Highlights Of Companies Act, 2013

(As passed by the Lok Sabha on 18.12.12, by the Rajya Sabha on 08.08.13 and received assent from the President on August 29, 2013)

Reason behind new law?

The promulgation of the new law is a step towards globalization and is a successful attempt to meet the changing environment and is progressive and futuristic duly envisaging the technological and legal developments.

Increase in number of Companies from approximately 30,000 in the year 1956 to 11,00,000 in the year 2013.


The Act comprises of 29 chapters, 470 Clauses with 7 Schedules as against 658 sections and 14 Schedules in the Companies Act, 1956.

Substantively a law based on Rules (as may be prescribed).

In 470 Clauses the word “as may be prescribed” has been used at around 336 places.

New Definitions:

Some of the definitions introduced in this Act are already in usage. Now, by defining more clarity is given. The new definitions interalia covers, Auditing Standards, Associate Company, Authorized Capital, Books of Accounts, Called up Capital, Charge, Chartered Accountant, Chief Executive Officer, Chief Financial Officer, Company Liquidator, Control, Cost Accountant, Deposit, Expert, Financial Institution, Financial Statement, Global Depository Receipt, Independent Director, Indian Depository Receipt, Interested Director, Issued Capital, Key Managerial Personnel, Notification, One Person Company, Ordinary or Special Resolution, Paid up share capital, Postal Ballot, Previous Company Law, Promoter, Public Financial Institution, Register of Companies, Related Party, Remuneration, Serious Fraud Investigation Office, Small Company, Subscribed Capital, Tribunal, Turnover, Unlimited Company, Voting Right, Whole Time Director.


Incorporation of Company:

  • Incorporation of a One Person Company has been permitted. One person can form a private limited company.
  • Numbers of permissible members in private company has been raised to 200 as against existing limit of 50 members.
  • Limit of number of members in an association or partnership (without incorporation) to be increased up to 100
  • Small company is introduced for lesser regulatory framework
  • Objects clause in the Memorandum of Association of a company not required to be divided into main, ancillary and other objects. Only the objects for which the company is incorporated along with matters considered necessary for its furtherance to be mentioned. The company cannot provide for other object clause.

Share Capital and Debentures:

  • Shares, other than sweat equity, cannot be issued at a discount.
  • Reduction of share capital is subject to the approval of Tribunal.
  • A company may issue preference shares redeemable after 20 years for infrastructure projects as may be specified and redeemed as may be prescribed on an annual basis at the option of such preference shareholders.
  • Buyback provisions eased. Companies can buy back its shares even if it has defaulted in repayment of deposit or interest payable thereon, redemption of debentures or preference shares or payment of dividend to any shareholder or repayment of any term loan or interest payable thereon to any financial institution or bank, provided that such default has been remedied and three years have lapsed after such default ceased to subsist. This was not the case in the Companies Act, 1956.

  • Debenture trustee to be appointed only when a company issues prospectus or makes an offer or invitation to the public or to its members exceeding five hundred for subscription to its debentures.

Acceptance of Deposit by Companies:

  • NBFC’s not to be covered by the provisions relating to acceptance of deposits. They will be governed by the Reserve Bank of India rules on acceptance of deposits.

  • Deposit insurance is required to be provided as prescribed.
  • Deposits can be secured and unsecured.
  • The concept of small depositors is dispensed with.
  • The Tribunal may allow further time taking into consideration the financial condition of the Company to issue directions for repayment of the deposits or interest thereon in case of default in such repayments.

Management and Administration:

  • Forms & Certification
    • E-Governance proposed for various company processes like maintenance and
      inspection of documents in electronic form, option of keeping of books of accounts in
      electronic form, financial statements to be placed on company’s website, holding of
      board meetings through video conferencing/other electronic mode; voting through
      electronic means

    • For all the companies (except one person companies and small companies) with prescribed paid up capital and turnover, whether private or public, listed or unlisted, annual return has to be signed by a company secretary in practice.

  • Meetings
    • One Person company is not required to hold any Annual General Meeting
    • Notice of general meeting need to be sent to all the directors of the Company
    • For special business to be transacted in the General Meeting, explanatory statement should comprise of specified information
    • Company should follow that secretarial standards are folled while making mintues
  • Secretarial Audit
    • All Listed companies to annex secretarial audit report obtained from a Practicing Company Secretary to the Board’s report.
    • Board to respond to qualifications, made by the Secretary, in the Board’s report.
  • Annual Documents
    • Requirement of compliance certificate done away with and in its place scope of annual return has been enlarged.
    • The annual return, filed by a listed company or, by a company having such paid-up capital and turnover as may be prescribed, shall be certified by a company secretary in practice in the prescribed form, stating that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of this Act.

