Difference between Companies Act 1956 and 2013

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It was initially used to describe a group of people who ate their meals together. Merchants used to take advantage of holiday events to discuss business matters in the leisurely past. It is referred to as a body corporate since the individuals that make up the organization are merged into one body and granted legal personality. As a consequence, a ‘corporation’ is a legal entity established by a process other than natural birth. As a consequence, it is often referred to as an artificial legal individual. A company, as a legal body, can have many of the same privileges as a natural individual and can also have many of the same liabilities.

The Companies Act of 2013 governs Indian company law and governs companies that are registered under the Companies Act of 2013.Previously, it was controlled by the Companies Act of 1956, which covered all companies registered under that act.


Companies Act 1956 VS Companies Act 2013.

  1. Preliminary provisions

The Companies Act of 1956 was enacted by Parliament of India on April 1, 1956, and the Companies Act of 2013 was enacted by Parliament of India on April 1, 2014. The Companies Act 1956 (Indian Companies Act 1956) has 470 sections, while the Indian Companies Act 2013 (Indian Companies Act 2013) has only 470. (Indian Companies Act 1956). There are 658 of them. The new law gives shareholders more authority and emphasises corporate governance.

In contrast to previous legislation, the CA of 2013 has broadened the concept of “charge.” Only a mortgage of the property or properties was considered a charge under the CA, 1956. In the 2013 Act, a charge is defined as an interest or lien created on a company’s property or properties, which includes a mortgage. Under the new act, the definition of “Officer in Default” has been extended. Whereas Section 2(31) of the CA, 1956 determines who is a “officer in default,” S. 2(60) of the CA, 2013 does the same.

The scope has been extended to include share transfer agents, registrars, and merchant bankers who are interested in the issue or transfer of shares. Furthermore, directors who are aware of the default, the CFO, and any Key Managerial person who intentionally commits default will be brought under the ambit of the law. The CA of 2013 stipulates that the financial year shall end on March 31st of each year, whereas, under the previous act, companies may have a financial year that ended on a date that they wanted.

The definition of “Listed Company” has been enlarged under CA, 2013, to include any company whose shares are listed on any recognised stock exchange, whereas the previous Act Act only specified “listed public company.” The CA, 2013 introduces certain terms which were not defined under the 1956 Act such as: Associate company (S. 2(6)), Independent Directors (S. 2(47)),  Small company (S. 2(85)), Promoter (S. 2(69)), Related party (S. 2(76)), Global Depository Receipt (S. 2(44)), Key Managerial Personnel (S. 2(51))

2. Incorporation and Incidental Matters

  • Under the CA, 1956, a company’s certificate of incorporation was considered conclusive evidence, whereas under the new law, according to Section of the Act, a certificate is no longer conclusive proof. It stipulates that if incorporation is founded on false or incorrect incorporation, action can be taken even after incorporation.
  • The incorporation of a “One Person Company” (OPC), which had no place under the 1956 law, was one of the big changes brought about by CA in 2013. As specified in Section 2(62) of the Act, an OPC is a company with only one member. There is no need to hold an annual general meeting since it is a private company with just one shareholder and one director. The OPC idea was designed to make it easier for sole proprietors to conduct business. Furthermore, the 2013 Act removes the need for prior approval when converting a private company to a one-person company or vice versa, or when converting a private company to a public company. In 2013, the CA, has increased the limit for the number of members for a private company. The number of members have been increased from 50 to 200.
  • The ‘object clause’ in the Memorandum of Association (MOA) has been amended in relation to matters incidental to incorporation. A amendment has been made to the Memorandum of Association (MOA). The object clause was split into various sections under the 1956 Act, including key objects, incidental objects, and other objects, but the MOA now only includes the object for which the business is incorporated. The latest law does not contain the previous bifurcation.
  • Under the 1956 Act, there were no entrenchment provisions for modifying a company’s Articles of Association, while under Section 5 of the 2013 Act, articles may provide for a more rigorous or restrictive procedure than passing a special resolution to amend those provisions of the AoA. According to Section 93 of the 2013 Act, if the company’s promoters or top ten shareholders change, the company must file a return with the ROC within 15 days of the change, while there was no such provision in the 1956 Act.
  • Under section 371 of the 2013 Act, LLPs can be converted into corporations, whereas this was not permissible under the previous regime.
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3. Directors of a Company

