by The Companies Act, 2013 governs corporate regulations in India and establishes the legal framework for the incorporation, management, and operations of companies. It aims to enhance corporate governance, transparency, and compliance while protecting stakeholders’ interests. Below are key legal provisions under the Act, categorized by their relevance.
Incorporation and Registration of Companies (Sections 3 to 22):
The Companies Act, 2013 provides the legal foundation for the formation and registration of companies.
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Types of Companies: The Act recognizes public, private, and one-person companies (Section 2).
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Memorandum & Articles of Association (MOA & AOA): Companies must draft and file these documents during incorporation.
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Certificate of Incorporation: Issued by the Registrar of Companies (RoC) as proof of existence.
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Corporate Identity Number (CIN): Every registered company receives a unique CIN.
These provisions ensure that companies operate with a clear legal identity and defined structure.
Corporate Governance and Board of Directors (Sections 149 to 178)
The Act emphasizes strong corporate governance to ensure ethical and efficient business operations.
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Board Composition (Section 149):
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A listed company must have at least one-third independent directors.
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At least one woman director is required in certain companies.
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Duties of Directors (Section 166):
Directors must act in good faith and in the best interest of the company and stakeholders.
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Audit Committee (Section 177):
Mandatory for large companies to oversee financial reporting and compliance.
These provisions safeguard transparency and accountability in corporate decision-making.
Share Capital and Securities (Sections 43 to 72)
The Act defines regulations for issuing shares and securities to protect investors.
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Types of Share Capital (Section 43):
Equity shares and preference shares are the primary categories.
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Issue of Shares (Section 62):
Companies can issue rights shares, bonus shares, and preferential allotments.
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Buyback of Shares (Section 68):
A company may repurchase its shares under specific conditions, subject to a 25% limit of its paid-up capital.
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Transfer and Transmission of Shares (Section 56):
The process must be documented and comply with statutory requirements.
These provisions regulate capital structure and protect shareholders’ rights.
Financial Statements, Audit, and Disclosures (Sections 128 to 138):
To ensure financial transparency, companies must maintain proper accounting records and undergo regular audits.
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Books of Accounts (Section 128):
Companies must maintain books at their registered office.
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Statutory Audit (Section 139):
Every company, except a few small firms, must appoint an independent auditor.
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Board’s Report (Section 134):
Includes financial performance, corporate social responsibility (CSR), and risk management details.
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Internal Audit (Section 138):
Required for large and listed companies to strengthen financial control mechanisms.
These provisions ensure accurate financial reporting and prevent fraudulent activities.
Mergers, Acquisitions, and Corporate Restructuring (Sections 230 to 240)
The Act provides a structured framework for corporate restructuring, ensuring legal compliance.
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Compromise and Arrangements (Section 230):
Companies can enter into agreements with creditors and shareholders for restructuring.
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Mergers and Amalgamations (Section 232):
Court or tribunal approval is required for mergers.
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Takeovers and Oppression (Section 241):
Shareholders can seek legal remedies against oppressive management practices.
These provisions facilitate smooth business restructuring while protecting stakeholders’ rights.
Corporate Social Responsibility (CSR) (Section 135)
CSR is a mandatory provision under the Companies Act, 2013, ensuring that businesses contribute to societal development.
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Applicability:
Companies with a net worth of ₹500 crores, a turnover of ₹1000 crores, or a net profit of ₹5 crores must spend 2% of their average net profits on CSR activities.
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CSR Committee:
Companies must form a CSR Committee to oversee and implement projects in education, healthcare, and environmental sustainability.
This provision encourages ethical corporate practices and social welfare initiatives.
Investor Protection and Shareholder Rights (Sections 91 to 127)
To ensure fairness in corporate dealings, the Act provides multiple safeguards for shareholders.
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Annual General Meeting (AGM) (Section 96):
Every company, except one-person companies, must hold an AGM annually.
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Voting Rights (Section 47):
Shareholders have proportional voting rights based on their equity holdings.
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Declaration of Dividends (Section 123):
Dividends must be declared from company profits and transferred to shareholders.
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Unpaid Dividend (Section 124):
Unclaimed dividends must be transferred to the Investor Education and Protection Fund (IEPF).
These provisions ensure transparency and safeguard shareholders’ interests.
Winding Up and Liquidation of Companies (Sections 270 to 365)
The Act defines the legal process for closing a company.
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Voluntary Winding Up (Section 304):
Companies can dissolve voluntarily if shareholders approve.
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Compulsory Winding Up (Section 271):
Ordered by the tribunal due to insolvency, fraud, or non-compliance with regulations.
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Insolvency and Bankruptcy Code (IBC):
The IBC governs financial distress resolution for companies.
These provisions ensure a structured and fair exit strategy for failing businesses.
