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An Overview of The Companies Bill, 2011


1.0 Meaning of Company

2.0 Companies Law

3.0 Sources of Company Law in Various Countries

4.0 Companies law in Some Countries

5.0 Origin of Companies Act in India

6.0 The Companies Act 1956

7.0 Background of Companies Bill, 2011

8.0  Highlights of the Companies Bill, 2011

9.0 Important Provisions of the Companies Bill, 2011 in Brief

10.0 Provisions of the Companies Bill, 2011 in Detail

11.0 Professional Opportunities for Chartered Accountants under The Companies Bill, 2011

1.0 Meaning of Company

The word 'Company' is an amalgamation of the Latin word 'Com' meaning "with or together" and 'Pains' meaning "bread". Originally, it referred to a group of persons who took their meals together. A company is nothing but a group of persons who have come together or who have contributed money for some common purpose and who have incorporated themselves into a distinct legal entity in the form of a company for that purpose.

Generally, a company is a form of business organization. The precise definition varies from country to country.

Companies, whether public or private, are an indispensable part of an economy. They are the modes through which a country grows and expands world wide. Their performance is an important parameter of a countries economic position.

2.0 Companies Law

The basic theory behind all business organizations is that, by combining certain functions within a single entity, a business can operate more efficiently, and thereby realize a greater profit. Governments seek to facilitate investment in profitable operations by creating rules that protect investors in a business from being held personally liable for debts incurred by that business, either through mismanagement, or because of wrongful acts.

Companies law (or the law of business associations) is the field of law concerning business and other organizations. It is an establishment formed to carry on commercial enterprises. This includes corporations, partnerships and other associations which usually carry on some form of economic or charitable activity. Company law is directly related to enterprise: it can either promote it or hold it. Most enterprise is corporatised and corporate regulation has a huge impact on the economy.

3.0 Sources of Company Law in Various Countries

Company law in the commonwealth (UK, Australia, Hong Kong, Singapore, India, Malaysia) has common sources and influences. Common features also exist in European Union and US laws. However, the UK Companies Act 1948 is the great mother of most corporate laws world over, but has undergone several changes over time.

4.0 Companies law in Some Countries

The Company / Corporation (or by whatever other name it may be known in different countries) types of business entity exist and are defined in the legal systems of various countries. There are various types of company that can be formed in different jurisdictions and Countries have their own Company Law to govern them, of which some of them are listed below:

i. United States - US corporations emanated from chartered corporations, allowing people to form corporations under a general corporation law.

In the United States, the individual states incorporate most businesses, and some special types are incorporated by the federal government. For federal tax purposes, the Internal Revenue Service has separate entity classification rules. Under the rules, an entity classified as a corporation may be either an S corporation or a C corporation. The main business designations for the State incorporated Corporations are - Corp., Inc. (Corporation, Incorporated), which are used to denote corporations (public or otherwise). These are the only terms universally accepted by all 51 corporation chartering agencies in the United States. However in some states other suffixes may be used to identify a corporation, such as Ltd., Co./Company, or the Italian term S.p.A. (in Connecticut). Some states that allow the use of "Company" prohibit the use of "and Company", "and Co.", "& Company" or "& Co.". Also Delaware corporation, Nevada corporation are the others. Since the US is a federal system, Company law can vary substantially from state to state. Delaware General Corporation Law is the statute governing corporate law in the state of Delaware. Delaware is well known as a corporate haven. Over 50% of US publicly-traded corporations and 60% of the Fortune 500 companies are incorporated in the state. The Delaware General Corporation Law consists of XVII sub-chapters.

ii. United Kingdom – Companies Act, 2006 (CA 2006)

United Kingdom company law is governed by the Companies Act 2006. The Insolvency Act 1986, the Company Directors Disqualification Act 1986, and the old Companies Act 1985 are also important statutes. It applies across the United Kingdom, and is highly influential within Europe around the world.

