Introduction to Companies Act 2013 – Company Law
Background of the Companies Act 2013
The Companies Bill 2012 was passed by the Lok Sabha on 18th, December, 2012 and by the Rajya sabha on 8th, August, 2013. On receiving the assent of the honi’ble President of India on 29th, August, 2013 it was notified on 30th, August, 2013 as the Companies Act 2013.
Purpose/ Objectives of the Companies Act 2013
Following are the objectives of the Companies Act 2013 –
- To develop the economy by encouraging entrepreneurship
- Creating flexibility and simplicity in the formation and maintenance of companies.
- To encourage transparency and high standards of corporate governance.
- To recognize new concepts and procedures to facilitate ease of doing business while protecting interests of all the stakeholders
- To enforce strict action against fraud
- To set up institutional structure in the form of various authorities, bodies and panels.
- To cater to the need for more effective and time bound approvals and compliance requirements
Structure of the Companies Act 2013
The Companies Act 2013 consists of 470 sections (covered in 29 chapters) and 7 schedules as against 658 sections (covered in 13 parts) and 15 schedules of the Companies Act 2013.
Definition of a Company
A company simply means a group of persons associated for any common object such as business, charity, research etc.
According to Haney, “A company is an incorporated association, which is an artificial person created by the law, having a separate entity, with a perpetual succession and a common seal.
According to sec 2(20) of the Companies Act 2013, ‘a company is a company formed under companies Act 2013or under any of the previous law relating to companies’
Therefore, a company may be defined as “an incorporated association which is an artificial person, having a separate legal entity with a perpetual succession, a common seal and a common capital compromised of transferable shares and limited liability”
Characteristics of a Company
1. Artificial Legal Person – A company is an artificial person and will be treated as a legal person just like a natural person and possess all the rights and duties of a natural person. However a company does not have any physical attributes of a natural person and is intangible. It only exists in the eyes of the law.
2. Separate Legal Entity – A company can sue and be sued, it has the right to own and transfer the title to property as it is a legal person in the eyes of the law.
3. Limited Liability – A Company which is limited by shares, has liability up to the unpaid amount on shares held by its members.
4. Perpetual Succession – The life of a company does not depend upon the death, insolvency, or retirement of any or all the shareholders. There a company is an immortal entity.
5. Separate property – No member of the company can claim himself to be the owner of the company’s properties either during its existence or during its winding up.
6. Transferability of shares – The shares are said to be a movable property and transferability of shares are subjected to certain conditions provided by the act.
7. Common Seal – A company has no physical existence; it must act through its agents. The common seal of the company acts as the official signature of the company which can be used by the agents of the company to authorize official documents.
8. Capacity to sue and be sued – A company, being a body corporate, can sue and be sued in its own name.
9. Contractual Rights – A company being a legal entity different from its members can enter into contracts with third parties for conducting business in its own name.
10. Limitation of Actions – A Company registered under the companies act cannot go beyond the powers of its charter i.e. the Memorandum of Association. The actions and objects of the company are limited by its memorandum and articles.
11. Separate management – The members of the company can derive profits out of the company without being burdened with the management of the company.
12. Voluntary Association for profit – The Company which is incorporated under the companies Act 2013 is formed for the accomplishment of some public goals and whatsoever profit is gained is being divided between the shareholders.
13. Termination of existence – It has the existence only in contemplation of law. It is created by law, carries on its affairs according to law.
Lifting of the Corporate Veil
When the law disregards the corporate entity of a company and instead pays regards to the individual members with respect to the legal affairs of the company, it is known as lifting the veil of corporate personality. After the Lifting of the corporate veil the legal entity of the company ceases to exist and the ownership of the assets of the company transfers to all its members in accordance with the Act.
Sec 464 of the companies act provides that not more than 50 persons can combine together for carrying on any business, the object of which is acquisition of profit, unless the association is registered under the Companies act or is formed under any other