All You Need to Know About the Companies Act in India
Every nation in the world is pushing for entrepreneurship and business development. India is one of them. With their latest campaign Make In India, the campaign aims to drive local entrepreneur development through foreign investment with local companies. Although several sectors are strictly for Indian corporation and entrepreneurs, foreign investors are invited to participate in many other industries. Foreign investors have several options to incorporate a company in India. For every company incorporation, it all falls under the India Companies Act. While you may hire and engage a local expert in company incorporation, let’s get some features of the India Companies Act.
Current Companies Act
The current Companies Act 2013 came into effect in September 2013. It replaces the Companies Act, 1956 in a partisan manner. The India Companies Act 2013 is enacted by the Parliament of India, to regulate the incorporation of a company, company responsibilities, directors, and the dissolution of a company. It goes hand in hand with the Indian company law to ensure companies comply with all business laws in the country. The Companies Act 2013 includes a new type of company incorporation, which is the one-person company. Although it is open only to locals, it is part of an effort to encourage micro-businesses to have a structured organisation. At present, the Companies Act has had four amendments with the latest amendment passed in the year 2020.
Only in India
Not only that India Companies Act allows for a one-person company, Section 135 of the Act established mandatory corporate social responsibility contributions for large companies. Currently, CSR law is mandatory in India. The law demands companies with a net worth of more than five billion rupees or turnover of over ten billion rupees or with a net profit of over 50 million rupees, spend at least two per cent of their annual profits for CSR. These companies must also establish a committee to oversee the spending.
Ease of Doing Business
India was previously perceived as challenging to do business. With a concern to improve its Ease of Doing Business ranking, India has since removed many of its strict criteria. Among them are replacing the common seal with signing documents and paid-up capital for company incorporation. The Companies Act 2013 is under the purview of the Ministry of Corporate Affairs (MCA). In a recent development, the MCA introduces Companies Fresh Start Scheme to encourage defaulting companies to file all pending electronic forms, including Financial Statements and Annual return, without paying any fines or fee, other than statutory fees. The scheme is a one-time opportunity for a company to get a fresh start as a compliant organisation.
Relevant to the Ease of Doing Business criteria, India has introduced the new SPICe form to help companies set up in one day. It is possible provided all necessary documents are prepared in advance. The following companies can be set up under the India Companies Act and Indian Company Law:
- Sole Proprietorship – Owned and managed by an individual. Quick to form and low compliances. Unlimited liability.
- Partnership – Joint and unlimited liability between two individual. May have active or sleeping partners.
- Limited Liability Partnership – the most common company incorporation with limited liability.
- Hindu Undivided Family (HUF) – businesses owned by a joint family belonging to the Hindu religion.
- Dormant Company: Company set up for future projects or holding assets.
- Private Limited Company: Shares are not offered to the public.
- Public Limited Company: Shares may be offered to the public.
- One-person Company – registered business using their name instead of a trading name.
- Unlimited company – liability of members or shareholders are limitless.
The Act states that every company must have a board of directors. Duties directors are readily listed in the Companies Act 2013, reflecting existing doctrines around most Commonwealth countries. With directors duties readily available in the Act, directors and the public have a better understanding of their requirements to serve the company.