The Companies Act of United Kingdom consists of 1300 sections under 47 parts and 16 Schedules.

iii. Germany – Germany has separate regulatory structure for public and private companies: AG  (Aktiengesellschaft) is a German public company and GmbH (Gesellschaft mit beschränkter Haftung)  is a German private company

iv. France - Two types of companies: Public companies Societe Anonyme (SA) and Private companies called Societe a Responsabilite Limitee, or abbreviated as SARL for which separate law exists. Single member companies, called EURL (Enterprise Unipersonnelle a Responsabilite Limite) also exist.

v. South Africa - Republic Of South Africa Companies Act, 1973

vi. Australia - Corporations Act, 2001 and Commonwealth Authorities and Companies Act 1997 

The Corporations Act of Australia consists of 1471 sections under 7 volumes.

vii. Pakistan - Legal regime for establishment and regulation of companies in Pakistan is given in the Companies Ordinance, 1984. The function of administration of these companies is vested in the Securities and Exchange Commission of Pakistan and the Registrar of companies appointed by the Securities and Exchange Commission of Pakistan for a Province of Pakistan where such company is to be registered. The Ordinance consists of 514 sections under 16 parts with 8 schedules.

5.0 Origin of Companies Act in India 

The earliest piece of legislation in India relating to companies was the Act of 1857. Next came the Indian Companies Act, 1866. After this the Companies Act, 1882 was enacted. The Act of 1913 replaced the Indian Companies Act of 1882.

Following the recommendations of the Company Law Committee known as the Bhabha Committee set up in 1950 the Companies Act, 1956, was enacted with the object bto amend and consolidate the law relating to companies and certain other associations by repealing the Companies Act, 1913. The Companies Act, 1956, has been amended as many as 24 times since 1956. The major amendment to the Companies Act, 1956, was made after considering the recommendations of the Sachar Committee by enacting the

Companies Amendment Act, 1988. The next major amendment was made by the Companies Amendment Act, 2002, consequent to the report of the high powered Eradi Committee. The previous two attempts at making a comprehensive review of the existing law by introducing Companies Amendment Bill 1993 and 1997 failed as the assent of the Parliament could not be received.

6.0 The Companies Act 1956

In India, the Companies Act, 1956, is the most important piece of legislation that empowers the Central Government to regulate the formation, financing, functioning and winding up of companies. The Act contains the mechanism regarding organizational, financial, managerial and all the relevant aspects of a company. It provides for the powers and responsibilities of the directors and managers, raising of capital, holding of company meetings, maintenance and audit of company accounts, powers of inspection, etc. The Act applies to whole of India and to all types of companies, whether registered under this Act or an earlier Act. But it does not apply to universities, co-operative societies, unincorporated trading, scientific and other societies.

The Companies Act is administered by the Central Government through the Ministry of Corporate Affairs and the Offices of Registrar of Companies, Official Liquidators, Public Trustee, Company Law Board, Director of Inspection, etc. The Registrar of Companies (ROC) controls the task of incorporation of new companies and the administration of running companies.

7.0 Background of Companies Bill, 2011

The Ministry of Corporate Affairs took up a comprehensive revision of the Companies Act, 1956 (the Act) in 2004 keeping in view that not only had the number of companies in India expanded from about 30,000 in 1956 to nearly 7 lakhs, Indian companies were also mobilizing resources at a scale unimaginable even a decade ago, continuously entering into and bringing new activities into the fold of the Indian economy. In doing so, they were emerging internationally as efficient providers of a wide range of goods and services while increasing employment opportunities at home. At the same time, the increasing number of options and avenues for international business, trade and capital flows had imposed a requirement not only for harnessing entrepreneurial and economic resources efficiently but also to be competitive in attracting investment for growth. These developments necessitated modernization of the regulatory structure for the corporate sector in a comprehensive manner.

Earlier, a Bill called Companies (Amendment) Bill, 2003 had been introduced by Ministry of Corporate Affairs (MCA) (then Department of Company Affairs) in the Rajya Sabha on 7.5.2003. Later on, a large number of changes were found to be necessary in the Bill. A decision was, therefore, taken to carry out a comprehensive review of the Companies Act, 1956 and to introduce a new Companies Bill for the consideration of the Parliament.

