Companies Act, 2013

Company Law- PPT 02

Parth Upadhyay
 COMPANY LAW IN INDIA
CONCEPT PAPER ON COMPANY LAW, 2004 & J.J. IRANI
REPORT

 To frame a law that enables companies to achieve global

competitiveness in a fast changing economy, the Government had
taken up a fresh exercise for a comprehensive revision of the
Companies Act, 1956, through a consultative process.

 As the first step in this direction, a Concept Paper on Company Law

drawn up in the legislative format was exposed for public viewing so
that all interested parties may express their opinions on the concepts
involved.
 The response to the concept paper on Company Law was
tremendous.
 The Government, therefore, felt it appropriate that the proposals
contained in the Concept Paper and suggestions received thereon
be put to merited evaluation by an independent Expert
Committee.
Dr. J J Irani Committee

 A Committee was constituted

on 2nd December, 2004 under
the Chairmanship of Dr. J J
Irani, the then Director, Tata
Sons, with the task of advising
the Government on the
proposed revisions to the
Companies Act, 1956.
Object of the Committee -

 to have a simplified compact law that will be able to address the

changes taking place in the national and international scenario,
enable the adoption of internationally accepted best practices as well
as provide adequate flexibility for timely evolution of new
arrangements in response to the requirements of ever-changing
business models.

 The Committee submitted its report to the Government on 31st May

2005.
Recommendation-

 The Expert Committee had recommended that private and small

companies need to be given flexibilities and freedom of operations and
compliance at a low cost.

 Companies with higher public interest should be subject to a stricter

regime of Corporate Governance.

 Government companies and public financial institutions should be

subject to similar parameters with respect to disclosures and Corporate
Governance as other companies are subjected to.
Companies Bill, 2012

 The Government considered the recommendations of Irani

Committee and also had detailed discussions and liberations with
various stakeholders viz Industry Chambers, Professional Institutes,
Government Departments, Legal Experts and Professionals etc.

 Thereafter, the Companies Bill, 2009 was introduced in the Lok

Sabha on 3rd August, 2009, The Bill laid greater emphasis on self
regulation and minimization of regulatory approvals in managing the
affairs of the company.
 The Bill promised greater shareholder democracy, vesting the
shareholders with greater powers, containing stricter corporate
governance norms and requiring greater disclosures.

 The Companies Bill, 2009 after introduction in Parliament was

referred to the Parliamentary Standing Committee on Finance for
examination which submitted its report to Parliament on 31st
August, 2010.
 Certain amendments were introduced in the Bill in the light of the
report of the Committee and a revised Companies Bill, 2011 was
introduced.
 This version was also referred to the Hon’ble Committee, which
suggested certain further amendments.
 The amended Bill was passed by the Lok Sabha on 18th December,
2012 and by the Rajya Sabha on 8th August, 2013.
 The Bill was retitled as Companies Bill, 2012.
Companies Act, 2013

 The Companies Bill, 2012 finally became the Companies Act, 2013.
 It received the assent of the President on August 29, 2013 and was

notified in the Gazette of India on 30.08.2013.

 Companies Act, 2013 has undergone amendments four times so far.
Companies (Amendment) Act, 2015 and Companies (Amendment)
Act, 2017 aimed at enhancing efficiency and promoting ease of doing
business. The Act was also amended by The Insolvency and
Bankruptcy Code, 2016 and Finance Act, 2017.
 The Insolvency and Bankruptcy Code, 2016 led to omission of various
sections i.e. section 253 to section 269, section 289, section 304 to
section 323 and section 325.
 The Finance Act, 2017 amended section 182 with regard to
prohibitions and restrictions regarding political contributions.
 So far Ministry has come out with several circulars, notifications,
Orders and various amendment rules to facilitate better and smooth
implementation of the Act.
New Features :

 The Companies Act 2013 introduced new concepts supporting

enhanced disclosure, accountability, better board governance, better
facilitation of business and so on.
 It includes associate company, one person company, small
company, dormant company, independent director, women
director, resident director, special court, secretarial standards,
secretarial audit, class action, registered valuers, rotation of
auditors, vigil mechanism, corporate social responsibility, E-voting
etc.
APPLICABILITY OF COMPANIES ACT,
2013