    • Directors responsibility statement shall include additional statement realted to compliance to all applicable laws and in case of listed companies, it shall include statement related to internal financial control.

    • Benefit of private companies to file their balance sheet and profit and loss account separately has been withdrawn.

Appointment and Variations regarding Directors & Key Managerial Personnel:

  • Appointment
    • Certain Companies, as may be prescribed, to mandatorily appoint company secretary.
    • Appointment of at least one women director on the board of prescribed classes of companies has been made mandatory.
    • Appointment of at least one director resident in India, i.e., a director who has stayed in India for at least 182 days in the previous calendar year, is made mandatory for all companies.
  • Key Managerial Personnel
    • Company Secretary included within the definition of Key Managerial Personnel.
    • No company can have both Managing Director and Manager at the same time.
    • Every company belonging to such class or description of companies as may be prescribed, to have managing director, or chief executive officer or manager and in their absence, a whole-time director, company secretary and chief financial officer.

    • Individual limits for remuneration enhanced in the Act
  • Status of Independent Director
    • Nominee director cannot be regarded as Independent Director.
    • Maximum term of Independent Director has been restricted to five years at once subject to a maximum of two such terms.
    • The independent director is not entitled to stock option and may receive remuneration by way of fee and profit related commission as approved by members.
    • Role or functions of independent directors is expanded.
  • Directorships
    • Maximum number of directors has been increased from twelve (12) to fifteen (15) directors. Further no Central Government approval is required to increase the maximum no. of directors beyond fifteen (15). Shareholders of companies may do so by passing a special resolution.

    • A person can hold directorship of up to 20 companies, of which not more than 10 can be public companies.

Meeting of Board and its Powers:

  • A notice of not less than 7 days in writing is required to call a board meeting. The notice of meeting to be given to all directors, whether he is in India or outside India by hand delivery post or electronic means.

  • Certain powers which earlier can be exercised by the Board with the approval of general meeting by way of ordinary resolution under section 293 of the Companies Act 1956, shall now to be passed by special resolution.

  • Every Listed Company and such other company as may be prescribed shall have an Audit Committee.
  • The central government permission under section 295 and section 372A of Companies Act, 1956 is dispensed with.
  • Following committees of the Board made mandatory for listed and prescribed classes of companies:
    • Audit committee
    • Stakeholder relationship committee
    • Nomination and Remuneration committee
    • Corporate Social Responsibility committee

Accounts & Audit:

  • Books of accounts can be kept in electronic form also.
  • The term balance sheet & profile and loss accounts are collectively termed as financial statement.
  • The Act provides for re opening or re casting of Books of Accounts at the instance of regulatory authorities. The financial statements can be revised at specified situations.
  • No listed companies shall appoint.
  • an individual as auditor for more than one term of five consecutive years, and
  • an audit firm as auditor for more than two terms of five consecutive years.
  • Shareholders are at liberty to decide by passing resolution that audit partner and the audit team, be rotated every year.
  • Auditor shall not provide directly or indirectly the specified services to the Company, its Holding and subsidiary companies.
  • No approval of central government is required for appointment of cost auditor
  • Financial year will be uniform for all companies i.e., April-March.

Related Party Transactions

  • Scope of related party transactions has been widened and definition of relatives has also been enlarged and replaced with definition of “related party”.
  • Clause 188 of the Act which carries provisions regarding related party transactions, combines existing sections 297 and 314.
  • Central Government Approval has been done away with. Every related party transaction to be disclosed in Board’s report alongwith the justification.
  • Approval in the Board is mandatory and also require prior shareholders approval for specified share capital and prescribed amounts.

Inspection & investigation:

  • The provision for establishment of Serious Fraud Investigation Office (SFIO) by the Central Government is another significant feature of the Act.
  • SFIO is empowered to arrest in respect of certain offence involving fraud.

Corporate Social Responsibility (CSR):

  • Formation of CSR Committee has been made mandatory for a company having net worth of Rs. 500 crore or more, or turnover of Rs.1,000 crore or more or net profit of Rs. 5 crore or more during any financial year.

  • Such company shall spend, in every financial year, at least 2 % of the average net profits of the company made during three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy (CSRP).

Compromises, Arrangement and Amalgamation:

  • The Act allows cross border mergers
  • Separate provision for merger between two small companies or holding and wholly owned subsidiary
  • Any valuation of shares / assets etc. required to be performed by a Registered Valuer

National Company Law Tribunal (NCLT) :

  • NCLT replaces the High Court, CLB. The same shall consists of Judicial and Technical members, as Central Government may deem necessary, to exercise and discharge the powers and functions conferred including approval of merger,corporate reorganization, capital reduction, extension of financial year etc

  • Every proceeding presented before the Tribunal shall be dealt with and disposed of within 3 months from the date of commencement of proceeding before the tribunal.


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