Salient Features of Companies Act 2013 – The Companies Act 2013 is an important law in India that governs the formation, management and administration of companies. Replaced the Companies Act 1956, it introduced several reforms to improve corporate governance, transparency and ease of doing business. Here are some of its salient features:
Salient Features of Companies Act 2013
- Incorporation and Registration:
- One Person Company (OPC): The Act introduced the concept of OPC, which allowed sole entrepreneurs to set up a company.
- Simplified Incorporation: Online registration and Single E-Form for Incorporation (SPICe) streamlines the process.
- Corporate Governance:
- Board structure: The law mandates a minimum number of directors and requires the appointment of independent directors.
- Audit Committees: Companies must set up an audit committee, which must have independent directors.
- Vigilance mechanism: Provisions for a whistle-blower mechanism to report unethical practices.
- Share capital and shareholders:
- Reduction of share capital: Simplified procedure for reduction of share capital.
- Class Action Suits: Allows shareholders to file class action suits against companies for certain violations.
- Dematerialization: Promotes electronic holding of securities to reduce fraud and paperwork.
- Financial reporting and audit:
- Financial Statements: Determines the detailed format for financial statements.
- Mandatory rotation of auditors: Companies must rotate their auditors at specified intervals.
- National Financial Reporting Authority (NFRA): Established to oversee auditing standards.
- Corporate Social Responsibility (CSR):
- Mandate that some companies spend part of their profits on CSR activities.
- Specifies activity and reporting requirements for CSR initiatives.
- Related Party Transactions:
- Strict rules on related party transactions to avoid conflict of interest.
- Shareholder approval and disclosure requirements for such transactions.
- Insider Trading and Prohibition of Insider Trading:
- Prohibits insider trading and mandates establishment of code of conduct for listed companies.
- Disclosure of trading by insiders is required.
- Mergers and Acquisitions:
- Streamlined processes for mergers, consolidations and takeovers.
- Protection of interest of minority shareholders in such transactions.
- Investor Protection:
- Enhanced powers for the Securities and Exchange Board of India (SEBI) to protect the interests of investors.
- Provisions for class action exemptions and stiff penalties for fraud and non-compliance.
- Emphasis on e-filing, electronic voting and paperless compliance.
- Facilitation of online shareholder meetings.
- Women Empowerment:
- Some companies must have at least one woman director on their board of directors.
- Promotes gender diversity in corporate leadership.
- Small Companies and Startups:
- Lower compliance requirements for smaller companies.
- Provisions for fast-track approvals and concessions for start-ups.
- Dispute Resolution:
- Establishment of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) for competent dispute resolution.
- Introduction of Insolvency and Bankruptcy Code, 2016 to address insolvency issues.
The Companies Act 2013 represents a comprehensive overhaul of the corporate governance and regulatory framework in India. It aims to increase transparency, accountability and investor confidence while reducing the administrative burden on businesses. However, to thrive in the Indian corporate sector, companies need to stay up-to-date with reforms and adhere to the evolving regulatory landscape.
Salient Features of the Companies Act, 2013
The Companies Act, 2013 is a comprehensive legislation that governs the formation, management, and regulation of companies in India. It replaced the Companies Act, 1956 and introduced several key reforms to enhance corporate governance, transparency, and investor protection. Here are some salient features of the Companies Act, 2013:
- Incorporation Process: The Act simplified the company registration process by introducing the concept of a one-person company (OPC) and eliminating the requirement for a minimum of two directors in a private company.
- Enhanced Corporate Governance: It mandates the appointment of independent directors, introduces the concept of a woman director, and imposes stricter regulations on related-party transactions to ensure transparency and accountability.
- Shareholder Rights: The Act strengthens the rights of shareholders, including the right to demand a postal ballot, the right to inspect corporate books and records, and the right to class action suits.
- Board of Directors: It prescribes a maximum limit of 15 directors on a board and requires at least one-third of the board to be independent directors for listed companies.
- Audit and Auditors: The Act enhances the role of auditors by introducing mandatory rotation of auditors and the concept of a joint audit for large companies. It also empowers the National Financial Reporting Authority (NFRA) to regulate the auditing profession.
- Corporate Social Responsibility (CSR): It mandates that certain companies spend a portion of their profits on CSR activities and report on their CSR initiatives in their annual reports.
- Insolvency and Bankruptcy: The Act introduces provisions related to corporate insolvency resolution processes and enables the establishment of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) to deal with corporate disputes.
- Deposits: Stricter rules on acceptance of deposits from the public are introduced to protect the interests of depositors.
- Penalties and Enforcement: The Act imposes stringent penalties for non-compliance and fraudulent activities, including imprisonment for company directors and officers.
- E-governance: The Act encourages the use of electronic means for various corporate processes, including filing of documents, shareholder communication, and meetings.
- Cross-Border Transactions: It provides provisions for mergers, amalgamations, and arrangements involving foreign companies and simplifies the process for raising funds through global depository receipts (GDRs) and American depository receipts (ADRs).
- Small Companies and Startups: Certain exemptions and simplifications are provided for small companies, startups, and producer companies to promote entrepreneurship.
In summary, the Companies Act, 2013, is a landmark legislation that seeks to promote transparency, corporate governance, and investor protection while simplifying several aspects of company management and regulation. It represents a significant step towards modernizing corporate law in India.