The Companies Act 2013 brought about significant changes for private limited companies. Under the 2013 act, most of the exemptions available to private limited companies were withdrawn. As a result, they have been subject to a number of additional compliance requirements. In response, the government recently issued a notification exempting private limited companies from certain provisions.
The new Companies Act is the first-known example of a corporate governance law in India that enacts specific provisions to mandate and secure corporate spend on a set of socially desirable objectives laid down by the government. Companies incorporated under the act must ensure that they spend at least 2% of their average net profits in a socially responsible manner, provided that they meet certain criteria.
With the introduction of the Companies Act, the intention of the legislature to provide for better self-governance by companies has been reaffirmed. The inclusion of provisions relating to independent directors in the act demonstrates the legislature's clear intention to make a company's board of directors a self-governing transparent body with due checks and balances.
The affairs of a company administration are subject to the rule of the majority - the shareholders that own the majority of the shares normally control the business. Disagreements and conflicts often arise between shareholders, with minority shareholders generally accepting the decisions of the majority shareholders. A recent dispute between the shareholders of Unitech Wireless is one such case.
Criminal liability presupposes the existence of mens rea (guilty mind) and actus reus (guilty act) - the two essential ingredients of an offence under the Penal Code 1860. Natural persons can be convicted of an offence as they possess mind; companies do not and therefore often escape conviction. Recent court decisions have settled this controversy, holding that corporate bodies can be prosecuted for criminal offences.
Any officer that contravenes its obligations and duties under the Companies Act is said to be an officer in default. The ministry recently clarified its position on the definition of 'officer in default', ruling that no director shall be held liable for any violation by the company or by any other officer of the company, if the violation occurred without his or her knowledge and without his or her consent or connivance, or where he or she has acted diligently.
The Ministry of Corporate Affairs recently issued the Companies (Central Government's) General Rules and Forms (Amendment Rules) 2011. The rules amend Form 5 of the Companies Act, which is used to detail any notice of consolidation, division or increase in share capital. Under the amendment, in the state of Delhi, the payment of stamp duty for an increase of authorised capital is now optional.
The Ministry of Corporate Affairs recently proposed the issuance of guidelines for the conversion of Section 25 companies into ordinary companies under the Companies Act 1956. These guidelines are at the proposal stage and have not yet been notified. As yet, although they provide the conditions under which conversion may occur, the guidelines do not elaborate on the effects and consequences of such conversion.
The Ministry of Corporate Affairs recently introduced its Fast-Track Exit Scheme, a modification of the previous Easy Exit Scheme that adds new guidelines to allow non-defunct companies an easy exit by having their names struck off the Register of Companies. Once implemented, the new guidelines will allow companies that became inoperative or defunct after incorporation to benefit from the scheme.
In order to make it easier for companies to carry out business in India, the Ministry of Corporate Affairs has been simplifying the procedures detailed under the Companies Act 1956. In a recent general circular, the ministry sought to modify company incorporation procedures, which will enable promoters to incorporate their companies online within 24 hours.
The Ministry of Corporate Affairs recently amended the Companies (Particulars of Employees) Rules, further raising the limit for employee salaries that must be disclosed in a directors' report. This represents a welcome change for companies that were previously compelled to disclose the pay package of a large number of employees on their payroll and reflects the change in managers' pay structures over the last few years.
As part of its aim to be both digital and environmentally friendly, the Ministry of Corporate Affairs has announced that directors and shareholders will now be able to participate in meetings through video conferencing. Sections 2, 4, 5, 13 and 81 of the 2000 Information Technology Act, read with the provisions of the 1956 Companies Act, facilitate the practical implementation of conducting meetings electronically.
The Companies Act 1956 regulates the establishment of various forms of entity in India through the registrar of companies. Private limited companies enjoy certain privileges and exemptions in comparison with other forms of organisation. Setting up a private limited company provides an easy and quick route into the Indian market.
A company's foundations are built on its confidential information. An involuntary leak of such sensitive information could damage the company, give its competitors an unfair advantage or result in financial crisis, damage to goodwill and even bankruptcy. Therefore, protection of such information is of utmost importance.
The Department of Industrial Policy and Promotion of the Ministry of Commerce and Industry recently issued Press Note 6/2009, which removed the ceiling for equity participation by both domestic and foreign enterprises in micro and small enterprises.
According to recent reports in the Economic Times, pursuant to the registration of more than 100 entities under the Limited Liability Partnership (LLP) Act 2008, the Ministry of Corporate Affairs wants LLPs to be recognized by other ministries, state governments and sectoral regulators.
The Companies Act provides some flexibility to private companies with regard to compliance with its provisions concerning general meeting regulations. For example, it provides that the general meeting regulations contained in Sections 171 to 186 will apply to private companies that are not subsidiaries of a public company, unless the act or the company's articles of association provide otherwise.
The long awaited re-codification of Indian company law has begun to take shape through the government's recent introduction to Parliament of the Companies Bill 2008 and the referral of the same to the Select Committee. The bill seeks to establish a new benchmark for corporate governance in comparison to the existing framework under the Companies Act 1956.
A company cannot be formed with only preference capital, as preference shares do not carry voting rights except in certain circumstances. Voting rights form the basis for corporate actions, particularly in respect of matters placed before general meetings. As the name suggests, preference shares carry preferential rights in relation to other classes of share.
Independent directors are appointed to a board of directors in order to provide objectivity for board decisions. The new Companies Bill 2008 reproduces and reaffirms the concept of independent directors, with certain modifications - for example, it seeks to harmonize governance norms and bring listed companies under the jurisdiction of the act.