The Companies Act, 2013

The Companies Act, 2013, is a landmark legislation that regulates the formation and functioning of companies in India. Replacing the Companies Act of 1956, this Act introduced significant reforms aimed at enhancing corporate governance, increasing transparency, and promoting social responsibility among corporations. Here, we delve into the key features and differences between the Companies Act of 2013 and its predecessor, alongside other pertinent details.

Historical Context

The Evolution of Corporate Legislation in India

Companies Act, 1956: The first comprehensive corporate law post-independence, based on the recommendations of the Bhabha Committee. It underwent numerous amendments before being replaced.
Companies Act, 2013: Introduced major changes to address contemporary business challenges and align with global standards.

Administering Authorities

The Ministry of Corporate Affairs (MCA) administers the following key legislations:

Companies Act, 2013
Companies Act, 1956 (specific provisions still apply)
Competition Act, 2002
Insolvency and Bankruptcy Code, 2016
Chartered Accountants Act, 1949

Comparison Between Companies Act 2013 and Companies Act 1956

To better understand the scope and structure of the two Acts, here’s a detailed comparison:

Detail	Companies Act, 1956	Companies Act, 2013
Parts	13	Not Applicable
Chapters	26	29
Sections	658	470
Schedules	7	Schedules

Major Highlights of the Companies Act, 2013

Key Provisions

1.Maximum Shareholders in Private Companies

1956 Act: Cap at 50 shareholders.

2013 Act: Cap increased to 200 shareholders.

2.One-Person Company (OPC)

Introduced the concept of a one-person company, allowing a single individual to incorporate a company.

3.Corporate Social Responsibility (CSR)

Section 135: India became the first country to mandate CSR spending by law. Companies meeting certain criteria must spend at least 2% of their average net profits on CSR activities.

4.Tribunals for Dispute Resolution

Establishment of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) to resolve company law disputes efficiently.

Corporate Governance Enhancements

1.Independent Directors: Requirement for certain companies to have independent directors to ensure unbiased decision-making.

2.Auditor Rotation: Mandatory rotation of auditors to prevent malpractices and ensure transparency in financial reporting.

3.Enhanced Disclosure Requirements: Increased focus on disclosure of financial and non-financial information, related party transactions, and director remuneration.

Simplification and Streamlining

1.Single Incorporation Form: Introduction of a single form (INC-29) for company incorporation to streamline the process and reduce bureaucratic hurdles.

2.Stringent Penalties: Imposition of stricter penalties for non-compliance to foster a culture of adherence to corporate laws.

Key Features of the Companies Act 2013

Feature	Description
Dormant Companies	Companies inactive for two consecutive years are classified as dormant.
National Company Law Tribunal (NCLT)	A quasi-judicial body replacing the Company Law Board to handle company disputes.
Self-Regulation	Emphasizes self-regulation for disclosures and transparency.
Electronic Documents	Requires documents to be maintained in electronic form.
Official Liquidators	Given powers for companies with net assets up to Rs. 1 crore.
Simplified Mergers	Faster and simpler procedures for mergers and amalgamations.
Cross-Border Mergers	Allowed with Reserve Bank of India's permission.
One-Person Company	A new type of private company with only one director and one shareholder.
Women Directors	Certain companies must have women directors.
Resident Director	At least one director must be an Indian resident for at least 182 days in the last calendar year.
Entrenchment	Extra-legal safeguards for the articles of association.
Board Meeting Notice	At least 7 days' notice required for board meetings.
Defined Duties	Duties of directors, key managerial personnel, and promoters are defined.
Audit Rotation	Rotation of audit firms and auditors required for public companies. Auditors cannot provide non-audit services.
Rehabilitation and Liquidation	Time-bound processes for handling financial crises.
CSR Committees	Companies must form CSR committees and disclose CSR policies.
Small Shareholders Director	Listed companies must have a director representing small shareholders.
Search and Seizure	Search and Seizure Investigations can include search and seizure without a magistrate's order.
Public Deposits	Stricter norms for accepting deposits from the public.
National Financial Reporting Authority (NFRA)	Oversees accounting and auditing standards.
Insider Trading Ban
Shareholder Power	Shareholders must approve major transactions.

Companies (Amendment) Act, 2019

Change	Description
CSR Unspent Amount	Unspent CSR funds must be kept in a special account. After 3 years, unspent funds move to a specified fund like the PM’s Relief Fund.
Registrar of Companies Action	Can remove a company's name from the register if not conducting business as per the law.
Decriminalisation	16 minor offences converted from criminal to civil defaults