In India, the complete legal structure covers formation, administration, and even dissolution so that the company can act within a well-defined regulatory environment. This is mainly governed by the Companies Act of 2013, which replaced the Companies Act of 1956, to ensure compatibility with the worldwide framework and address the requirements of the modern business era. This legislation states procedures for the formation, maintenance, and regulation of various kinds of undertakings, which encompass firms, private, public, and proprietorship. It also comprises vital issues on corporate governance, rights of shareholders, role of directors and obligations.
The Ministry of Corporate Affairs will play a great role in the effective so-called enforcement process of company laws, thus making transparency and accountability in business practices.
The importance of company law is considered to save from mismanaged or organised business space and also from legal and other perspectives to avail the maximum result for catalyst through which a corporation can grow. Thus, it aspires to the flexibility that a corporation needs along with the control mechanisms required to keep an eye on to prevent fraud and mismanagement. Ethical practices at business would also find safety under the rule of law, such as mandatory corporate social responsibility, tight auditing standards, grievance mechanisms to stakeholders, etc. The other way how company law is strong is through the Insolvency and Bankruptcy Code of 2016, which manages highly effective ways of dealing with corporate insolvencies. The Company law in India has been in possession of a dynamic, progressive legislative framework, which would boost the economic development of the country and ensure ethical business conduct is added to good and strong corporate governance.
Companies Amendment Act 2015
Companies Amendment Act shows that the government is focusing on industry issues because of the Companies Act 2013. The draft bill was passed by both Houses of Parliament in 2014 and was assented to by the President on May 25, 2015, as the Companies Amendment Act, 2015. These amendments are mainly concerned with making compliance-related activities efficient, improving business operations and providing more clarity on corporate governance and related party transactions.
This is the Act that brought into Indian corporate law, amending the Companies Act of 2013. It liberalised provisions on related party transactions, reduced increased compliance burden over private companies and made penalties concerning non-compliance easy. The objective of the Act is to provide a better business environment, encourage entrepreneurial undertakings, and provide a better footprint for corporate regulation that is aligned with international standards.
The Companies (Amendment) Act of 2015 was a key development in making India’s regulatory landscape for enterprises more effective. The Amendment Act streamlined various processes, opened up horizons for undertaking business and provided for the removal of ambiguities that were present in the Companies Act of 2013. The amendments were meant to amalgamate governance with flexibility and further promote greater vibrancy in the business climate while safeguarding the interests of stakeholders. This change in the political climate was further improvised through significant national economic initiatives, such as “Make in India,” which reinforced India’s commitment to creating an enabling environment for its business activity.
Highlights Of The Companies Amendment Act 2015
The Companies (Amendment) Act of 2015 made very significant changes to the Companies Act of 2013. In essence, the thrust of the Act was simplicity in procedures, cooling off the regulatory burden and eliminating ambiguities with the primary objective of improving the business environment in India. Below are some of the notable characteristics as well as modifications made under the Amendment Act of 2015:
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Minimum Paid-Up Share Capital Requirement No More Required
The earlier requirement of minimum paid-up share capital of Rupees One Lakh for private companies under Section 2(68) and Rupees Five Lakh for public companies under Section 2(71) has now been omitted. New ventures can now be incorporated irrespective of the minimum paid-up capital requirement, which would further encourage and attract investment for entrepreneurship.
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Common Seal Made Optional
The provision of Section 9 to mandatorily have a common seal by companies has been removed and is now left up to the discretion of the company to have a common seal or not. If a company intends to refrain from using a common seal, documents should be signed by both directors or one director and the company secretary, if there is one appointed by the company. The simplification of common seal requirements and making it optional shall enhance companies’ processes.
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Filing Declaration of Commencement of Business Not Required
Earlier, after receiving the certificate of incorporation, every company is then required to obtain a certificate of commencement of business under Section 11 to commence its business operations and activities. But with the implementation of this Act, the requirement of this certificate is omitted, which has led to saving the number of days to start business operations, being in line with the Government’s push to improve India’s ranking on the Degree of Ease of Doing Business Index.