 According to section 1 of the Companies Act, 2013, the Act extends to

whole of India and the provisions of the Act shall apply to the
following:-
 (a) companies incorporated under this Act or under any previous
company law;
 (b) insurance companies, except in so far as the said provisions are
inconsistent with the provisions of the Insurance Act, 1938 (4 of 1938)
or the Insurance Regulatory and Development Authority Act, 1999 (41
of 1999);
 (c) banking companies, except in so far as the said provisions are
inconsistent with the provisions of the Banking Regulation Act, 1949
(10 of 1949);
 (d) companies engaged in the generation or supply of electricity,
except in so far as the said provisions are inconsistent with the
provisions of the Electricity Act, 2003 (36 of 2003);
 (e) any other company governed by any special Act for the time being
in force, except in so far as the said provisions are inconsistent with
the provisions of such special Act; and
 (f) such body corporate, incorporated by any Act for the time being in
force, as the Central Government may, by notification, specify in this
behalf, subject to such exceptions, modifications or adaptation, as
may be specified in the notification.
 Companies Act, 2013 is not applicable to unincorporated companies.
An unincorporated company, association or partnership consisting of
large number of persons has been declared illegal.
TYPES OF COMPANY — ANALYSIS
A. Types of Company on the basis of Incorporation

 1. Statutory Companies :
 These companies are constituted by a special Act of Parliament or State
Legislature. These companies are formed mainly with an intention to provide
the public services.
 Though primarily they are governed under that Special Act, still the CA, 2013
will be applicable to them except where the said provisions are inconsistent
with the provisions of the Act creating them (as Special Act prevails over
General Act).
 Examples of these types of companies are State Bank of India, Life Insurance
Corporation of India, etc.
2. Registered Companies:

 Companies registered under the CA, 2013 or under any previous

Company Law are called registered companies.
 Such companies comes into existence when they are registered under
the Companies Act and a certificate of incorporation is granted to it
by the Registrar.
2. Companies limited by guarantee: (Sec- 2(21))

 Company limited by guarantee is a company that has the liability of its

members limited to such amount as the members may respectively
undertake, by the memorandum, to contribute to the assets of the
company in the event of its being wound-up. In case of such companies
the liability of its members is limited to the amount of guarantee
undertaken by them.
 The members of such company are placed in the position of guarantors of
the company’s debts up to the agreed amount.
 Clubs, trade associations, research associations and societies for
promoting various objects are various examples of guarantee companies.
3. Unlimited Liability Companies: Sec- 2(92)

 A company not having a limit on the liability of its members is termed

as unlimited company. Here the members are liable for the
company’s debts in proportion to their respective interests in the
company and their liability is unlimited.
 Such companies may or may not have share capital. They may be
either a public company or a private company.
C. Types of Company on the basis of number
of members

1. Public Company:
 Defined u/s 2(71) of the CA, 2013 – A public company means a
company which is not a private company.

 Section 3(1) of the CA, 2013– Public company may be formed for
any lawful purpose by 7 or more persons.

 Section 149(1) of the CA, 2013 – Every public company shall

have minimum 3 director in its Board.

 Section 4(1)(a) of the CA, 2013 – A public company is required to

add the words “Limited” at the end of its name.
Private company :
Defined u/s 2(68) of the CA, 2013
 A private company means a company which by its articles—
 a. Restricts the right to transfer its shares;
 b. Limits the number of its members to 200 hundred (except in case of
OPC)
 Prohibits any invitation to the public to subscribe for any securities of
the company;
 Section 3(1) of the CA, 2013 – Private Company may be formed for any
lawful purpose by 2 or more persons.
 Section 149(1) of the CA, 2013 – Every Private company shall
have minimum 2 director in its Board
 Section 4(1)(a) of the CA, 2013 – A private company is required to add
the words “Private Ltd” at the end of its name.
One Person Company (OPC):

 With the enactment of the Companies Act, 2013 several new concepts
was introduced that was not in existence in Companies Act, 1956
which completely revolutionized corporate laws in India. One of such
was the introduction of OPC concept.
 This led to the avenue for starting businesses giving flexibility which a
company form of entity can offer, while also offering limited liability
that sole proprietorship or partnerships does not offers.
 efined u/s 2(62) of the CA, 2013 – One Person Company means a
company which has only one person as a member.
 Section 3(1) of the CA, 2013 – OPC (as private company) may be formed
for any lawful purpose by 1 persons.
 Section 149(1) of the CA, 2013 – OPC shall have minimum 1 director in its
Board, its sole member can also be director of such OPC.
 Some Features –
 Single-member: OPCs can have only 1 member or shareholder, unlike
other private companies
 Nominee: A unique feature of OPCs that separates it from other kinds
of companies is that the sole member of the company has to mention a
nominee while registering the company.
 …Since there is only one member in an OPC, his death will result in
the nominee choosing or rejecting to become its sole member. This
does not happen in other companies as they follow the concept of
perpetual succession.
 Special privileges: OPCs enjoys several privileges and exemptions
under the Companies Act.
Types of Company on the basis of Domicile-

