The Companies Act, 2013 – UGC NET Commerce Notes

The Companies Act 2013 is a comprehensive legislation governing the formation, operation, and regulation of companies in India. Enacted to replace the Companies Act of 1956, it introduces modern practices for corporate governance and strengthens compliance frameworks. This act addresses various aspects, including the incorporation of companies, roles of directors, auditing, and investor protection, making it crucial for students preparing for the UGC NET Commerce exam. Understanding the key provisions of the Companies Act, 2013 such as corporate social responsibility (CSR), directors’ duties, and financial disclosures is essential to grasp the evolving landscape of Indian corporate law. This guide focuses on the important sections and amendments of the Companies Act 2013, aiding in conceptual clarity for UGC NET Commerce aspirants.

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Key Features of Companies Act 2013

As an UGC NET Commerce expert, here is a detailed breakdown of the Key Features of the Companies Act, 2013 designed for both academic and practical relevance:

• The Companies Act 2013 allows the formation of One Person Companies (OPC), enabling a single person to start and manage a company.
• It introduces the concept of Dormant Companies, which are companies that have not conducted any business for two consecutive years.
• The Act established the National Company Law Tribunal (NCLT), replacing the Company Law Board, to resolve disputes and issues related to companies.
• It mandates the creation of a Corporate Social Responsibility (CSR) committee for companies meeting certain profit criteria, requiring them to spend 2% of their average net profit on social welfare activities.
• Companies must have at least one Independent Director to ensure impartial decision-making and better governance.
• The Act promotes e-governance by allowing companies to file documents, conduct meetings, and vote online, improving efficiency.

Corporate Governance Under the Companies Act 2013

Corporate governance refers to the set of rules, practices, and processes by which companies are directed and controlled. The Companies Act, 2013 incorporates several provisions to strengthen corporate governance, ensuring transparency, fairness, and accountability in the management of companies.

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Here are the key corporate governance provisions under the Companies Act, 2013:

1. Board of Directors

• Composition: The Act mandates a specific composition of the Board of Directors for different types of companies, ensuring a balance of power and responsibility.
• Independent Directors:
  • Public companies (with specified criteria) are required to have at least one-third independent directors on their boards.
  • Independent directors should not have any financial or familial relationship with the company to ensure impartial decision-making.
• Women Directors: Certain classes of companies must have at least one woman director on their boards, promoting diversity.
• Director’s Responsibilities: Directors are legally responsible for the operations and performance of the company and must act in the best interest of stakeholders.

2. Board Committees

• The Act emphasizes the creation of specialized Board Committees to ensure efficient functioning and monitoring of key areas:
  • Audit Committee: Oversees financial reporting, internal controls, and the selection of auditors. Public companies are required to have an audit committee consisting of at least three directors, with a majority being independent.
  • Nomination and Remuneration Committee: This committee is responsible for selecting candidates for board positions and determining their remuneration.
  • Stakeholder Relationship Committee: Ensures proper redressal of investor grievances and complaints.

3. Corporate Social Responsibility (CSR)

• The Act introduces the concept of CSR for companies meeting certain criteria.
• These companies are mandated to spend 2% of their average profits of the last three years on social welfare activities.
• CSR activities must align with the company’s commitment to the community and sustainable development.

4. Role of the Company Secretary

• The Company Secretary is given a prominent role in corporate governance.
• They are responsible for ensuring compliance with legal and regulatory requirements and managing the company’s internal governance processes.

5. Disclosure Requirements

Companies are required to disclose various important information in their annual reports, including:

• Financial statements.
• Corporate governance report.
• Management discussions and analysis.
• Enhanced transparency ensures that stakeholders, including investors, have access to reliable information about the company’s performance.

6. Audit and Financial Transparency

• Auditor’s Report: The Act mandates a clear and transparent audit process. Companies must provide an auditor’s report on their financial status, ensuring stakeholders can trust the company’s financial statements.
• Auditor Rotation: The Act requires listed companies to rotate auditors periodically to maintain independence and objectivity in audits.

7. Protection of Minority Shareholders

• The Act protects the rights of minority shareholders by allowing them to challenge decisions they believe are detrimental to their interests.
• It provides provisions for class action suits, where shareholders can collectively approach the court to remedy grievances.

8. Prevention of Insider Trading and Fraud

• The Act ensures that companies adhere to ethical practices by prohibiting insider trading (trading based on confidential information).
• Strong penalties are imposed on those found guilty of financial fraud, misrepresentation, or malpractice.

9. Corporate Governance in Listed Companies

Listed companies are bound by stringent corporate governance norms to maintain investor confidence. This includes maintaining independent audits, disclosure of material transactions, and the composition of the board.

10. Enforcement and Compliance

• The National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) are empowered to take action against companies that do not adhere to corporate governance rules.
• Non-compliance with governance norms leads to penalties and legal action, ensuring that companies follow ethical and transparent practices.

Companies Act 2013 Conclusion

The Companies Act, 2013 is a transformative piece of legislation that reshaped corporate governance in India by introducing provisions that promote transparency, accountability, and investor protection. It empowers businesses through concepts like One Person Companies (OPC), Corporate Social Responsibility (CSR), and mandatory independent directors, while ensuring greater financial transparency and compliance. The establishment of bodies like the National Company Law Tribunal (NCLT) facilitates quick dispute resolution, and mechanisms like auditor rotation and investor protection strengthen corporate governance. For UGC NET Commerce candidates, this Act is vital as it covers crucial aspects of business law, including company formation, regulation, and compliance, forming the foundation of modern corporate practices in India.

UGC NET Commerce MCQ based on Companies Act 2013

Q1. Which of the following is not a primary objective of the Companies Act, 2013?
a) Enhancing corporate transparency
b) Promoting ethical business practices
c) Establishing a comprehensive taxation framework
d) Protecting investors’ rights

Answer: c) Establishing a comprehensive taxation framework

Q2. Which section of the Companies Act, 2013 deals with the provision of “Corporate Social Responsibility (CSR)”?
a) Section 134
b) Section 135
c) Section 137
d) Section 138

Answer: b) Section 135

Q3. What is the minimum capital requirement for a private company to be registered under the Companies Act, 2013?
a) ₹1,00,000
b) ₹5,00,000
c) ₹1,00,000 for public companies only
d) No minimum capital requirement

Answer: d) No minimum capital requirement

Q4. Which tribunal is responsible for resolving corporate disputes under the Companies Act, 2013?
a) Securities Appellate Tribunal (SAT)
b) National Company Law Tribunal (NCLT)
c) Central Government Tribunal (CGT)
d) Indian Corporate Law Tribunal (ICLT)

Answer: b) National Company Law Tribunal (NCLT)

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