Companies Act 2013

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Companies Act 2013 deals with the formation, regulation, responsibilities, and dissolution of companies. It was introduced to replace its predecessor so that the act is more in accordance with the current corporate scenario. Additionally, this act also aims to encourage growth and development of the economy by simplifying the process of setting up and maintaining an organisation.

To this end, many of the rules and regulations mentioned in Companies Act 1965 has been revamped and modernised. As a result, companies Act 2013 only consists of 29 chapters and 470 sections whereas the Companies Act 1956 had 658 sections and 7 schedules.

Companies Act 2013 has defined company as any entity which has come into existence under this act or any other company Act. The main types of company that has been mentioned in this act include – 

  1. One-person Company – It is a type of company which has only one person as to its member.

  2. Private Company – A type of company which can have maximum members up to two hundred and a minimum of two is known as a private company. Features of a private company are as follows: 

  • A private company can have a minimum share capital of up to any amount as decided by the members.

  • This type of company cannot freely transfer their share to the public.

  1. Public Company – This refers to those companies where 51% or more shares are held and regulated by central or state governments. Furthermore, this type of company can issue shares to the public. Minimum seven members are needed to form a public company.

Incorporation of Company

Companies Act 2013 also mentions in detail the essential regulations that need to be followed while registering a company under this act. These rules and regulations are discussed below – 

  1. First, the company needs to choose a suitable name with the last words being either private limited (in case of a private company) or limited (in case of a public company). 

  2. However, the member needs to keep in mind that the name must not be similar to any other company already registered under the Companies Act 2013. Moreover, the name should not be considered offensive under law or is undesirable by the Central Government.

  3. Members can ensure that the name chosen for their company does not violate the provisions of names and emblems stated under the prevention of Improper Use Act, 1950, through the name-checking services provided on the official website of the Ministry of Corporate Affairs. 

  4. An application should be made along with fee and proper documents to the registrar for approval and reservation of the name under Companies Act 2013.

  5. After applying, the name will be reserved for sixty days from the application date.

  6. The members then need to fill out form numbers 1, 18 and 32 to apply for registration.

  7. Memorandum and articles of association should be drafted and then verified by the Registrar.

  8. Memorandum and articles of association should be stamped and signed by all company members in presence of one witness.

  9. Members also need to furnish details such as an address, occupation, father’s name, shares subscribed, etc.

  10. After the above steps are complete, applicants can log in to the official web portal and submit the forms 1, 18, 32, memorandum and articles of association along with other mandatory documents. 

Important Sections under the Company Act

The Companies Act 2013 also specifies the responsibilities of a company in certain circumstances within the following sections – 

  • Section 73  

Companies are barred from inviting or accepting any kind of money deposits from the public under Section 73 of Companies Act 2013. Exceptions under this rule include companies like financial institutions, NBFCs or any other companies specified by the Government of India and the RBI.

  • Section 135 

A company which has a net turnover of Rs.5 hundred crore or more in the preceding year is required to form a corporate social responsibility committee under Section 135 of Companies Act, 2013.  The committee must have three or more directors, out of which one should act as an independent entity.

  • Section 139  

A company at its first general annual meeting must appoint an auditor under the regulation of Section 139 of Companies Act 2013. The auditor should hold office for five annual general meetings, starting from the conclusion of the AGM in which he or she was appointed.

  • Section 180 

Board of directors can sell, lease, or dispose of any undertaking of a company only with the consent of the whole company, as per Section 180 of Companies Act 2013.

  • Section 185 

According to Section 185 of Companies Act 2013, a company cannot offer any loan directly or indirectly to any of its directors, or any other individual or entity in whom the director is interested.

  • Section 186 

As per Section 186 of Company Act 2013, companies are not allowed to carry out more than two layers of inter-corporate investment.

  • Section 188  

A public or private limited company cannot carry out any kind of transactions such as selling, disposing of, leasing, buying of property or land, availing or providing services with a related party under Section 188 of Companies Act 2013. Appointing a related party to any place which is profitable to the company is also prohibited.

  • Section 189 

As specified under Section 189 of Companies Act 2013, more than one registers should be maintained, containing details of arrangements in which directors are interested, as applicable under Sec 185 of Companies Act 2013 and 188.

  • Section 197 

Remuneration of directors of a public company must not be more than 11% of net profits earned by the company in a financial year, according to section 197 of Companies Act 2013.

The above-mentioned piece paints a brief picture of India’s Companies Act. Every organisation has to fulfil the above-mentioned criteria to successfully register as a company.

FAQ (Frequently Asked Questions)

1. What is Meant by Memorandum of Association?

Ans.  Memorandum of Association is the primary documents of a company which is required for incorporation and registration of the company under Companies Act 2013. It contains information on various aspects of an organisation, such as its objectives, area of operation, liabilities, total capital etc.

2. What is Meant by a Limited Company?

Ans. As per Companies Act 2013, Limited company is a type of private company where the members are responsible for their debts only to the extent of what they have invested as capital.

3. What are the Regulations a Company Must Follow while Selecting a Name?

Ans. The name of the organisation should not be similar to any other company already registered under the Companies Act of 2013. It should not be deemed offensive under the law, or undesirable by the Central Government. A company’s name should not violate the provision of names and emblems, as stated under the Prevention of Improper Use Act, 1950.