The review and redrafting of the Companies Act, 1956 was taken up by the Ministry of Corporate Affairs on the basis of a detailed consultative process. A ‘Concept Paper on new Company Law’ was placed on the website of the Ministry on 4th August, 2004. The inputs received were put to a detailed examination in the Ministry. The Government also constituted an Expert Committee on Company Law under the Chairmanship of Dr. J.J. Irani on 2nd December 2004 to advise on new Companies Bill. The Committee submitted its report to the Government on 31st May 2005. After considering the report of the Committee and other inputs received from time-to-time, the Government took up the exercise of comprehensive review of the Companies Act, 1956.

A Companies Bill 2008 was introduced by the Government in the Lok Sabha on October 23, 2008. Due to dissolution of the 14th Lok Sabha, the Companies Bill, 2008 lapsed.

The Government decided to re-introduce the Companies Bill, 2008 as the Companies Bill, 2009, without any change except for the Bill year and the Republic year. The Ministry of Corporate Affairs had introduced the Companies Bill, 2009 in the Lok Sabha on August 3, 2009. The 2009 Bill was referred to Parliamentary Standing Committee on Finance which gave its report on 31st August, 2010.

In view of numerous amendments to the Companies Bill 2009 arising out of the recommendations of the Parliamentary Standing Committee on Finance and suggestions of the stakeholders, the Central Government withdrew the Companies Bill 2009 and introduced a fresh bill – The Companies Bill 2011.

The 2011 bill was introduced in Parliament on Wednesday, 14th December 2011.

8.0 Highlights of the Companies Bill, 2011

  1. The Companies Bill 2011 contains 29 Chapters, 7 Schedules, 470 clauses as against the Companies Bill, 2009 which consists of 426 clauses under 28 chapters and the Companies Act, 1956 which consists of 658 sections under 13 Parts and 15 schedules.
  2. E-governance in all company processes (Clause 120)
  3. Protection to minority shareholders
  4. Inclusion of at least one woman director on board (Clause 149)
  5. Specific framework for Merger and Acquisitions of companies. Single forum for approval of mergers and acquisitions (Clause 233)
  6. Cross Border Mergers (Clause 234)
  7. Squeeze Out Provisions (Clause 236)
  8. Concept of One Person Company introduced. (Clause 3)
  9. Key managerial personnel (KMP) to include Managing Director (MD) or Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Company Secretary (CS).
  10. Punishment for personation for acquisition etc. of securities (Clause 38)
  11. Class Action Suits (Clause 37; Clause 245)
  12. Registered Valuers (Clause 247)
  13. Limit on maximum number of members of private company increased to 200 from 50 (Clause 2(68))
  14. National Advisory Committee on Accounting Standards (NACAS) to be renamed as National Financial Reporting Authority (NFRA) and changes in responsibilities and powers (Clause 132)
  15. Mandatory Rotation of auditors  (Clause 139)
  16. Mandatory Compliance with Auditing Standards (Clause 143)
  17. Limited Liability Partnership eligible to be appointed as Auditor of Company (Clause 141)
  18.  Corporate Social Responsibility - 2% of average net profits of the previous three years (Clause 135)
  19. Mandatory Internal Audit for prescribed classes of companies (Clause 138)
  20. Secretarial Standards Introduced and provided statutory recognition (Clause 118(10) & 205)
  21. Secretarial Audit (Clause 204)
  22. 1/3rd of the total number of directors as independent directors - listed public companies
  23. Entrenchment Provisions in Articles of Association (Clause 5)
  24. Statutory Status to the Serious Fraud Investigation Office (SFIO) (Clause 211)
  25. Mediation and Conciliation Panel (Clause 442)

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Published by

Rajkumar Adukia
(Finance Professional)
Category Corporate Law   Report

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