A new company law in India, known as the Companies Act of 2013, has been promulgated. This new set of highly refined and innovative rules and regulations replaces a nearly six-decade old legislation on the formation, registration, maintenance and regulation, and winding up of companies in India. The old Companies Act of 1956 had been amended regularly at least 25 times, and many of rules and provisions given in that, had become outdated or inadequate to the demands and requirements of the contemporary world of businesses. The new Companies Act of 2013 consists of 29 Chapters, 470 Sections, and 7 Schedules, as compared to 658 Sections and 14 Schedules in the former Indian company law Act of 1956. In ours this highly informative and useful web article, we are providing information about some of the most significant and influential changes which are presented in the new Indian Companies Act, 2013.
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The changes, modifications, and refinements introduced in the new Companies Act of 2013 seek to improve optimally the way companies are formed and registered, operated and governed, and regulated and wounded up in entire India. Quite noteworthy are its provisions for corporate social responsibility, endeavor for enhancing contribution of women to the corporate world, faster processes and e-governance, greater transparency in corporate governance, empowerment and welfare of investors and shareholders, easy and fast mergers, etc. Some of the most notable and magnificent changes presented in the new Companies Act of India, are the following:
Shareholders in a Private Limited Company:
--- The new Indian company law Act of 2013, has increased the upper limit of the maximal allowable partners in a private limited company to 200, from the 50 in the former company law of 1956. This will facilitate gathering of the larger pool of capital, without the necessity to go public.
One Person Company (OPC):
--- A new form of a company, called as the One Person Company (OPC) has been prudently introduced in India. This highly convenient one person company will essentially be a private limited company, and will require only one person for its formation as its director. By the way, separate regimes for the Small Company and the Dormant Company, have also been introduced in the new company law of India.
Restriction on Composition:
--- For company formation in India, at least one director of the company must have resided in India for not less than the period of 182 days in the preceding calendar year. Again, at least one woman director has also been recommended by the new law. Moreover, the duties of directors in a company are now well-defined in the new Indian company law Act of 2013.
Number of Independent Directors:
--- According to the new Indian Companies Act of 2013, in every listed public company, the minimal number of independent directors must be equal to one-third of the total number of directors in the company, who will have no financial interest in the company. Companies composited as per the former company law, are given a transition period of one year for strict compliance with this provision. Again, independent directors cannot hold office for more than two consecutive terms of five-year periods.
Maximal Number of Partners:
--- In any general partnership firm, the greatest number of permissible partners, has been extended to 100 from 20 in the earlier Act. However, professional partnership firms such as legal firms, firms of chartered accountants, etc., can have larger number of partners than 100.
Entrenchment in the Articles of Association:
--- Visionary provisions for possible entrenchment in the articles of association of a company have been introduced.
Appointment of Women Directors:
--- To strengthen and promote contributions of women to economic progress, the Indian Companies Act of 2013 has put emphasis on appointing at least one woman director in a company.
--- For this purpose, the new Companies Act of 2013 has proposed maintenance, updating, inspection, and filing of various company documents in secure and fast electronic forms.
Safety, Welfare, and Supremacy of the Shareholders:
--- The new company law of India, the Companies Act of 2013, has introduced and modified many things to safeguard the legitimate rights and interests of the shareholders to diverse companies. The new concept of the class action suits, and making approvals from the shareholders essential on all significant dealings and transactions, etc. are such things.
Rotation of Auditors:
--- Changing auditors in every five years, and the audit firm in every ten-year period, is recommended by the new company law of India, especially for all publicly-traded companies. Moreover, auditors are now prohibited from performing non-audit services to the employer company.
Easy and Fast Mergers:
--- The Companies Act of 2013, also facilitates merging of Indian companies with foreign companies in specified jurisdictions, besides the merger of any foreign company with an Indian company. Again, quite simplified and fast track procedure for mergers and acquisitions of certain types of companies, such holding and subsidiary, small companies, etc., has been illustrated.
Corporate Social Responsibility (CSR):
--- To promote social welfare activities by big and successful companies, the Companies Act of 2013 also contains some provisions and suggestions. According to this new company law of India, every company or corporation which has a turnover of at least 10 billion rupees, or a net profit of 50 million rupees of more in any financial year, will spend at least 2% (two percent) of its average net profit earned during the last three consecutive financial years, every year on some philanthropic and social welfare programs.
Company Law Tribunals:
--- The Companies Act, 2013, has approved the establishment of the National Company Law Tribunal, and the National Company Law Appellate Tribunal, in place of the existing Company Law Board (CLB), and the Board for Industrial and Financial Reconstruction, for the purposes of prompt, fast, and specialized solutions and justice.
Rehabilitation and Liquidation of Companies:
--- Time-bound processes for rehabilitation and liquidation of companies undergoing financial crisis, have been wisely introduced in the Companies Act of 2013.