India’s Companies Act governs the formation, regulation, and dissolution of such entities in the country. In that particular 2013 statute, superseding the Companies Act of 1956, lies India’s corporate governance, business law, and regulatory framework. But what exactly is company law in India? Let us attempt to explain the very inner core of company and business law and how it shapes India’s corporates.
Historical Glance at Company Law
The conception of corporate law in India was born in the times of Britain’s colonial hold on India. The first Companies Law, regulating companies in India, was enacted in 1857. The present Companies Act, 2013, turns out to be the most relevant and modern piece of legislation. It was meant to govern companies, enhance corporate governance, protect investors, and serve businesses in the country.
Such a legal principle is that, after the registration of a company under the Act, such company becomes an artificial person, separate from its owners or shareholders. The company can contract, own property, sue, and be sued in its name. Thus, the company law facilitates the business structure that a business needs for smooth operation, accountability, and financial management.
Features of the Indian Company Law
- Personality of Corporation: The separate personality of a company is one of the most remarkable features accruing to a company of Indian law. A company, once incorporated under the Companies Act, stands apart as a legal entity distinct from its shareholders and directors. This would mean that the company itself is the legal owner of rights and obligations, and its assets and liabilities are different from those of the persons who are managing it.
A famous judgment in this context is Salomon vs. Salomon & Co. Ltd (1897) which set the doctrine of separate legal personality of a company so that a company has a separate legal existence, whether or not one person holds most or all of its shares. - Limited Liability: This is one of the important advantages of a company which are said to be limited liability. The means of doing so limits the liability of the shareholders for the debts of the company to the amount unpaid on their shares. Simply put, the personal assets of the shareholders are protected in cases where a company incurs losses or is sued. Many are motivated to take on the company format as their business avenue with this limitation on personal financial risk.
- Perpetual Succession: A company enjoys perpetual succession by Indian Company law. In simple words, the continuation of the company’s existence is not dependent on the life of any of its shareholders, directors, or any other member. The company enjoys this right of continuity unless dissolved formally, even when ownership changes on account of a sale of shares or due to the death of a shareholder. This feature dictates the permanence of a company.
- Transferability of Shares: Shares in a company can be sold, bought, or transferred with great ease. The major characteristic of a corporate structure is liquidity, which allows the investors to enter into and exit out of the business without interfering with the working of the company. This principle is contained in Section 82 of the Companies Act of 1956, which states that shares are movable property, that is, they can be traded freely.
- Professional management: A company under Indian law is able to get professional management. This is because of the separation of ownership from management, which is a hallmark of the corporate structure. The shareholders appoint a board of directors to actually run the company and manage the day-to-day operations, thereby allowing the attraction of experts and professionals to operate the business.
The Law Governing Companies in India
The Companies Act, 2013 operates as the chief legislation on business activities in India and is supplemented by other laws governing particular aspects of business activities. These include, but are not limited to:
The Indian Partnership Act, 1932 – The Act governs formation or operation of partnerships.
The Limited Liability Partnership Act, 2008 – governs Limited Liability Partnerships (LLP) that are having features of both partnerships and corporations to some extent.
The Societies Registration Act, 1860 – The said Act governs registration of societies, like those for service of non-profit organizations.
The Companies (Amendment) Act, 2006, – Acts include those amendments to the Companies Act that are intended to modernize and make the Companies Act functional for company formation and operation.
Classification of companies under the Companies Act, 2013
Different forms of Indian companies have been classified under the Companies Act, 2013 and this act lists their particular characteristics, advantages and rules to be followed by each:
Private Company: As their shares are not sold to the public for subscription, private companies have a few shareholders and they cannot invite the public to subscribe to their shares.
Public Company: A public company must invite the populace for subscribing to its shares, therefore in direct contrast to private ones, it provides for more stringent regulation. It may also enlist for stock exchange.
Limited Liability: This type of company limits the liability of the members to the amount, if any, unpaid on their shares and so enjoys the benefits of limited liability.
Government Company: A government company means any company in which not less than fifty-one percent of the paid-up share capital is held by the government.
Foreign Company: Foreign company means any company or incorporated body which is outside India incorporated but since carrying on business in India.
Business Law and Company Restructuring
Certain aspects of business law in India also encompass processes such as restructuring and amalgamations. These two processes are very essential when companies want to adapt to the dynamic activities of the market or want to grow through mergers with other companies. Such activities include the sale of shares or businesses, formation of new entities, and merger of two or more companies into a new entity.
Dissolution of Businesses Companies are now closed under the Companies Act, 2013, which lays down such application along with the procedure for dissolution and distribution of their assets among the creditors and the shareholders. The winding-up can be primarily in three forms:
Winding Up by Court: this type of winding up is initiated through an order of court. The ground for initiation of winding up by this heading is inability to pay debts or any legal obligations of the company.
Voluntary Winding Up: It occurs when the members of the company decide to dissolve the company voluntarily.
Creditor’s Voluntary Winding Up: This happens at the instance of creditors because the company is unable to pay off debts.
You are versed on info until October 2023. It is basically a change concerning the CSR provisions of the Companies Act, 2013. The Act makes it compulsory for every company having a net worth above ₹500 crores or having a turnover above ₹1,000 crores or having a net profit in any financial year exceeding ₹5 crores to contribute 2% in average of its net profits to socially relevant activities.This way, it well makes big companies do good for the social welfare apart from getting good reputation in society, which comes from being socially responsible.
Conclusion
Company and business law in India are the essential structure for corporate governance in the country. The Companies Act, 2013 lays the legal structure for the formation, management, and winding-up of companies, while various other regulations uphold the fair and transparent conduct of business. Thus, company law in India becomes paramount to entrepreneurs willing to start a business or investors interested in the regulatory view of their investment.
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