  • A board of directors includes a full-time chairman, MD, treasurer, CEO, and CS. The maximum number of directors in a company was 12 under the CA, 1956, and appointing more directors required the approval of the central government. Whereas, under the CA, 2013, a maximum of 15 directors can be appointed, and more can be appointed by passing a special resolution in a meeting, as provided by S. 149(1) of the Act. As a result, it is clear that the central government’s approval is not necessary under the current legal structure.
  • There were no clauses in the 1956 Act mandating the appointment of a woman director. • Whereas, under section 149(1) of the CA, 2013, it is required that at least one woman director be present in a specified class or classes of companies. Under the CA, 1956, there was no provision for a Resident director, whereas under S. 149(3) of the CA, 2013, any company must have at least one director who has stayed in India for a total of at least 182 days in the previous calendar year.
  • There was no provision for independent directors under the CA, 1956, but under section 149(4) of the CA, 2013, any listed public company must have at least one-third of its total number of directors be independent, and the Central Government may prescribe the minimum number of independent directors for any class or classes of public companies. While the 1956 Act did not explicitly state what a director’s roles were, Section 166 of the CA, 2013 does.
  • The maximum number of directorships under the 1956 Act was 15, while under the CA, 2013, the maximum number of directorships is 20, with 10 of them being public corporations. Furthermore, the current act provides alternative directorship, which was not included in the previous act.
  • Under the CA, 1956, there was no specific provision for a director’s resignation, while under Section 168 of the CA, 2013, a director may resign by tendering a resignation letter. To ensure accountability, he must also send a copy of his resignation letter to the ROC within 30 days.

4. Prospectus and Allotment of Securities

The definition of securities has been broadened to include all forms of securities rather than just stock.Specification for a public company’s fund-raising through IPO/FPO, private placement, and rights/bonus shares.

Only public financial institutions, public sector banks, or scheduled banks with the main object of funding were permitted to issue shelf prospectuses under the previous Companies Act 1956, but the current Companies Act 2013 notes that the government shall prescribe the types of companies that may issue shelf prospectuses.

After modifying the terms of the contract or the items listed in the prospectus, the company can no longer use the funds raised by the prospectus to purchase, sell, or otherwise deal in equity securities of other companies. Private placement offers have several conditions which are listed below-

  • In compliance with prescribed terms and conditions. Made through private placement offer letter, not through a prospectus and not more than 50 number of people.
  • Public placement offer should comply with the provisions of Companies Act 2013, Securities Contract Regulation Act 1956, SEBI Act 1992.
    A individual who fraudulently induces others to invest money is now subject to a harsh penalty under section 470 of the act, which is not compoundable.
  • Any person who has been injured by a false statement or the inclusion/omission of a matter in the prospectus has the right to file a complaint or take action:
  • For civil liability resulting from a prospectus misstatement.
  • For punishment of fraud
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5. Shares and Debentures

The Companies Act of 2013 aims to regulate all forms of securities, rather than only equity and debentures. There was no right for a stockholder to vote on questions of corporate policy or who would make up the board of directors under the CA, 1956. Voting was commonly used to make decisions about issuing shares, initiating corporate actions, and making major adjustments to a company’s operations. The CA, however, did away with this distinction in 2013.

Companies had the power to issue shares at a discount under the CA, 1956, as per S. 79, while companies cannot issue shares at a discount under the CA, 2013, except sweat equity shares subject to the fulfilment of certain conditions as specified under S. 53. If a company breaches the rule, it will be fined not less than one lakh rupees but not more than five lakh rupees.

Shareholders do not have an exit option under the CA, 1956, but they do have an exit option under Section 27 of the CA, 2013, if the money raised is not used. The CA, 1956 made no provision for the issuance of bonus shares. For a publicly traded unlisted company, however, rules were created. Whereas the CA, 2013, includes provisions for the same under Sections 63 and 23.

Previously, various parts of the CA, 1956 dealt with debentures, such as the debenture trust deed, the appointment of debenture trustees, and so on. A company may issue debentures with the option to convert them into shares wholly or partially accepted by special resolution under the CA, 2013. Section 71 of the CA, 2013, is now the only section that deals with debentures.

6. Audit and Dividends

Restructuring and Revival

  • The CA, 1956, did not provide for a takeover bid because the scheme of agreement and arrangement was not broad enough. Currently, the scheme of agreement and arrangement under the CA, 2013, requires a takeover bid and operates in compliance with SEBI guidelines.
  • There was no provision for Fast Track mergers in the CA of 1956. The 2013 Act, on the other hand, now provides a provision for a fast-track merger between two firms. It will assist the two companies in taking the requisite measures to achieve their goals as soon as possible.
  • For capital reduction, two items are required. There should be no deposit areas, and the industry’s quality should be of a high level.

Class Action Suits

The CA, 1956, did not contain the idea of class action suits. It was first introduced in 2013 via the CA. It states that if a group of shareholders, depositors, or any other group of them conducts business in a way that is harmful to the company’s or its members’ interests, they must file an application with the tribunal on behalf of the company or its members. The advantage is that it will result in more productive and effective judicial proceedings, but this section will not extend to banking company.

Corporate Social Responsibility (CSR)

Under the 1956 regulations, there was no provision for CSR. This is one of the most significant additions made possible by Section 135 of the Companies Act of 2013. This section is required reading for all companies that come under the scope of the provision.


Based on a review of the provisions of both Acts, it is clear that the 2013 law has succeeded in resolving the shortcomings of the previous legislation. The Act was enforced in stages, and it wasn’t until 2019 that the 1956 act was fully repealed. The 2013 Act has successfully modernised India’s corporate law system, placing it on par with corporate law elsewhere in the world.