Basic Key Points of the Companies Act 2013

Estimated Reading Time: 14 minutes

Topics Covered in this article


The Company Act is the legislation that was administered into the system by the Government of India and various authorities such as the Offices of Registrar of Companies and the Ministry of Corporate Affairs, Official Liquidators, Company Law Board, Director of Inspection, Public trustee. The Acts provide for all-around regulation and rules about companies, directors, memorandum, and articles. The Act focuses on all the necessary provisions required for the governance of the company. The Acts provide for various and different kinds of companies, their management, constitution, participants, share and debentures, registration, and winding up of the company.


At first, the companies were enacted in 1956, which allowed the registration for companies, responsibilities of companies, and the procedure of winding up of the company. Later, the act was amended by the act of 2013. The Companies Act 1956 and were replaced with the Companies Act 2013. The amendment was much awaited in the corporate world and the judicial system as well. The new law is the step taken by the lawmakers towards globalization and expansion.

The act of 2013 attempts to meet the dynamic, futuristic, and progressive environment to go hand in hand with the legal system as well. The Companies Act of 2013 covers the laws for incorporation, dissolution, and the running of companies in the country. It came into force on the 12th September 2013 with some significant changes such as provisions relating to governance, compliance, e-management and enforcement, auditors, disclosures norms, mergers and acquisitions, class-action suits, and registered valuers. The article discusses the key highlights of the Companies Act of 2013

Key Highlights

The Companies Act 2013 had various changes starting for its index being the act now contained 29 chapters instead of 26 chapters. The sections in the act also changed from 658 to 470 and the schedules in the act also changed from 15 to 7. Although the Companies Act of 2013 but some key features are:

New Definitions: Various new definition was added to create more clarity within the code. Some of the new definitions being –

  1. Auditing standards: Means the standards of accounting or addendum thereto for companies or class of companies referred to in section 133 of the code;
  2. Associate company: In relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company;
  3. Books of accounts: It defined the records maintained in respect of
    1. All sums of money received and expended by a company and matters in relation to which receipts and expenditure take place;
    1. All sales and purchases of goods and services by the company;
    1. The assets and liabilities of the company; and
    1. The items of cost as may be prescribed under section 148 in the case of company which belongs to any class of companies specified under that section;
  4. Charge: It means an interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes a mortgage;
  5. Chartered accountant: Means a chartered accountant defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 who holds a valid certificate of practice under sub-section (1) of the section 6 of that Act;
  6. Called up capital: Means such part of capital, which has been called for payment;
  7. Chief executive officer: Means an officer of a company, who has been designated as such by it;
  8. Chief financial officer: Means an officer of a company who has been designated as such by it;
  9. Company liquidator: Mean a person appointed by the tribunal as the company liquidator in accordance with the provisions of section 275 for the winding up of a company under this Act.
  10. Deposit: Includes any receipt of money by way of deposit or loan or in any other form by a form by a company, but does not include such categories of amount as may be prescribed in consultation with the reserve bank of India
  11. Expert: Includes an engineer, valuer, a chartered accountant, a company secretary, a cost accountant, and any other person who has the power of authority to issue a certificate in pursuance any law for the time being in force;
  12. Financial institution: Includes a scheduled bank, and any other financial institution deigned or notified under the reserve bank of India act,1934
  13. Globe depository Receipt: Means any instrument in the form of depository receipt, by whatever name called, created by a foreign depository outside India and authorised by a company among an issue of such depository receipts;   
  14. Key managerial personnel: In relation to a company, means-
    1. The chief executive officer or the managing director or the manager;
    1. The company secretary;
    1. The whole-time director;
    1. The chief financial officer;
    1. Such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and
    1. Such other officer as it may prescribed;
  15. Notification: means a notification published in the official gazette and the expression “notify” shall be construed accordingly;
  16.  Paid-up share capital means such aggregate amount of money credited as paid-up as is equivalent   to the amount received as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called;
  17. Registration of companies means the register of companies maintained by the registrar on paper in or in any electronic mode under this act;
  18. Remuneration: Means any money or its equivalent given or passed to any person for services rendered by him and includes perquisites as defined under the income-tax Act,1961
  19. Small company- means a company, other than public company-
    1. Paid-up share capital of which does not exceed fifty lakh rupees, or such higher amount as may be prescribed which shall not be more than (ten crore rupees)
    1. Turnover of which does not exceed two crore rupees or such higher or such higher amount as may be prescribed which shall not be more than one hundred crore rupees. 
  20. Tribunal: Means the national company law tribunal constituted under section 408;
  21. Voting Right: Means the right of a members of a company to vote in any meeting of the company or by means of postal ballot;
  22. Whole-time director: Includes a director in the whole-time employment of the company
Also Read  Can a Government Employee be a Director in a Private Company?

One-person company (OPC): In the new company’s act the concept of a one-person company was introduced which encourages the corporatization of small and micro business and emperorships with an easy method and not wasting any considerable time, resources, and energy on the legal compliances of that of a huge corporation. The introduction of this concept does not only enable individual capabilities but allows us to generate employment at a great scale. Within the act of 2013, a single national person can constitute a company. It is defined under the definition clause of the code in section 2(62)[1].

An OPC vis-à-vis a company have a common seal, perpetual succession, separate finances, separate legal entity, separate property, limited liability and management, and control. One person companies have may privileges that businesses currently running under the proprietorship model can convert easily in OPC, the minimum authorized share capital required is Rs. 1,00,000, the maximum and the minimum number of personal for the company are one. OPC can be converted into public or private companies through two methods being compulsory and voluntary conversion.

