82 The Companies Act, 2013
82.1 Background and Scope
The Companies Act, 2013 replaced the Companies Act, 1956 — substantially modernised company law in India (kapoor2023?). Key motivations for the new Act: post-Satyam (2009) governance reforms, alignment with global best practices, simplification, e-governance, and stronger investor protection.
The 2013 Act has 470 sections (initially) divided into 29 Chapters and 7 Schedules, administered by the Ministry of Corporate Affairs (MCA) through the Registrar of Companies (RoC), National Company Law Tribunal (NCLT), NCLAT and NFRA.
82.2 Definition and Characteristics of a Company
Section 2(20): “a company means a company incorporated under this Act or under any previous company law”. A company has three legal characteristics:
| Pillar | Working content |
|---|---|
| Separate legal personality | Distinct from members (Salomon v. Salomon 1897) |
| Perpetual succession | Life independent of members |
| Limited liability | Members liable only to extent of unpaid amount on shares |
82.3 Types of Companies
| Basis | Categories |
|---|---|
| Liability | Limited by shares; Limited by guarantee; Unlimited |
| Members | Public (≥ 7); Private (max 200, min 2); One Person Company (OPC) |
| Listing | Listed (on a recognised stock exchange); Unlisted |
| Holding | Holding; Subsidiary; Associate |
| Control | Government company (≥ 51 % held by Govt); Non-government |
| Charity | Section 8 company (not-for-profit) |
| Foreign | Incorporated outside India with place of business in India |
| Dormant | Non-active or formed for future project |
| Producer company | Owned by primary producers |
82.4 Incorporation of a Company (Sections 3–22)
Steps:
| Step | Action |
|---|---|
| 1 | Reserve company name (RUN service / SPICe+) |
| 2 | Prepare Memorandum and Articles of Association |
| 3 | Apply for incorporation through SPICe+ form |
| 4 | Receive Certificate of Incorporation from RoC |
| 5 | Receive Corporate Identity Number (CIN) |
| 6 | Apply for PAN, TAN, GST, ESI, EPF (integrated through SPICe+) |
| 7 | Open bank account |
| 8 | Commencement of business — declaration within 180 days |
82.5 Memorandum and Articles
| Dimension | Memorandum of Association | Articles of Association |
|---|---|---|
| Nature | Charter document | Internal rulebook |
| Sections | 4 | 5 |
| Clauses | Name, Domicile, Object, Liability, Capital, Subscription | Internal management — meetings, directors, accounts, dividends, etc. |
| Doctrine | Ultra vires — acts beyond MoA are void | Doctrine of indoor management (Royal British Bank v. Turquand) |
| Alteration | Difficult; needs special procedure | Easier; special resolution |
82.6 Share Capital and Securities
Already covered in detail in topic 11 (Corporate Accounting). Key sections:
- Sec. 43 — Two kinds of shares (Equity, Preference).
- Sec. 52 — Securities Premium Account.
- Sec. 53 — Discount on issue prohibited (except sweat equity Sec. 54).
- Sec. 55 — Redemption of preference shares; CRR.
- Sec. 62 — Rights issue.
- Sec. 63 — Bonus shares.
- Sec. 65 — Reserve capital.
- Sec. 68 — Buy-back of shares.
82.7 Management — Directors
| Concept | Section / Norm |
|---|---|
| Min directors — Public | 3 |
| Min directors — Private | 2 |
| Min directors — OPC | 1 |
| Max directors | 15 (more by special resolution) |
| Independent directors (Sec. 149) | At least 1/3 of board for listed; 2 for prescribed unlisted |
| Woman director (Sec. 149) | Mandatory for listed and certain unlisted |
| Resident director | At least one director who has stayed ≥ 182 days in India |
| DIN (Director Identification Number) | Mandatory |
| Tenure of independent director | Up to 5 years; max 2 consecutive terms; cooling-off 3 years |
82.8 Key Statutory Committees
| Committee | Section |
|---|---|
| Audit Committee | 177 |
| Nomination & Remuneration Committee (NRC) | 178 |
| Stakeholders Relationship Committee | 178 |
| CSR Committee | 135 |
| Risk Management Committee | SEBI LODR Reg. 21 |
82.9 Audit (Sections 139–148)
Detailed in topic 17 — Auditing. Brief:
- Sec. 139 — Appointment, rotation of auditors.
- Sec. 140 — Removal / resignation.
- Sec. 141 — Qualifications, disqualifications.
- Sec. 143 — Powers, duties, fraud reporting.
- Sec. 148 — Cost audit.
82.10 Meetings (Sections 96–122)
| Meeting | Section | Frequency |
|---|---|---|
| Annual General Meeting (AGM) | 96 | Yearly; first AGM within 9 months of first FY end |
| Extraordinary General Meeting (EGM) | 100 | As needed |
| Board Meetings | 173 | Min 4 per year, max gap 120 days |
| Class Meetings | various | When class rights affected |
82.11 Accounts and Audit (Sections 128–138)
- Sec. 128 — Books of account (accrual basis).
- Sec. 129 — Financial statements; Schedule III.
- Sec. 132 — NFRA.
- Sec. 134 — Financial statement, Board’s report, Director’s responsibility statement.
- Sec. 135 — Corporate Social Responsibility.
- Sec. 138 — Internal audit.
