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Did you know India ranked 63rd in the World Bank’s Ease of Doing Business Index in 2022? It clearly depicts how important clear company laws are. These help in keeping businesses honest and fair.
Corporate laws of India, particularly the Companies Act, 2013, play a very vital role in governing business activities, proper corporate governance, and protecting the interests of stake-holders. These pieces of legislation provide a framework of law for the incorporation, management, financial statement reporting, and dissolution of companies.This blog aims to provide the reader with simple understanding of the significant company laws of India and its importance in developing a stable business environment.
The history of the corporate law in India is closely related to its economic and political changes. Before colonisation, businesses were operated according to some informal arrangements and customs. Colonization introduced Indian corporate modern laws, starting from Joint Stock Companies Act, 1850, under influence of the British law system. Successively, with the implementation of Indian Companies Act of 1866 and Indian Companies Act of 1913, the legislation in India placed emphasis on companies limited, public companies management, and rights of its shareholders respectively.
After independence, the Companies Act, 1956, was a sort of backbone to corporate governance. It consolidated previous laws and set up the framework for industrial growth during the socialist era. Stricter regulations such as the Monopolies and Restrictive Trade Practices Act, 1969, were implemented to check monopolies.
In 1991, economic liberalization had its course in market-oriented reforms. Companies Act 2013 replaced the 1956 act hence it incorporated governance provisions such as CSR, more transparency, and simplification of compliance. It is followed by some newer legislation, such as the Insolvency and Bankruptcy Code 2016 and Competition Act, 2002.
The latest trends include ease of doing business, digital compliance, and law adaptation toward global competitiveness. India’s corporate law history demonstrates the transition of this country from traditionalism to a globally integrated economy.
Under Companies Act, 2013, a Company is a legal entity consisting of two or more members (or one in case of One Person Company), associated for carrying on lawful enterprise. It is separate and distinct from its members to whom it is not affiliated while having its own legal character where it can acquire property , enter into contracts, sue, and be sued
– Minimum 2 members, maximum 200.
– Cannot invite the public to subscribe to shares.
– Shareholders have limited liability India
– Minimum 7 members, no upper limit.
– Can invite the public to subscribe to shares.
– More compliance requirements.
– Shareholders have limited liability
– Single member
– The sole member can be the director
– Limited liability to the single member
– Minimum of 2 partners
– Partnership liability is restricted to the contribution
– Less compliance as compared to the company
– It is formed for charitable or non-profit purpose
– Profit distribution to the members cannot be done
– Members are under limited liability
– By farmers or producers for mutual advantage.
– Main business of agriculture and ancillary activities.
– Members enjoy limited liability
– Minimum 51% of the shares held by government.
– Shareholders have limited liability
– Holding company has control over the subsidiaries by majority shareholding.
– Both are distinct entities for law purposes.
– Shareholders have limited liability
It regulates the incorporation, management as well as the dissolution of companies
Key features:
– Corporate Governance, Shareholder Rights as well as Board Structure;
– CSR Obligations
– Mergers, acquisition, and winding up related provisions.
It regulates the formation or incorporation as well as conducting of LLPs
Key features:
– Limited liability for partners
– Flexible form of management and minimal formality requirements
– Conversion from companies/partnerships to an LLPs.
Establishes the framework for the resolution of insolvency and bankruptcy.
Key features:
– Insolvency process is time-bound (330 days).
– Protects rights of creditors.
– Liquidation procedures for insolvent companies
It regulates and protects the capital market and investors
Key features:
– Prohibition of Insider Trading
– Mandatory disclosure on part of listed companies.
– Regulation of Stock broking and other market intermediaries.
It regulates trading of securities in stock exchanges.
Key features:
– Regulation of functioning of stock exchange
– Listing and delisting of securities
– Regulation of speculative trade in the market
It regulates cyber law, e-commerce, and data protection
Key features:
– Provision of digital contracts and online transaction
– Punishment of cybercrime and data breaches
– Recognition of electronic signatures.
Incorporation is referred to in the legal manner of raising a company. It results in the development of another legal entity apart from their owners. Usually, there are the following steps it involves:
Decide on the company type that will be included in the process of incorporation to be chosen (Private Company, Public Company, One Person Company, etc.).
Registration of company name for availability with ROC.Name should be distinct and not identical with a company name or trademark existing.
Submission of MOA, AOA and Declaration by the Directors with ROC.
MOA : gives the purview and aims of the company.
AOA : contains the regulation that governs the internal management of the company.
Declaration of the directors: Confirm that all conditions are satisfied.
Identity and Address proofs: Identity and Address proof of directors and shareholders.
When the ROC accepts the documents, a Certificate of Incorporation is issued which marks the existence of the company.
After incorporation, companies must comply with ongoing legal and regulatory requirements to operate within the law.
– Board of Directors: The company must appoint a minimum number of directors (varies based on company type).
– Annual General Meetings (AGM): Companies have to conduct AGMs on the following matters, namely, financial statements, declaration of dividend and election of directors.
– Filing Annual Return: Every company has to file an annual return with the ROC containing the financial statements and other statutory records.
– The statutory registers include register of members, register of directors, etc., maintained under the Companies Act.
– A company complies with the income tax laws of the land including Goods and Services Tax, if levied.
– An annual audit by a Chartered Accountant of its financial statements.
Companies should present specific forms to the ROC in case of any board, capital structure, or shareholders change. Other disclosures include related-party transactions and significant changes in its activities.
Certain Companies should file CSR provisions by providing funding for social or environmental causes.
The Ministry of Corporate Affairs (MCA), in India, monitors and controls the corporate sector for laws, enforcement compliance, and advocacy for transparence and ethical practices while doing business. The department regulates the application of the Companies Act, 2013, which details formation, running, and liquidation of a company. Corporate governance practices of a company are ensured in respect of the requirement related to financial reporting, audit, and disclosure requirements through MCA.
The Ministry is facilitating company incorporation and registration and provides annual filings processes, maintenance of statutory records, issuing the Certificates of Incorporation through the Registrar of Companies (ROC) with the oversight function to ascertain company compliance and perform key investor protection functions like investigating fraud cases and issuing penalties in cases of non-compliance. Further, the MCA promotes ease of doing business through digital solutions like MCA21 for company registration and filings.
Company laws in India ensure the proper and efficient performance, transparency, and accountability of businesses. The ongoing changes in the regulatory regime, including key legislations like the Companies Act, 2013, SEBI Act, and the Insolvency and Bankruptcy Code, make business life in India more manageable. In fact, the future of corporate law in India looks promising due to continuous reforms for creating a more vibrant business atmosphere.
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Adv. Abdul Mulla (Mob. No. 937 007 2022) is a seasoned legal professional with over 18 years of experience in advocacy, specializing in diverse areas of law, including Real Estate and Property Law, Matrimonial and Divorce Matters, Litigation and Dispute Resolution, and Will and Succession Planning. read more….
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