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Related Parties Transactions (RPT)
The transactions of a holding company with its wholly owned subsidiaries are not subjected to any shareholder approval whenever such transactions fall within the ordinary course of business or at arm’s length prices, as they are not considered related party transactions any more. This facilitates group company compliance and enables inter-company transaction activities.
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Loans to Directors
Section 185 of the Companies Act 2013 prohibited companies from providing loans to directors, their firms or subsidiaries in which they are interested. The 2015 amendment made a few exceptions under this section, thereby making loans, giving guarantees or providing securities in respect of other loans (by banks or financial institutions) to wholly owned subsidiaries and other firms a part of the company’s business operations, resulting in satisfaction of adequate business needs but also upholding the governance standards.
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Certain Transactions Do Not Need Special Resolution
Under Section 188, specified transactions are required to be approved only with a special resolution passed by the members in their general meeting. However, the recent amendment, to a considerable extent, helped the compliance costs since it struck out the special resolution requirement that most of the specified transactions as long as no specific conditions are to be met. Due to this, the companies achieved quicker decision processes combined with reduced procedural delays.
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Strengthened Penalties for Company Accepting Deposits
Section 73-76 of the Companies Act 2013 has not specified penalties to be imposed on companies inviting or accepting deposits from the public without the required regulatory approval. The Companies Amendment Act, 2015 has established severe penalties against such action done by the directors of the companies inviting, accepting or renewing deposits violating the provisions of the Companies Act 2013.
Sec 76A has been inserted as follows:
“Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf, any deposit in contravention of the manner or of the conditions prescribed under section 73 or 76 or rules made thereunder or if a company fails to be paid the deposit or part thereof or any interest due thereon within the time specified under section 73 or section 76 or rules made thereunder or such further time as may be allowed by the Tribunal under section 73,—
- the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with a fine which shall not be less than one crore rupees, but which may extend to ten crore rupees and
- every officer of the company who is in default shall be punishable with imprisonment, which may extend to 7 years or with a fine, which shall not be less than 25 lakh rupees, but which may extend to two crore rupees or with both:
Provided that if it is proved that the officer of the company who is in default has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under section 447”.
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Privacy of the Board Resolutions
Board Resolutions are official and private company documents. In fact, it is the duty of an employee to present the company’s Board Resolutions before the Ministry of Corporate Affairs. However, these resolutions belong to public documents and are available at a cost. A provision had been included like there is “provided that no person shall be allowed under section 399 to see or obtain copies of such resolutions.” Therefore, public access to board resolutions is restricted.
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A Loss-Bearing Company Will Not Declare Dividends
The provisions of Section 123 of the Companies Act 2013 have been amended within the Companies Amendment Act of 2015 with a proviso stating that ‘provided that no company shall declare dividend unless carried over previous losses and depreciation nor allowed in previous year or years has been set off against the firm’s profit for the current year.’
Conclusion
The objective of the Companies (Amendment) Act 2015 is to reduce the complexity of doing business activities and enhance corporate governance and the regulation of procedures as contained under the Companies Act 2013. This piece of legislation wants to iron out a number of problems or inconsistencies that had crept up after the commencement of the said Act of 2013. It also aims to balance simplicity against compliance with governance.
The amendment incorporated major changes that were primarily made to curb procedural complexities. Significant features include relaxing stringent requirements with respect to the private placement of securities, thereby granting companies easier access to finances and simplifying filing and disclosing requirements, thus making the compliance burden lighter on business houses.
In the governance space, the Act has tightened up the provision for the appointment and functions of independent directors by making it more stringent and in favour of the shareholder’s interest. It has also attempted to strengthen accountability through stricter provisions with respect to the reporting of fraud, tightening the noose further with enhanced penalties for contravention.
The Companies (Amendment) Act of 2015 simplified regulations under which companies operate in India, addressed a few of the challenging issues and created a more enabling environment for business under the law. This reform enabled an environment that nurtured business growth while adhering to strict governance principles. This is the most important advancement in bringing Indian corporate laws up to international benchmarks and building confidence with investors in the process, contributing to economic growth. Its practical approach to removing the vagueness and also decreasing the compliance burdens calls for its significance and impact in the corporate world.
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