Indian company law
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"Company means a company incorporated under this Act or under any previous Company Law"
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Companies in India are regulated through the Companies Act, 1956 (repealed law), Companies Act 2013 (present law) and related laws & regulations, which are administered by the Ministry of Corporate Affairs (MCA).
The MCA works through two branches i.e., Regional Director (RD) and Registrar of Companies (ROC). At present, India has seven such Directors and 22 ROCs. These two branches are also called In-house source of adjudication.
Recent changes in Indian Company law
- Companies Act 2013
- Companies (1st Amendment) Act, 2015
- Companies (2nd Amendment) Act 2017
- Companies (3rd Amendment) Act 2019
- Companies (Amendment) Bill 2020
- Companies Fresh Start Scheme 2020
- Companies (Amendment) Ordinance 2018
- Companies (1st Amendment) Ordinance 2019
- Companies (2nd Amendment) Ordinance 2019
Companies (1st Amendment) Act 2015
The amendment Act (21 of 2015) has received an assent of President of India on 25 May 2015 and published through an official notification in The Gazette of India on 26 May 2015. The amendment act contained 23 sections and issued one notification on 29 May 2015 to implement sections 1 to 13, and sections 15 to 23 of the said act. The act was passed to further amend and consolidate the Companies Act 2013.
In the country, a company may be incorporated either as a private company or public company. A creator of the company needs to comply with various conditions that includes prescribed amount of the paid-up capital - where a private company should have a minimum of rupees 1 lac, and a public company should have rupees 5 lacs during its lifetime. However, the amendment act was proved as one of the sources of relief among all the business doers since the strict criteria of capital was removed. The amendment act was passed to serve many objectives with a common instrument including Ease of doing business, to substitute the common seal of a company with a human way of signing any document.
Companies (2nd Amendment) Act 2017
The MCA in India has given way to a new Act with effect from 26 January 2018. It includes 93 sections and out of that 90 (approx. ) sections has been notified by the Ministry through 11 notifications including the latest issued on 19 September 2018. The new Act has given rise to the number of new concepts and also have made the principal act simplified and comprehensive.
However, the amendment in the principal act is still under process. In the recent amendment, the MCA has also notified changes in section 134 of the principal act to get mandatory sign the financial statements from the CEO of the company, if any.
Companies (3rd Amendment) Act 2019
Companies (Amendment) Bill 2020
The bill (88 of 2020) was introduced in the Lok Sabha (i.e., lower house of the Indian parliament) on 17 March 2020 by the Finance minister Ms Nirmala Sitharaman.
The bill seeks to amend the Companies Act 2013, and yet to become full law. It gives rise to the following concepts:
1) Direct listing of the Indian companies in the permitted foreign jurisdictions. 2) Exemption from setting up of CSR committee, and carry forward mechanism under section 135 of the Companies Act 2013. 3) A new chapter to be added in producer companies. 4) Exemption to registered NBFCs from filing resolutions with ROC (i.e., Companies registry) under section 117 of the Companies Act 2013. 5) Exclusion of the listed company from the definition of Listed entity.
Companies Fresh Start Scheme, 2020
Ministry of Corporate Affairs has introduced this scheme to enable all the defaulting companies to make their defaults good by filing all the pending E-forms (hereinafter called "the belated documents"), includes Financial statements and Annual return, without payment of any fee other than the normal statutory fee to be applicable pursuant to Company (Registration offices and fees) Rules 2014. The scheme also provides immunity from prosecution to the extent the default is related to the filing of any e-form.
The scheme serves a motive of "Fresh Start as a fully compliant entity"
The scheme acts as a one time opportunity for all defaulting companies. All such companies may avail such scheme from 1 April 2020 to 30 September 2020. The scheme covers 76 e-forms.
The scheme also gives an opportunity to the inactive company to get the status of a dormant company under section 455 of the Companies Act 2013.
