EVOLVEMENT OF COMPANIES ACT by PURNIMA NAIDU @ LexCliq

Evolvement of Companies Act

Introduction:-

The President of India has approved the Companies Act, 2013 passed by Parliament on 29.08.2013. The Act strengthens and amends the law relating to companies. The Companies Act, 2013 has been notified in the Gazette on 30.08.2013. Certain provisions of the Act have been implemented by notification published on 12.09.2013. The provisions of the Companies Act, 1956 are still in force. The Companies Act 2013 is an Act passed by the Parliament of India which regulates the formation of companies, their responsibilities, their directors and their termination etc. The Act has 29 Chapters and 40 Sections while the Act of 1958 had 856 Sections (Sections). The Companies Act 1956 has been partially replaced by this Act. The Act came into force on 12 September 2013.

Companies Act, 2013

The Companies Act is the most important legislation that empowers the Central Government to regulate the formation and functions of a company. It was passed by the Parliament of India in 1958. It was amended from time to time. This Act determines the registration of the formation of companies and the responsibility of their directors and secretaries. The Companies Act, 1956 is administered by the Federal Government of India through the Ministry of Corporate Affairs, Office of the Registrar of Companies, Official Liquidators, Public Trustees, Company Law Board, etc.

The Act empowers the government to regulate the formation of a company and control the management of a company. The Companies Act is promulgated by the Central Government through the Ministry of Company Affairs and the offices of the Registrar of Companies, Government Liquidators, Public Trustees, Company Law Board, Director of Inspection, etc.

Companies Act, 1956

The primary function of the Ministry of Company Affairs, formerly known as the Department of Company Affairs under the Ministry of Finance, is the administration of the Companies Act, 1956, other subordinate Acts and the rules and regulations made thereunder as per the law to carry out the functions of the corporate sector. To regulate the Companies Act, 1956 states that a company means, a company formed and registered under the Act or an existing company i.e. a company formed or registered under any previous company law. The basic objectives contained in the law are as follows:

  1. Low standards of good conduct and business integrity in company promotion and management
  2. The legitimate recognition of the shareholding and creditors’ legitimate interests and the management’s duty not to prejudice their interests.
  3. Provision of better and effective control and management management for shareholders.
  4. Neutrality and correct disclosure of the company’s functions in its annual published balance sheet and profit and loss accounts.
  5. Proper standard of accounting and audit
  6. Recognition of shareholders’ rights to obtain relevant information and facilities for making informed decisions regarding management.
  7. Maximum limit on shares of profit payable to management as a perquisite for the service rendered
  8. Monitoring of their transactions where there is a possibility of contradiction between duty and interest
  9. Provision for the investigation of the functions of a company managing the minority of the shareholders by the assumption of exploitation or the interests of the company as a whole.
  10. Engaged in the management of public companies or the enforcement of its own performance of people or private companies that are subsidiaries of public companies, by granting approval in case of violation and subjecting the subsidiary to sanctions provisions under the law applicable to public companies.

The Companies (Amendment) Act, 2000

This led to Amul-Chul amendments to the Companies Act, 1956. The amendment reflects the response to the changing business environment. It provides for greater transparency in corporate governance, makes company directors more responsible and accountable, also makes small companies accountable for discipline, seeks to protect the interests of small investors and protect the interests of depositors and debenture holders.

The Companies (Amendment) Act, 2001

The Companies (Amendment) Act, 2002,

The Companies (Second) Act, 2002

The Companies (Amendment) Act, 2006

Major changes in the Companies Act:-

  • Government can ask tribunal to pass disgorgement order against management personnel found involved in fraud.
  • National Financial Reporting Authority can ban Cas from any audit or valuation related activities for a period of 6months to 10 years.
  • Non-compliance of CSR money has to be transferred into a special account. The money in this account has to be spent within 3 financial years.
  • Companies can issue DVRs with voting rights up to 74% of the post-issue paid up capital from the existing 26%
  • More offences can be resolved at the level of Regional Director (instead of approaching NCLT, which is an adjudicatory body)
  • Mandatory for shareholders of unlisted companies to hold or transfer securities only in dematerialized form.
  • Non-compliance with requirements of problem of prohibition on issuances of shares at discount, and timely filling of annual return, no longer attract imprisonment.

Conclusion:- The above topic is just a small glimpse of the new company law. Looking at this, it can be understood that making a small company up and running will not only be difficult but impossible. The tired small businessman, who had already paid various taxes and kept accounts according to their provisions and got them audited, would no longer be willing to build and run a company.

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