Rainy Jain, Amity University Jaipur
Yash Pathak, Prestige Institute of Management and Research
Radhika Khanna, Symbiosis Law School, NOIDA
Editor: Kanhaiya Singhal, Faculty of law, PES University
INTRODUCTION Companies Act, 2013 is the systematic collection of rules and guidelines which helps the businessman to run a company. Every business requires a set of rules within which it functions and earns profit. Companies Act is a laid down by the legislation keeping in mind the requirement which a company has to fulfil at various stages. Companies Act regulates the company which are operating in India. Company is the association of people working together towards a common objective and to earn profit. Companies Act not only states the requirement to be fulfilled but also direct the conduct of all the persons working in a company. Companies Act came into force in 1956 but there were various blanks in statute which was needed to be filled so the revised version came into force in 2013 being the latest act. It is divided in 29 chapters and 470 sections which are less as compared to the Act of 1956. Companies Act laid down various guidelines to follow at different stages of the company which are mandatory and non- compliance may result in penalty and even penal provisions may apply. Companies Act provides a pathway for a company to grow and compete in the market by keeping in mind the basic principles of company law. On one hand Companies Act aids in growth but on the other hand it also makes sure that no company conduct any illegal activities which may affect the employees, investor or the society in any way. There are certain eligibility criteria which a company must fulfil in order to be recognised in the market and carry out its business. There are various features of a company and one of its main features is separate legal entity. A company has a separate legal entity which means company is an artificial person and all the dealing of the company will carry out under the company’s name. This concept can be understood by the landmark case of we must understand some concepts Salomon V. Salomon.1 To understand the Companies Act and requirement under the Act.
CONCEPTS OF COMPANIES ACT, 2013
1. Important doctrines under the Act
There are various doctrines working as a pillar of Companies Act, before understanding the deep concepts of Companies Act it is very important to know the core concepts.
• Doctrine of ultra vires
This doctrine lays down the basic guideline for a company which states that no company shall perform any function outside the scope of its objective clause. The company should function according to the memorandum of association and article of association
• Doctrine of constructive notice
This is a doctrine which indicates that whosoever enters into a contract with the company it is presumed that he/she has read the memorandum of association and article of association which being the principle documents of a particular company in order to know the power, functions and liability of the company. This is based om the presumption on the part of the company.
• Doctrine of indoor management
This doctrine is the exception to the above stated doctrine of constructive notice as this state that no person is allowed to know the internal affairs of the company; company’s indoor affairs are company’s problem.
2. Mandatory document required under the Act
There is various document which is required by the company to maintain in order to become
• Memorandum of association and article of association
• Formal letter issued by the registrar of the company (ROC) for the availability of the company’s name.
• Digital signature certificate.
• Director identification number (DIN) is required by all those who wish to become a director of a company.
• Certificate of incorporation.
• Form of registered office of the company.
LIST OF MADANTORY COMPLIANCE UNDER COMPANIES ACT, 2013
There are various compliances which are mandatory on the part of the company and its non-compliances can result in various consequences. In every stage there are number of compliances which has to be fulfilled by the directors of the company. Almost all the compliances are to be followed after the company is registered and the certificate of incorporation has been given by the registrar. The compliance can be classified as post incorporation compliance, annual compliance by the company and even based compliance i.e. on happening of any event like change in company name or increase in authorised capital there are various formalities which a company has to fulfil. Here is a list of some major compliances:
1. Post incorporation the company has to display some information to the general public including the registered name of the company, corporate identification number (CIN), official contact number, website, e-mail ID, fax no.
2. The first task after the establishment of the company is to hold the board meetings and annual general meeting as it is compulsory for a company to conduct 4 board meetings every year. First board meeting has to be held within 30 days of the incorporation. And making of minutes for every such meeting is also required and such document has to be sent to the ROC (registrar of the company).
3. It is mandatory for a company to conduct its first annual general meeting withing 9 months from the end of that financial year.
4. Issuing share certificate in the name of the person whose name is mentioned under incorporation certificate is also mandatory.
5. According to the section 92 of the Companies Act it is mandatory to file annual returns and with annual return other documents are also attached like- copy of balance sheet, profit and loss account, auditor’s report, notice of AGM(Annual general meeting).
6. Under section 85 and 86 of the Companies Act it is important to maintain statutory register at the registered of the company and non-compliance of such register may result on fine upon the director as well as the company.