Small / Dormant Company: A company that is a public in which the paid-up share capital does not exceed the limit of 50 lakh rupees, or such a higher amount as may be prescribed which shall not be more than ten crores and the profit and loss turnover of the presiding financial year does not exceed the amount of 2 crore rupees or such a higher amount as may be prescribed which shall not be more than 100 crore rupees. The act also provides small companies with some exemptions primarily being certain requirements relating to the board meeting, presentation of cash flow statements, and certain merger process. It is defined in the definition section 2(85).

Class Action Suits: The Concept of Class Action suits found a statutory recognition and enforceability by the means of Companies Act 2013. It refers to a class action suits refers to a lawsuit that allows a large number of people with a common interest in a matter to sue or to be sued as a group. It is a procedural device enabling one or more people to file and prosecute litigation on behalf of a larger group or class, wherein such class has common rights and grievances. The class-action suit is defined under section 245.

A class-action suit can be filed before the national company law board tribunal (NCLT/Tribunal). Members or depositors can file a class action suit if they are in the opinion of any violation or misconduct on the behalf of the management of the company which creates a loss or default in the interest of the members. It can be filed against any company, any of its directors, auditors, expert or advisor or consultant of the company.

Key Managerial Person (KMP): It is defined as a group of personnel who are in charge of maintaining the operations of the company. The accounting standard states the KMP are people who have authority and responsibility for planning, directing, and controlling the activities for reporting enterprise. Some examples of Chief Executive Officer, Chief Financial Officer, Company Secretary, etc. Under Section 203 of the Companies Act, 2013 has the provisions for the appointment of key managerial personnel. Any listed company and any company with a paid capital of equal to Rs 10 lakh have to mandatorily appoint a whole-time KMP. Huge Responsibilities have been vested on the KMPs in a company under the 2013 Code.

Under section 170 of the act, the details of securities held by the key management personnel in the company and its holding, subsidiary, a subsidiary of the company, or associated companies should disclose and recorded in the registrar of the books. In a meeting of the audit committee, the KMP has a right to heard and participate. Under section 189(2), Key Management personnel within 30 days of appointment should disclose the concern or any interest in any other associations which are to be recorded in the register.


Internal Auditor/Audit: Under section 138 of the Act certain companies must appoint internal auditors. The companies which are required to so are every listed company, every unlisted public company having certain specifications, every private company with certain requirements. The internal auditor may or may not be an employee of the company. The rule under the Act also does not specifies the duties and responsibilities. Internal auditors should either be a chartered accountant or a cost accountant, or such other professional as may be decided by the board to conduct an internal audit of functions and activities of the company.

An internal audit is a tool used for the determination of the company’s performance, execution process, standards, policies, structure, and regulations. It helps in the determination of the point where the company is lacking in the management and structure. Through audits, the data and information calculated improve the operations and performance of the company effectively and efficiently. The Act also provides for the rotation of the auditors and audit firms in the case of publicly traded companies.

Corporate Social Responsibility (CSR): It the instrument which provides the companies to be responsible towards the social obligations towards its members, its shareholders, members, and the public at large. CSR merges the company’s policies and operations towards the environmental, social, and economical aspects. It a positive step towards the enhancement of society and the environment by the corporate world all around the globe. CSR varies from company to company based on their work operations and business carried out. The instrument is important for both sides of the coin being consumers or companies.

Section 135 of the Companies Act 2013 defines the applicability of the CSR in any registered company under the act with certain specifications towards net worth and turnovers. CSR is directly controlled by the board of the company for its expenditure and process.

Directors – Women/ Independent: The professional personnel appointed in the company for handling the affairs and decision making are directors. Directors play a vital role in the growth and development of the company. The appointment of directors is strictly regulated by the company’s act of 2013. Section 149 of the act lays down the minimum number of directors required in a company. An independent Director has been defined under 149(4) of the acts which states that a least of 1/3rd of the total number of directors should be independent directors in every listed company. An Independent Director is a director which is a whole-time director or a nominee director other than a managing director.

Under the Companies Act, 2013, it is mandatory to appoint at least one-woman director in the company as a board director. The concept was introduced to encourage women’s participation in the field and to provide opportunities and increase equality. A woman director can be appointed at the time of company registration or after the incorporation of the board.

Tribunals/ Authorities: Under the Companies Act of 2013 two authorities were established namely, The National Company Law Tribunal (NCLT) and The National Financial Authority (NFRA). NCLT is the quasi-judicial authority that handles issues relating to the Indian Companies. It was constituted on 1st June 2016 by the Government of India. A proceeding relating to any matter under the act is disposed to the Tribunal. It is the adjudicating authority for the insolvency resolution process of companies and limited liability of the partnerships.

The powers of the NCLT are defined under section 408 of the Companies Act, 2013. The National Company Law Appellate Tribunal to replace the Company Law Board and Board for Industrial and Financial Reconstruction. The National Financial Reporting Authority is the Independent regulator which entertains the matters on the auditing profession and accounting standards in India under the Act. It came to force way past its introduction in October 2018. NFRA’s responsibilities and powers are defined under Section 132.


In conclusion to the Companies Act 2013, the Act proposed a lot of promising concepts and methods for the regulation of companies in India. It Act predicts an effective and efficient corporate governance based on the newly introduced sections which allow self-regulation and corporate democracy through its framework. It promotes the social obligation of a company and E-governance as well. Provides for the protection of investor/ creditor in the dynamic corporate environment.

[1]  Section 2(62) of the Companies Act, 2013 defined “one-person company” means a company which has only one person as a member.