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
Not Applicable

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.
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.
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.
16 minor offences converted from criminal to civil defaults

These changes aim to improve corporate governance, transparency, and accountability in Indian companies.

G Akshay Associates