82.12 Major Sections to Remember
| Section | Topic |
|---|---|
| 2(20), 2(46), 2(87) | Company, Holding, Subsidiary |
| 8 | Section 8 (charitable) company |
| 52 | Securities Premium Account |
| 53 / 54 | Discount prohibited / Sweat equity |
| 62 / 63 | Rights / Bonus |
| 68 | Buy-back |
| 123–127 | Dividend |
| 132 | NFRA |
| 135 | CSR (2 % rule) |
| 138 | Internal audit |
| 139–148 | Auditor provisions |
| 149 / 177 / 178 | Independent director / Audit / NRC committees |
| 188 | Related party transactions |
| 197 | Managerial remuneration cap (11 %) |
| 204 | Secretarial audit |
| 230–240 | Compromises, arrangements, mergers |
| 241–246 | Oppression and mismanagement |
| 248 | Removal of name (strike off) |
| 271–365 | Winding up |
82.13 Adjudicating Bodies
| Body | Mandate |
|---|---|
| Registrar of Companies (RoC) | Registration, compliance |
| NCLT (National Company Law Tribunal) | Adjudication on Companies Act and IBC matters |
| NCLAT (Appellate Tribunal) | Appeals from NCLT |
| NFRA (Sec. 132) | Audit oversight for large entities |
| SFIO (Serious Fraud Investigation Office) | Fraud investigation |
| Special Courts | Trial of offences |
82.14 Exam-Pattern MCQs
Q1. Which of the following is not one of the three legal pillars of a company?
A. Separate legal personality B. Perpetual succession C. Limited liability D. Single owner only
Answer: D. A company can have many members.
Q2. Match each provision with its section under the Companies Act 2013:
| Provision | Section | ||
|---|---|---|---|
| (i) | Independent directors | (a) | 135 |
| (ii) | CSR | (b) | 132 |
| (iii) | NFRA | (c) | 197 |
| (iv) | Managerial remuneration cap | (d) | 149 |
A. (i)-(d), (ii)-(a), (iii)-(b), (iv)-(c) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(b), (ii)-(c), (iii)-(d), (iv)-(a) D. (i)-(c), (ii)-(d), (iii)-(a), (iv)-(b)
Answer: A.
Q3. The minimum number of members in a private company is:
A. 2 B. 5 C. 7 D. 50
Answer: A. Min 2, max 200 for a private company; min 7 for a public company; OPC has 1 member.
Q4. CSR is mandatory for companies meeting any one of the following thresholds except:
A. Net worth ≥ ₹500 crore B. Turnover ≥ ₹1,000 crore C. Net profit ≥ ₹5 crore D. Number of employees ≥ 500
Answer: D. Section 135 thresholds are net worth ≥ 500 cr, turnover ≥ 1,000 cr, or net profit ≥ 5 cr. Number of employees is not a CSR trigger.
Q5. Match each meeting with its frequency / timing:
| Meeting | Frequency | ||
|---|---|---|---|
| (i) | AGM | (a) | Min 4 per year, max 120-day gap |
| (ii) | Board Meeting | (b) | Yearly; first within 9 months of FY |
| (iii) | EGM | (c) | As needed |
A. (i)-(b), (ii)-(a), (iii)-(c) B. (i)-(a), (ii)-(b), (iii)-(c) C. (i)-(c), (ii)-(a), (iii)-(b) D. (i)-(c), (ii)-(b), (iii)-(a)
Answer: A.
Q6. Match each adjudicating body with its mandate:
| Body | Mandate | ||
|---|---|---|---|
| (i) | NCLT | (a) | Audit oversight for large entities |
| (ii) | NCLAT | (b) | Adjudication on Companies Act and IBC |
| (iii) | NFRA | (c) | Appeals from NCLT |
| (iv) | SFIO | (d) | Fraud investigation |
A. (i)-(b), (ii)-(c), (iii)-(a), (iv)-(d) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(c), (ii)-(d), (iii)-(b), (iv)-(a) D. (i)-(d), (ii)-(a), (iii)-(c), (iv)-(b)
Answer: A.
Q7. Arrange the steps of incorporating a company in correct order:
- Apply through SPICe+
- Reserve name (RUN / SPICe+)
- Receive Certificate of Incorporation
- Commence business
A. (ii), (i), (iii), (iv) B. (i), (ii), (iii), (iv) C. (iii), (iv), (ii), (i) D. (iv), (iii), (ii), (i)
Answer: A. Reserve name → SPICe+ → Certificate of Incorporation → Commencement.
Q8. Section 197 caps managerial remuneration at:
A. 5 % of net profits B. 11 % of net profits C. 25 % of net profits D. No cap
Answer: B. Sec. 197 caps total managerial remuneration at 11 % of net profits without shareholder approval.
- Companies Act 2013 — replaced 1956 Act; 470 sections, 29 chapters, 7 schedules.
- Three pillars: separate legal personality, perpetual succession, limited liability.
- Types: public, private, OPC, Section 8, government, foreign, dormant, producer.
- Min members: public 7, private 2, OPC 1. Max private: 200.
- Documents: MoA (charter — name, domicile, object, liability, capital, subscription) and AoA (internal rulebook). Doctrines: ultra vires; indoor management.
- Directors: min public 3, private 2, OPC 1; max 15. Independent directors (Sec. 149), woman director, resident director.
- Committees: Audit (177), NRC (178), Stakeholders (178), CSR (135), Risk Mgmt (SEBI LODR).
- AGM yearly (first within 9 months); board meetings ≥ 4/year, gap ≤ 120 days.
- Key sections: 52 SP, 53 discount, 62 rights, 63 bonus, 68 buy-back, 123–127 dividend, 132 NFRA, 135 CSR, 138 internal audit, 139–148 audit, 149 ID, 188 RPT, 197 mgr remn, 204 secretarial, 230–240 mergers.
- Adjudication: RoC, NCLT, NCLAT, NFRA, SFIO, Special Courts.