Companys Act

Download as pdf or txt
Download as pdf or txt
You are on page 1of 11

The Companies Act, 2013

• Introduction: This new act brought into action replacing the Companies
Act, 1956 – primary source of Indian company law
• Formation of a Company: A company may be formed for any lawful
purpose by 7 or more persons (for Public co), by 2 or more persons (for
Private co) and by 1 person (for One person company) – shareholders
names need to be listed in Memorandum of Association – following docs
need to be submitted to Registrar of Companies: MoA and AoA;
Declaration by Advocate, CA, Cost Accountant or CS and a Director that all
the requirements of the Act have been complied with, details of the
founding members and Directors
• Registrar after checking the documents, shall issued Corporate
Identification Number (CIN), a distinct identity for the company
The Companies Act, 2013
• Important terms:
• Associate company: a company in which another company has a significant
influence, not a subsidiary company but may include a joint venture
company (Ex: Tech Mahindra Ltd is an associate company of Mahindra &
Mahindra Ltd) – significant influence means minimum 25% share holding
• Subsidiary company: a company which holds more than 50% share in
another company (Ex: Reliance Retail Ltd is a subsidiary company of
Reliance Industries Ltd)
• Key managerial personnel (KMP): KMP includes CEO or MD, WTD, CFO,
Company Secretary
• Net worth: paid up share capital + reserves & surplus – fictitious assets
such as accumulated loss, deferred expenditure
The Companies Act, 2013
• Memorandum of Association: acts as the foundation of every
company – defines the scope of outside relations of the company - it
shall include the following:
• Name of the company
• The registered address
• Objects for which the company is being formed
• Liability of the members – whether limited or unlimited or limited upto shares
or guarantee
• The amount of authorized share capital
• Number of shares each member is subscribing
The Companies Act, 2013
• Article of Association: defines the regulation for management of the
company - it shall include broad guidelines such as the following:
• Share issuance
• Dividend payment
• Financial audit
• Voting rights
• Board structure
• General meeting
The Companies Act, 2013
• Prospectus: The document based on which a company may issue securities to
public such as Initial Public Offering – Prospectus contains all the issue related
information such as:
• Name and registered office of the company; details of KMP
• Main objects of the issue
• Dates of opening & closing of the issue
• Details of underwriting, if any
• Details of the resolutions passed
• Procedure and time schedule for allotment and issue of securities
• Risk factors of the project/ operations of the company
• Details of any pending litigation
• If there is any deliberate mis-statement of fact in Prospectus, every person who
authorizes the Prospectus would be liable to face prosecution
The Companies Act, 2013
• Shares: Share capital of a company limited by shares have two following kinds of
shares:
• Equity share: which comes with part ownership and voting rights
• Preference share: carries preferential right to receive fixed rate dividend before equity share
holders
• Equity shareholders are the real owners of the company as they enjoy the voting
rights in proportion to their shareholding – equity shares may be issued at a
premium but equity shares cannot be issued at a discount
• A company may issue Bonus shares to its existing shareholders from its free
reserves/ securities premium account
• A company may purchase its own shares from the existing shareholders through
Buy-back of securities
The Companies Act, 2013
• Directors: Every company to have Board of Directors consisting of
individuals as Directors – to be appointed by the company in General
meeting – Directors must have a DIN (Directors Identification Number)
• Min 3 directors (public co); Min 2 (private co) – Max of 15 directors – at
least 1 director must be a resident Indian
• Every listed company to have at least one third directors as independent
• No person will act as Director in more than 20 companies at a time (out of
20, maximum number of public co should not be more than 10)
The Companies Act, 2013
• Duties of Directors:

• Shall act in accordance with the Articles of Association


• promote the objects of the company and for the best interest of the stakeholders
• Should not have any conflict of interest with the interest of the company
The Companies Act, 2013
• General Meetings:
• Meetings of the Board: Every company to hold first meeting of Board of Directors (BOD)
within 30 days of its incorporation and thereafter a minimum of four meetings every
year – quorum for a meeting of BOD would be minimum 2 directors or one-third of BOD,
whichever is higher – all resolutions would need to be passed by the majority of the
Directors present

• General Meeting: Every company to hold an general meeting once a year, within six
months from the closing of the financial year – known as Annual General Meeting (AGM)
- all shareholders would invited in this AGM – A member may appoint some other
member (known as Proxy) to vote on his/her behalf
The Companies Act, 2013
• Auditor:
• Every company at its first AGM, appoint an auditor (individual or firm)
• Auditor will have right have access to all the books of accounts and vouchers of the
company
• Auditor in his report would mention the following:
• Whether the company maintained proper books of accounts or not
• Whether company’s financial statements are in agreement with books of accounts or not
• Whether financial statements are in line with accounting standards or not
• Whether company has adequate internal financial control or not

• In case of a Govt owned company, Comptroller & Auditor General (CAG) would conduct
the audit
The Companies Act, 2013
• Winding Up of Company:
• A company may wind up in following 2 ways:
• Voluntary (after passing a resolution by the members – Company will appoint a Liquidator)
• Order of Court
• Winding up by Court order:
- Possible situations for winding up order by Court: if company is unable to repay its debt;
action against the national interest; committed fraud; has not filed financials and other
documents with RoC consecutively for 5 years etc.
– the appropriate court to hear the matter related to winding up of company is National
Company Law Tribunal (NCLT) – NCLT would appoint Liquidator
- Liquidator would take over the remaining assets of the company, sell them to realise
money that would be distributed among the creditors to the company and if any money is
remaining after payment to all creditors, would return to the equity shareholders

You might also like