The Companies (Amendment) Ordinance 2018
The Ministry of Corporate Affairs has constituted a committee on 13 July 2018 to review the offenses under the Indian Companies Act 2013 ("the principal Act") with specific terms of reference. The said committee to be tasked with the responsibility to declogging the Corporate judiciary system in India. The committee has further directed by the authority to make its report public within 30 days of its first meeting, accordingly, the committee has furnished the report on 14 August 2018. In turn, the committee has recommended some amendments needs to be implemented immediately. Such recommendations include: 1) To enlarge the jurisdictions of the two branches of the Ministry in India i.e., Registrar of Companies and Regional Directors (hereinafter called "In-house adjudications mechanism") 2) To shifting the approvals from Tribunals to In-House adjudication mechanism 3) To also re-categorize the 'Acts/Offences' which is currently punishable to be compounded to the 'Acts' merely resolved through civil liabilities etc. 4) The said committee has also recommended 33 provisions of the principal Act to be implemented immediately. .
The Ministry has also felt the needs to make it happen such recommendations effective at the earliest from the Corporate Governance point of view. In India, if any Act needs to be amended, the proposed changes shall be placed before the houses of the parliament into session to make it a part of the Law. However, this is the very first time that the Ministry has felt to bring any immediate changes and such amendments become an act of urgency to be rollout through an "Ordinance"
Companies can be incorporated through the rules of the Indian Companies Act 2013. Whereby the new SPICe form helps the companies to get incorporated in one day. However, one-day company registration in India is not possible as there required certain documents, preparation of which takes time.
Classification of the Companies on the basis of Incorporation
(i) Companies incorporated under Royal Charter This was practiced by the British Government. For example, East India Company came under Royal Charter, which means it was granted Charter by the King or the Queen of British and was controlled by the Charter. However, this is not much in practice now.
(ii) Companies that are incorporated by the special Act of Parliament These Companies are incorporated under a specified act of Parliament or State Legislature . These companies are formed with the fulfillment of some specified objects at the National level. These Companies are also called as Corporations. For example, Reserve Bank of India or State Bank of India.
(iii) Companies incorporated under Indian Companies Act of 1956 These companies come under the memorandum of association and articles of association.
Types of companies
- Sole Proprietorship - A sole proprietorship, also known as a trader firm or proprietorship exclusively owned by one person, is a business form that is owned and run by one individual. A sole proprietor may use a trading name or business name other than his or her name.
- Registration not required - In summary, the biggest advantage is quick formation and low compliances. However, the biggest disadvantage is an unlimited liability.
- Partnership - liability is joint and unlimited. It's also not a mechanism to be driven by Separate legal entity.
- Registration is not compulsory.
- Active partners take part in day-to-day operations of the business, in addition to investing in it. Active partners are entitled to a share of the enterprise's profits.
- Sleeping partners invest in the business and are entitled to a share of its profits, but do not participate in day-to-day operations.
- Limited Liability Partnership - Liability is limited
- HUF (Hindu Undivided Family) - businesses owned by a joint family belonging to Hindu religion. Even though Jain and Sikh families are not governed by the Hindu law, they can still form a HUF.
- Dormant company - A company which has been created for a future project or for holding assets including intellectual property of the company
- Family Owned Business
- Pvt Ltd (Private Limited Company): ≈ Ltd (UK) - May have 2–200 shareholders; shares are held privately and cannot be offered to public.
- Small company - A company other than a public company whose paid-up share capital is not more than ₹ 50 lakh and turnover does not exceed ₹ crore.
- Ltd (Public Limited Company): ≈ plc (UK)
- Public sector undertaking (PSU) - Alternatively known as Public Sector Enterprise (PSE). It may be the public limited company listed on stock exchanges with major ownership by a state government or a central government of India or it may be unlisted entity with major ownership by a state government or a central government of India. Some of these entities are formed as business entities through special legislation, where these entities are governed by the statutes of these legislation and may or may not be governed by company laws like a typical business entity.
- One-person company - It is a type of private company which can have only one director and member. At the time of incorporation of such company, the member needs to introduce a nominee of himself.
- Unlimited Company - A company, similar to its limited company (Ltd, or Pvt Ltd) counterpart, but where the liability of the members or shareholders is not limited.
- Incorporated Company
1)Memorandum of association Duly stamped signed by directors. in the case of public company should signed by 7 members. In the case of private company signed by 2 person sufficient 2)Articles of association It is the rules of internal management pvt company can adopt table a this is model of articles of association 3)Consent of preposed director The consent of preposed director act as director and purchase of share
Governance of the board
Under CA 2013 section 149, the provision mandate that every company shall have a board of directors.
