The Companies Act, 2013: Nature and kinds of companies & Company formation | UGC NET Commerce Preparation Course PDF Download

Companies Act 2013: Overview, Objectives, and Differences

The Companies Act 2013 is a detailed legal framework governing the creation and management of companies in India. This article provides an in-depth look at the Companies Act 2013, including its background, significance, and specific regulations pertaining to corporations.

Overview of the Companies Act 2013

The Companies Act 2013 governs the establishment, dissolution, and operation of companies in India. Enforced from September 12, 2013, it succeeded the Companies Act of 1956 with updates to better align with the modern corporate environment. The Act includes 29 chapters and 476 sections and is designed to promote economic growth by simplifying the process of company formation and administration.

Definition of a Company

Under the Companies Act 2013, a company is defined as a “legal person” created by law, with a distinct legal identity, perpetual succession, and a common seal. It refers to any entity formed under this Act or any previous company legislation.

Types of Companies

Companies are categorized based on various criteria such as member liability, membership size, control, and purpose. These classifications help determine the applicability of different provisions within the Companies Act 2013 and other relevant laws. The main types of companies include:

• One-Person Company: A company with a single member.
• Private Company: A company with a minimum of two and a maximum of two hundred members, with a minimum share capital as determined by its members. Private companies cannot transfer shares to the public.
• Public Company: A company where 51% or more of the shares are held or controlled by the central or state government. Public companies can issue shares to the public and require at least seven members to be formed.

Characteristics of a Company

The Companies Act 2013 is a key piece of legislation that oversees the establishment and management of companies in India. Adhering to this Act is crucial for companies to avoid legal repercussions and penalties. Here are the principal features of companies:

• Distinct Corporate Identity: Companies have their own legal status separate from their owners. This enables them to enter contracts, initiate legal actions, and own property independently.
• Common Seal: A company employs a common seal to validate its documents. This seal is specific to the company and signifies official authorization of documents.
• Perpetual Succession: Companies possess perpetual succession, meaning their existence is unaffected by changes in ownership. This feature facilitates long-term contracts and investments.
• Transferability of Shares: Company ownership is divided into shares, which can be transferred easily from one individual to another. This flexibility supports investment and divestment.
• Limited Liability: Owners' liability is limited to their investment in the company, protecting them from personal responsibility for the company’s debts.
• Capacity to Sue and Be Sued: Companies can both initiate and face legal proceedings in their own name.

History of the Companies Act in India

The Companies Act in India traces its origins to the Companies Act of 1850, introduced by the British and modeled on the British Companies Act of 1844. It evolved from the British Companies Act of 1908 and took statutory form with the Indian Companies Act of 1956. This was later revised and replaced by the Indian Companies Act of 2013.

Highlights of the Companies Act 2013

The Companies Act 2013 encompasses various significant aspects, detailed in the following table, outlining its timeline and key features.

Objectives of the Companies Act, 2013

The Companies Act of 2013 was established to achieve several key goals:

• To foster economic growth
• To enhance transparency and accountability
• To uphold high standards of corporate governance
• To incorporate new concepts and procedures that support businesses while safeguarding stakeholder interests
• To create an institutional framework through various authorities, bodies, and panels (such as NCLT and NCLAT)
• To implement stricter measures against fraud and significant non-compliance with company law

Differences Between the Companies Act 1956 and 2013

The Companies Act of 1956 and the Companies Act of 2013 differ in several ways. The key distinctions are outlined below:
Here's a paraphrased version of the table comparing the Companies Act 1956 and 2013:

Conclusion

The Companies Act 2013 outlines extensive regulations and legal requirements for businesses in India. Organizations must adhere to the stipulations of this Act, which offers a thorough framework for the establishment and functioning of companies in the country. The Act seeks to foster transparency, accountability, and effective corporate governance, while safeguarding the interests of investors and other stakeholders. It has been instrumental in advancing the Indian economy and remains a fundamental component of the nation's corporate environment.