Indian company law
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On the other hand, the MCA has also recently given the way to a new Act called 'Companies 2nd Amendment Act 2017' with effect from 26 January 2018. The said amendment act covered 93 sections which in entirety shall give effect to changes in 107 sections of the Companies Act 2013 ("principal act")
The Ministry works through the two branches, Regional Director (RD) and Registrar of Companies (ROC). At present, the nation has seven such Directors and 22 ROCs.
Companies (1st Amendment) Act 2015Edit
Companies (2nd Amendment) Act 2017Edit
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 2019Edit
The Companies (Amendment) Ordinance 2018Edit
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. In turn, the committee has recommended some amendments needs to be implemented immediately. Such recommendations include 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"), and also shifting of the approvals from Tribunals to In-House adjudication mechanism, and to also re-categorize the 'Acts/Offences' which is currently punishable to be compounded to the 'Acts' merely resolved through civil liabilities etc.
The said committee has also recommended 33 provisions of the principal Act to be implemented immediately. 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.
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"
- Company rule in India
- The Indian Partnership Act, 1932
- The Limited liability Partnership Act, 2008
- Companies (Amendment) Ordinance 2018
- Companies (1st Amendment) Ordinance 2019
- Companies (2nd Amendment) Ordinance 2019
- Companies Act 2013
- Companies (1st Amendment) Act, 2015
- Companies 2nd Amendment Act 2017
- Companies (3rd Amendment) Act 2019
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 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 companiesEdit
- Sole Proprietorship - A sole proprietorship, also known as a trader firm or proprietorship, 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.
- 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 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.
- 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 boardEdit
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 had not yet been implemented.
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.
- "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.
- 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.