7. Under the 2013 act it was instituted that it is mandatory for a company to perform its corporate social responsibility (CSR) whereas such concept is not given under Companies Act, 1956. Under CSR company has to contribute in social activities to uplift the society and give something back to the society in the form of contributing in the philanthropic activities.
ANALYSIS: A COMPARATIVE STUDY
On august 2013 the Lok Sabha and the Rajya Sabha passed the Companies Act 2013 as well as the president of India has given his consent. The Companies Act 1956 contain 15 schedules and 658 sections. The Companies Act 2013 contain 464 sections and 7 schedules. As the companies’ act contain lesser section because the companies run more by rules and regulations. The following research contains the difference between the amendments/ deleted section/added sections etc of the previous as well as latest Companies Act.
Formation of The Company
When the group of the people setting up the common goal with same interest and actively participate in the functioning of its formation under the Companies Act 2013.
Types of companies can be formed
According to the Companies Act, 2013 – here, can be 15 types of companies can be formed. The 10 companies can be formed as per the col. (3) of the company act 1956 the new 5 company added which are –
• ONE PERSON COMPANY (OPC) limited by shares
• ONE PERSON COMPANY limited by guarantee & having share capital
• ONE PERSON COMPANY limited by guarantee having no share capital
• ONE PERSON COMPANY Unlimited Company having share capital
According to the Companies Act 1956 – here, can be 10 types of companies can be formed as per the col. (3) under the Companies Act 1956 which are –
• Public company ltd. by shares
• Public company ltd by guarantee & having share capital
• Public company ltd by guarantee & having share capital & having no share capital
• Public ltd. company having share capital
• Private Company ltd by shares
Memorandum of Association
The memorandum of association of the company is the constitution and defines the powers of the company. the MoA is the paper foundation of the company on which the company formed.
The Companies Act 2013 – the common goal of the Company to be classified and stated in MOA as : (i) the main goal of the company on which the company deals and (ii) the necessaries for the survival of the company and the action of the company takes place as per the memorandum of association .
The Companies Act 1956 - Objects of the Company should be classified and stated in MOA as:
(i) the main goal to which company needs to achieve; (ii) Objects necessarily to be achieved for the attainment of the main goal of the company and (iii) another goals of the company.
Availability of name
The name approval is also the main and central task of the company the name on which the Companies Acts up or taking action. it is the subject of comprehensive check by the central registration. The name got approved under the RUN process for the new company registration is valid for a period of 20 days from the approval date.
According to the Companies Act 2013 – In the Section 4(4) and 4(5)(i) of the 2013 Act deals with the procedure of the application to be submitted in the company registrar office to get the approval for the new name of the new company and the new name for the existing company
According to the Companies Act 1956 – there is no procedure aspects for the availability if the new name for the company under the 1956 Act .
Article of association
The article of association is the document that defines the purpose, rules and regulation of the company for the completion of its operation or for the attainment of the main goal or object of the company.
According to the Companies Act 2013- Articles may contain such provisions which deal or help to the company for the attainment of the common goal. According to the Companies Act 1956 – the articles of the association contains the regulate and internal management of the company.
Since a long time, the need to revamp the 1956 Act was felt to make the company law relevant and easily adaptable. Which suit the requirement of the stakeholders and others who are associated with the companies in India in the present scenario. The current legislation for companies was a much-needed stature as the prior law had been drafted in 1956 and considering the dynamic business environment and the legal world, changes are essential to be made. Many futile attempts were made to revise the old Act, but finally in 2009 a new draft was presented in front of Lok Sabha on 18th December 2012 as the Companies Bill, 2012 (the Bill). Prior to Lok Sabha, the report by Parliamentary Standing Committee on Finance on the bill was submitted on 26th June 2012. On 8 August 2013, the bill got its approval by the Rajya Sabha. Further, it also got president assent on 29th August 2013 which is now called Companies Act, 2013.The new Act has more than 450 sections, 7 schedules and 29 chapters. There are certain provisions of the Companies Act, 1956 which are not yet implemented.
The objective of the Companies Act, 2013 was to simplify the process of doing business in India and at the same time the companies have been made even more accountable so as to improve corporate governance. The Companies Act, 2013 has introduced various new concept to suit the needs of various classes from company stakeholders to entrepreneurs.
• Corporate governance
• Management compliance
• Disclosure norms
• Mergers and acquisitions
• Class action suits
The above-mentioned changes and many more have proven to have a long term impact on corporate in India. With the fast-evolving time, everyday there arises a need to change. Hence, in future we do expect certain necessary amendments be made in the current legislation as well to keep up with the fast-changing environment and fill the lacunas.