Under CA 2013 section 169, the basic rule is that any company director may be removed by the general meeting with a simple majority vote, after giving "special notice" of 28 days. In companies which elect the board by proportional representation according to section 163, there is an exception so that directors appointed by one particular group of members cannot be ousted by the majority. Those directors can only be removed by the members that appointed them, so as to protect the system of proportional voting.
It was the view of many in the Indian Independence Movement, including Mahatma Gandhi, that workers had as much of a right to participate in management of firms as shareholders or other property owners. Article 43A of the Constitution, inserted by the Forty-second Amendment of the Constitution of India in 1976, created a right to codetermination by requiring the state to legislate to "secure the participation of workers in the management of undertakings". However, like other rights in Part IV, this article is not directly enforceable but instead creates a duty upon state organs to implement its principles through legislation (and potentially through court cases). In 1978, The Sachar Report recommended legislation for inclusion of workers on boards, however, this has not been implemented yet.
The Industrial Disputes Act 1947 section 3 created a right of participation in joint work councils to "provide measures for securing amity and good relations between the employer and workmen and, to that end to comment upon matters of their common interest or concern and endeavour to compose any material difference of opinion in respect of such matters". However, trade unions had not taken up these options on a large scale. In National Textile Workers Union v Ramakrishnan the Supreme Court, Bhagwati J giving the leading judgment, held that employees had a right to be heard in a winding-up petition of a company because their interests were directly affected and their standing was not excluded by the wording of the Companies Act 1956 section 398.
- Excel Wearv. Union of India A.I.R. 1979 S.C. 25, 36
- 166. (1) Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of the company.
- (2) A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.
- (3) A director of a company shall exercise his/her duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
- (4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
- (5) A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
- (6) A director of a company shall not assign his office and any assignment so made shall be void.
- (7) If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
Companies Act 2013 section 166
Directors' owe a range of duties to the company, which primarily involve acting within the constitution, avoiding conflicts of interest and performing their role to a desired standard of competence. The Companies Act 2013 section 166 lists directors' duties in seven simple sections, which reflect the existing principles developed by the case law in the courts around most Commonwealth countries, in common law and equity. Part of the reason for codification of directors' duties was to provide a transparent statement of the duties directors owe, and therefore to publicise principles of best practice. However, because of their generality, the case of law of the courts matters to interpret how duties will apply in specific situations.
In a new with the Companies Act 2013, section 135 requires companies to spend 2% of their net profit on socially responsible projects, if they have a net worth of over rupees 500 crore, or a turnover of over rupees 1,000 crore, or a net profit over rupees 5 crore. Socially responsible projects are defined in Schedule VIII, and mainly involve community development.
- National Company Law Tribunal, replacing the previous Company Law Board and Board for Industrial and Financial Reconstruction.
- Indian Corporate Law Service
- "Ministry of Corporate Affairs". Government of India. Retrieved 16 December 2017.
- Tyagi, Madhu; Madhu, Arun (2003). Company Law. Under Classification of Companies: Atlantic Publishers & Distributors (P) Limited. p. 42. ISBN 9788126902118.
- As Gandhi said, "my advice to the employers would be that they should willingly regard the workers as the real owners of the concerns which they fancy they have created" in 'Harijan' (31 March 1946) reproduced in R Iyer (ed), The Moral and Political Writing of Mahatma Gandhi (1987) vol 3, 197-199
- See Constitution (Forty-second Amendment) Act 1976 s 9
- Ministry of Law, Justice and Company Affairs, Report of the High-Powered Expert Committee on Companies and Maintenance of Restrictive Trade Practices Acts (1978)
- 1983 AIR 75, 1983 SCR (1) 9. Noted by J Cottrell, 'Indian Judicial Activism, the Company and the Worker: A Note on National Textile Workers Union v Ramakrishnan' (1990) 39(2) The International and Comparative Law Quarterly 433
- "Companies bill would require firms to spend 2 percent profits on poor". reuters.com. 13 August 2013. Retrieved 6 May 2014.
- HK Saharay, Company Law (5th edn 2008)
- Companies Act 2013 on the Ministry for Corporate Affairs website
- Singh, Avtar (2015). Company Law (16th ed.). Lucknow: Eastern Book Company. ISBN 978-93-5145-330-7.