

Ans. Provisions of Companies Act 2013

The Ministry of Corporate Affairs has notified 12th September 2013 as effective date for 98 sections of Companies Act 2013. Certain important provisions are given below to ensure timely compliance by the companies:

1. Special resolution for borrowing in excess paid - up capital and free reserve:

Section 180 of the Companies Act 2013 requires that company cannot borrow in excess of its paid up capital and free reserves, unless approved by the special resolution. A private company is also required to pass special resolution of its proposed borrowing with its existing borrowing exceeds the paid – up capital and free reserves. 

2. Provisions on free reserves: Section 2 (43) defines the free reserve as amount available for distribution according to the latest audited balance sheet. However, it excludes the revaluation reserve and change due to change in carrying value of its assets/liability routed through profit & loss or otherwise. 

3. Limit on maximum partners: The maximum number of persons/partners in any association or partnership cannot exceed 100. This restriction is not applicable on a company formed by professionals like – CAs, CSs, lawyers etc.

4.  Net - Worth: According to Section 2(57) of Companies Act 2013 includes securities premium account; however it excludes write back of depreciation in Net - Worth. 

5. One Person Company: The Indian Companies Act 2013 provides new form of private company, i.e. one person company is introduced. It includes only one director and one shareholder. In case of a private company, minimum 2 shareholders and 2 directors were included.

6. Restriction on composition: Every company will have minimum one director who stays in India for atleast 182 days in the previous calendar year. 

7. Rotation of Auditors: The Act provides rotation of auditors in case of publicly traded companies. The Act also prohibits auditors from performing non - audit services.

Q8.  What are the objectives of Companies Act 2013?

1. To protect the interests of investors by drafting accurate information in the prospectus.

2. To promote corporate social activities undertaken by the companies.

3. To promote the use of technology by making mandatory maintenance of books of accounts in electronic form.

4. To ensure full disclosure of affairs of the companies in their published annual accounts.

5.  To enhance the economy the company by encouraging entrepreneurship.

6. To curtail insider trading activities.

7. To prevent malpractices on the part of company’s management.

8. To protect the rights of investors and creditors of the company.

9. To enforce proper performance of duties by the people responsible for the management of companies.

10. To enhance the economy of the country by enhancing entrepreneurship.

Q9. What is the difference between Companies Act 2013 and 1956?

Point of Difference Companies Act 2013 Companies Act 1956  
Financial Year Ends on 31st March every year Financial year ending on a date was used to be finalized by the company Earlier there was no fixed date for ending a financial year, now the date is fixed
Maximum number of partners Maximum 100 partners in private companies.  Maximum 50 partners in private companies. The maximum number of partners in private companies is increased from 50 to 100.
Maximum number of shareholders 200 excluding past and present employees 50 excluding past and present employees The number of shareholders has been increased from 50 to 200.
Memorandum of Association

(Object Clause)







(Availability of name)
The object for which company is incorporated is included and any matter considered necessary. 






Section 4(4) and 4(5)(i) of the 2013 Act incorporate the procedural aspects of application for availability of name of proposed company or proposed new name for existing company.
Objects of the Company were classified as the main objects of the company, objects incidental or ancillary to the attainment of the main objects and other objects of the company.
Procedural aspects of application for availability of name find no place in the 1956 Act.
Earlier the object clause was a bit extensive in comparison to current Companies Act.




Earlier there was no procedural aspect of application, now it is there. 


Articles of Association
(Entrenchment Provisions)



 


Articles contain such provisions





 


No as such provisions were there 




 


Earlier there was no entrenchment provision, now the new provision is made under Companies Act 2013
 
Commencement of Business A declaration has to be filed by a director or with the registrar. There issue of prospectus. Provisions were provided according to the 2 conditions - If a company has issued a prospectus or not issued a prospectus There has been a shift from issue of prospectus to registering the business with the registrar.
Interest in Calls in Arrears In the absence of a clause in the Articles of Association, the maximum interest chargeable on Calls-in-arrears is 10% p.a. In the absence of a clause in the Articles of Association, maximum interest chargeable on Calls-in-arrears was 5% p.a. The rate of interest on calls – in – arrears is increased from 5% to 10% p.a.
Interest in Calls in Advance  In the absence of a clause in the Articles of Association, the maximum  interest payable on Calls-in-advance is 12% p.a. In the absence of a clause in the Articles of Association, the maximum interest payable on Calls-in-advance was 6% p.a. The rate of interest on calls - in - advance  is increased from 6% to 12% p.a.

Q 10.  What is the procedure of conducting Annual General Meeting as per Companies Act 201?

Ans. All the companies except ‘One Person Company’ have to hold an AGM after the end of every financial year. Within a period of six months from the end of financial year, AGM must be held. The company must give a clear notice of 21 days before calling for the AGM. The place, the date and day of the meeting should be specifically mentioned.  According to Section 96(2) of the Companies Act 2013, an annual general meeting can only be held during business hours, that is, in between 9 A.M. and 6 P.M. on any day and not on a National Holiday. 

Quorum for an AGM

  • If number of members is within 1000, then 5 members have to be present on the meeting day.
  • If number of members is more than 1000 but within 5000, then 15 members have to be present on the meeting day.
  • If number of members is more than 5000, then 30 members have to be present on the meeting day.

Matters of discussion in an AGM

  • Consideration of the Director’s report and Auditor’s report.
  • Consideration and adoption of the Audited Financial Statements.
  • Appointment of Directors or replacement of retiring Directors.
  • Appointment of Auditors and deciding their remuneration.
  • Dividend declaration to shareholders.
  • Apart from ordinary business, any other special business may be conducted.

Other important sections of Companies Act 2013

Section 185 of Companies Act 2013

Limits the prohibition on loans, advances etc. to the directors of the company or its holding company or any partner of such director or any firm in which such a director or relative is a partner. 

Section 186 of Companies Act 2013

Section 186 covers three kinds of specified transactions entered into by a company directly or indirectly: 

a) Loans given to any person or other body corporate.

b) Guarantee or security given in connection with a loan to any other body corporate or person; and 

c) Acquisition by way of subscription, purchase or otherwise, the securities of any other body corporate.

Section 188 of Companies Act 2013

This section increases the transparency to keep vigilance upon all the transactions, and to have enhanced accountability for key management of related party transaction. It is really important to consider all the aspects before entering into any related party transactions and what all approvals are required.

Section 135 of Companies Act 2013

Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility.

Conclusion:

In comparison Companies Act 1956, Companies Act 2013 is much progressive. With effect from 1st April 2014, the Act has introduced significant changes to streamline all the legal processes of the companies from e - management to compliance to auditors, mergers and acquisitions.