Indian company law primarily revolves around the Companies Act, 2013, which governs the formation, regulation, and dissolution of companies in India. Below is a basic overview of key concepts, sections, and provisions under Indian company law.
1. Formation of Companies
- Types of Companies:
- Private Company: A company that restricts the transfer of its shares, and has a minimum of 2 and a maximum of 200 members.
- Public Company: A company that can offer its shares to the general public, with at least 7 members and no maximum limit on membership.
- One Person Company (OPC): A single-member company, introduced to encourage small entrepreneurs.
- Section 8 Company: A non-profit organization, formed for promoting commerce, art, science, charity, etc.
- Incorporation: Companies are incorporated by filing a Memorandum of Association (MOA) and Articles of Association (AOA) with the Registrar of Companies (RoC).
2. Memorandum of Association (MOA)
The MOA defines the scope of the company’s activities. It includes:
- Name Clause: The name of the company.
- Object Clause: The objectives for which the company is formed.
- Liability Clause: The liability of members, whether limited or unlimited.
- Capital Clause: The total amount of capital the company is authorized to raise.
- Subscription Clause: The names of the initial members.
3. Articles of Association (AOA)
The AOA defines the rules for the internal management of the company. It governs how the company will be run, the rights and duties of the members, the appointment of directors, etc.
4. Share Capital
- Equity Shares: Shares with voting rights, where profits are distributed in the form of dividends.
- Preference Shares: Shares that have a priority over equity shares in the payment of dividends and repayment of capital.
5. Corporate Governance
- Board of Directors: The company must have a minimum number of directors, typically 2 for a private company and 3 for a public company.
- Independent Directors: Certain public companies must have at least 1/3rd of the board as independent directors.
- Role of Directors: Directors are responsible for managing the company’s affairs, ensuring compliance with the law, and protecting shareholders’ interests.
6. Meetings and Resolutions
- Annual General Meeting (AGM): Every company must hold an AGM each year to discuss its annual financial statements, appoint directors, and approve dividends.
- Board Meetings: Held for day-to-day management decisions.
- Resolutions: Decisions made at meetings, which can be:
- Ordinary Resolution: Simple majority (50%).
- Special Resolution: Requires a 3/4th majority.
7. Financial Statements and Audits
- Companies must maintain books of accounts and have their financial statements audited annually by a qualified chartered accountant.
- Annual Return: Companies must file an annual return with the Registrar of Companies (RoC), detailing financial performance and governance.
8. Corporate Social Responsibility (CSR)
- Under the Companies Act, certain companies (those with a net worth of Rs. 500 crore or more, or turnover of Rs. 1000 crore or more) are required to spend a portion of their profits on social causes.
9. Compliance and Penalties
- Companies are required to comply with various provisions of the Companies Act, such as:
- Filing annual returns.
- Holding AGMs and board meetings.
- Maintaining statutory registers.
- Non-compliance with these provisions can result in fines or penalties.
10. Types of Contracts
- Contractual Relationship: A company can enter into contracts in its own name, typically for commercial purposes, which are enforceable by law.
- Contracts with Directors/Officers: Specific rules govern contracts involving directors, especially those with potential conflicts of interest.
11. Mergers, Amalgamations, and Acquisitions (M&A)
- Provisions relating to M&A are governed by the Companies Act and must be approved by shareholders and regulatory authorities.
- Companies must follow the rules set by the Competition Commission of India (CCI) for fair market practices.
12. Liquidation
- Voluntary Liquidation: Initiated by shareholders when the company is solvent.
- Compulsory Liquidation: A court order for winding up due to insolvency or illegal actions.
- Process: Involves appointing a liquidator to settle debts and distribute assets to creditors and shareholders.
13. Directors’ Duties and Liabilities
- Directors have fiduciary duties toward the company, including:
- Duty of Care and Skill: Act with diligence.
- Duty to Avoid Conflicts of Interest: Avoid situations where personal interests conflict with company interests.
- Duty to Comply with the Law: Ensure adherence to the legal requirements.
- Directors can be held personally liable for certain violations, including fraudulent activities.
Conclusion
Indian company law aims to create an environment where companies can operate efficiently while ensuring that the rights of shareholders, creditors, and other stakeholders are protected. Adherence to the Companies Act, 2013, and other related regulations is mandatory for companies operating in India.