1. Foreign company:
 Defined u/s 2(42) of the CA, 2013 – “foreign company” means any
company or body corporate incorporated outside India which,—
 has a place of business in India whether by itself or through an

agent, physically or through electronic mode; and

 conducts any business activity in India in any other manner.
 Section 379 to Section 393 of the CA, 2013 prescribes the provisions
which are applicable on such companies.
2. Indian Company :

 A company formed and registered in India is known as an Indian

Company.
Other Types of Company:

1. Section 8 Company:
 A section 8 company is registered as a limited company under section 8
of the CA, 2013 and holds the license from Central Government (CG)
and-
 1. has in its objects the promotion of commerce, art, science, sports,
education, research, social welfare, religion, charity, protection of
environment or any such other object;
 2. intends to apply its profits, if any, or other income in promoting its
objects; and
 3. intends to prohibit the payment of any dividend to its members.
 Proviso to Section 4(1)(a) of the CA, 2013 – Section 8 Company is
exempted from clause (a) of Section 4(1) which means Section 8
Company is neither required to add the word “Ltd” nor words
“Private Ltd” at the end of its name.
 Section 8 of the CA, 2013 also laid down the provision related to
Incorporation, application for licence as section 8 company, grant of
licence by CG and revocation of licence by CG.
 Special privileges: Section 8 Company enjoys several privileges and
exemptions under the Companies Act.
2. Government Company:

 Defined u/s 2(45) of the CA, 2013 – “Government company” means any
company in which not less than 51 % of the paid-up share capital is
held by the Central Government, or by any State Government or
Governments, or partly by the Central Government and partly by one
or more State Governments, and includes a company which is a
subsidiary company of such a Government company. Explanation –
“paid-up share capital” shall be construed as “total voting power”,
where shares with differential voting rights have been issued.
3. Small Company:-

 Defined u/s 2(85) of the CA, 2013 – “small company” means a

company, other than a public company,—
 1. paid-up share capital of which does not exceed 50 lakh rupees or
such higher amount as may be prescribed which shall not be more
than 10 crore rupees; and
 2. turnover of which as per profit and loss account for the
immediately preceding financial year does not exceed 2 crore
rupees or such higher amount as may be prescribed which shall not
be more than 100 crore rupees
 Provided that nothing in this clause shall apply to—
 a holding company or a subsidiary company;

 a company registered under section 8; or

 a company or body corporate governed by any special Act;

4. Subsidiary Company:

 Defined u/s 2(87) of the CA, 2013 – “subsidiary company” or “subsidiary”,

in relation to any other company (that is to say the holding company),
means a company in which the holding company—
 1. controls the composition of the Board of Directors; or
 2. exercises or controls more than one-half of the total voting power
either at its own or together with one or more of its subsidiary
companies:
 Provided that such class or classes of holding companies as may be
prescribed shall not have layers of subsidiaries beyond such numbers as
may be prescribed.
 Explanation: For the purposes of this clause-
 1. a company shall be deemed to be a subsidiary company of the holding
company even if the control referred to in sub-clause (i) or sub-clause (ii) is of
another subsidiary company of the holding company;
 2. the composition of a company’s Board of Directors shall be deemed to be
controlled by another company if that other company by exercise of some
power exercisable by it at its discretion can appoint or remove all or a majority
of the directors;
 3. the expression “company” includes any body corporate;
 4. “layer” in relation to a holding company means its subsidiary or subsidiaries.
5. Holding Company:

 Defined u/s 2(46) of the CA, 2013 –“holding company”, in relation to

one or more other companies, means a company of which such
companies are subsidiary companies;
 Explanation: For the purposes of this clause, the expression
“company” includes any body corporate.
 2. the expression “joint venture” means a joint arrangement whereby
the parties that have joint control of the arrangement have rights to
the net assets of the arrangement;
7. Dormant Company:
(Section 455 of Companies Act , 2013 )

 In case of company is formed and registered under this Act for a

future project or to hold an asset or intellectual property and has no
significant accounting transaction, such a company or an inactive
company may make an application to the Registrar for obtaining the
status of a dormant company.
 Thereafter Registrar on consideration of the application shall allow
the status of a dormant company to the applicant and issue a
certificate.
Why dormant companies?

 Invest now shine later serves as a core policy of dormant companies.

The companies are in a position to hold assets or intellectual property
and use it later and why would they do this? Cost Advantage is the
reason for it.
 The restart is always better than a fresh start and dormant companies
offer this advantage. So if a company chooses to take a backseat for a
good reason then they can always restart when they want to, without
further procedures subject to certain conditions.
 The longer you exist the greater you are valued.
 So as a dormant company, the company may not be active but it still
has a status of a company in the eyes of law.