Company Act 2013 - Features, Important Sections

The Companies Act 2013 is the governing legislation for establishing and operating corporations or companies in India. Following independence, the Companies Act was enacted in 1956, shaping the landscape for business entities. Rooted in the recommendations of the Bhabha Committee, this Act underwent several amendments. Notably, in 2013, significant revisions were introduced.

Key Features of the Company Act 2013

• The introduction of 'Dormant Companies,' defined as entities inactive in business for two consecutive years.
• Establishment of the National Company Law Tribunal, a quasi-judicial body addressing corporate issues and replacing the Company Law Board.
• Emphasis on self-regulation for disclosures and transparency, reducing dependence on government approvals.
• Requirement for maintaining documents in electronic format.
• Official liquidators empowered for companies with net assets up to Rs.1 crore.
• Streamlined and accelerated procedures for mergers and amalgamations.
• Provision for cross-border mergers, subject to Reserve Bank of India approval.
• Introduction of the one-person company concept, allowing a single director and shareholder.
• Statutory mandate for independent directors in public companies.
• Mandatory inclusion of women directors for a prescribed class of companies.
• Requirement for at least one director with Indian residency for 182 days in the last calendar year.
• Introduction of entrenchment provisions for articles of association.
• Mandated 7-day notice for calling board meetings.
• Definition of director duties, along with roles for 'Key Managerial Personnel' and 'Promoter.'
• Rotation of audit firms and auditors for public companies, with restrictions on non-audit services.
• Time-bound processes for rehabilitation and liquidation during financial crises.
• Mandatory formation of CSR committees and policies, with specific disclosures for certain companies.
• Listing requirement for a director representing small shareholders.
• Provision for search and seizure during investigations without magistrate orders.
• Stringent norms for accepting public deposits.
• Establishment of the National Financial Reporting Authority (NFRA) for accounting and auditing standards enforcement.
• Prohibition on key managerial personnel and directors from purchasing call and put options on company shares with potential access to price-sensitive information.
• Increased shareholder empowerment, requiring approval for significant transactions.

Important Sections in the Company Act 2013

Section 73: Prohibition of Public Deposits

Section 135: Corporate Social Responsibility (CSR) Committee

Section 139: Auditor Appointment at First General Annual Meeting

Section 180: Consent Requirement for Undertaking Disposal

Section 185: Restriction on Loans to Directors and Related Entities

Section 186: Limit on Inter-Corporate Investments

Section 188: Transactions with Related Parties

Section 189: Maintenance of Registers

Section 197: Director Remuneration Limits

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Different Companies Mentioned in Company Act 2013

Associate Company- The Company Act 2013 (Section 2(6)):

• Not a subsidiary of the controlling company.
• Includes joint venture companies, regardless of shareholding.

Dormant Company- The Company Act 2013 (Section 455):

• Can apply to the Registrar for dormant status.
• Can transition to an active company by submitting an application to the Registrar with prescribed documents.

One Person Company (OPC) - The Company Act 2013 (Section 2(62) and Section 12(3)

• A private company with a single natural person as a member.
• The term "One Person Company" must be indicated alongside the company's name.
• No person can incorporate more than one OPC, and minors cannot be members or nominees.

Private Company- The Company Act 2013  (Section 2(68)):

• A company, excluding OPC, limits its members to two hundred.
• Prohibited from inviting the public to subscribe to its securities.
• Money received from members is deemed a deposit.

Small Company- The Company Act 2013  (Section 2(85)):

• Paid-up capital not exceeding a prescribed amount.
• Turnover, as per the last profit and loss account, below a specified limit.
• Exclusions: Cannot be a public company, holding or subsidiary company, a company under Section 8, or governed by a special act.
• Subject to a less stringent regulatory framework.

Subsidiary Company- The Company Act 2013  (Section 2(87)):

• Controls the Board of Directors' composition.
• Exercises or controls more than one-half of the total share capital, either independently or with subsidiary companies.
• Total share capital includes paid-up equity share capital and convertible preference share capital.
• A subsidiary of a subsidiary is also considered a subsidiary of the holding company.