Corporate Law: Legal Provisions, Scope and Developments
Inquisitive about the corporate laws and provisions operating in India?
Companies, corporations, and allied institutions or elements form a large share of the physical structure and economy of the country. This is regulated and governed by the corporate laws in force in India.
Corporate law deals with different aspects of the formation, functioning, regulation, and winding up of the companies and other allied aspects. It over-arcs many specific laws, with the Insolvency and Bankruptcy Code being an evolving new field. Generally, corporations and companies are primarily regulated by the Companies Act.
Well-placed regulation of entities, are prerequisite for smooth and reliable functioning of the complex business. This makes it essential for law students, professionals, corporate lawyers, law firms, and those aiming to pitch themselves into corporate litigation, an ever-growing arena, to have a stronghold and understanding over the corporate law, corporate governance, and other allied business laws.
Companies Act: Developments and the Growth-
- In the year 1850, taking the English Joint Stock Companies Act of 1844 as the guiding law, a provision was made for the registration of joint stock companies in India.
- Later the Joint Stock Companies Act, which introduced the concept of limited liability, was passed in 1857.
- Next the Companies Act was passed in the year 1866, which consolidated and amended the laws relating to the incorporation, regulation, and winding-up of companies and other associations.
- The Indian Companies Act, 1913, later replaced the 1866 Act. The Indian Companies Act, 1913 was revised by the H.C. Bhaba committee, and The Companies Act of 1956 came into being. Further, The Indian Companies Act, 2013 replaced the Indian Companies Act, 1956. The Companies Act, 2013 makes comprehensive provisions to govern all listed and unlisted companies in the country.
- Various types of companies categorised as per law are- Public Companies, Private Companies, One Person Companies, Producer Companies, Non-Profit Companies.
Key Features of the Companies Act 2013
Companies Act, 2013 was celebrated as a harbinger of ease of doing business, reliable transparency and improved corporate governance with well-structured procedures and self-regulations in place.
- Section 2(20)of the Companies Act of 2013, defines the term ‘company’ as a company incorporated under the Companies Act, 2013 or under any of the previous company law. The Act even brought in the provision for electronic maintenance of documents and records.
- The Act instrumentally empowered the shareholders, as it brought in the necessity of shareholders’ approval at requisite places and the concept of a class action suit. It gave way to flexibility and even the requisite amount of stringency by fast track and cross-border mergers and a time-bound liquidation process.
- The 2013 Act brought in the model of the ‘One Person Company’ and even made India the first country to make Corporate Social Responsibility a mandatory obligation. As for the authorities, the National Company Law Tribunal(NCLT) was established under the Companies Act 2013 and was constituted in June 2016 by the Government of India & was formed on the basis of the recommendations of Justice Eradi’s committee on law that dealt with the insolvency and winding up of the companies.
Recent Amendments in the Companies Act
The Amendments of 2019
It brought in some important changes as they made obligatory the upkeep of unspent amount into a CSR-specific account, which if left unspent for a prescribed period, would move to another account provided for in the schedule. As another move towards ease of doing business, 16 minor offences under the Act were decriminalised.
The 2021 Amendment
It amended the schedule of the Act to enhance the reliability of financial statements and gave in the mandate to round off the figures on the basis of ‘Total Income’. It obligates the disclosure of – current maturities from long-term borrowings to be separately made in the financial statements, borrowing from banks and financial institutes, details of all those immovable properties whose title deeds are not in the name of the company, loan granted to Promoters, Directors, KMPs and the ‘Related Parties’, if declared defaulters by the bank or the lender, undisclosed income and dealings in cryptocurrency as prominent changes amongst a few other amendments.
Corporate Governance: An Essential Framework
The Companies Act, provides for corporate governance provisions with a board of directors and various committees for the proper functioning and regulation of a company. Corporate governance is the framework of rules and processes by which a company is directed and regulated to balance the interests of various stakeholders, including shareholders, management, customers, and other elements involved.
The framework deals with and ensures fairness, accountability, transparency, proper compliance, risk management at various levels, voting rights and requisite disclosures amongst other tangents.
Another prominent authority, National Financial Reporting Authority (NFRA) was established back in 2018 as a guarding body to investigate matters of professional misconduct by the CAs or CA firms.
Other Important Corporate Laws
Contract Act
Contract act in general governs contracts and contractual obligations between different parties. These parties may be individuals, organisations, bodies, companies or corporations and hence it would intersect cases of contracts involving companies or corporations.
The Indian Partnership Act
The Indian Partnership Act, 1932 explains partnership as a relation between two or more people who come to a common ground to share the profits of a business handled by them all or by one or more persons involved in this process. The provisions of partnership act regulate the partnership firms in India.
The Limited Liability Partnership Act, 2008
A Limited Liability Partnership Act, 2008 is a legal entity that is distinct from its partners and possesses perpetual succession. The liability of the partners in a LLP is limited which helps it in the mitigation of risks. It features the benefits similar to that of Limited Liability Company and of a partnership firm.
The Securities and Exchange Board of India Act
The Securities and Exchange Board of India Act provides for the formation of the regulatory board (SEBI) to regulate and protect the economic and transactional interests of the investors and to regulate and oversee the functioning of securities market and securities exchange.
The Competition Act, 2002
This piece of legislation seeks to regulate fair competition in the market amongst the market players by promoting free trade and prevent manipulation by any undue forces and prevents anti-competitive practices.
Foreign Exchange Management Regulations, 2024
These regulations issued by the Reserve Bank of India, are meant to regulate and streamline the export and import processes and work towards the ease of doing business.
Insolvency and Bankruptcy Code, 2016 (IBC)
Insolvency and Bankruptcy Code, 2016 provides a comprehensive framework that deals with insolvency and bankruptcy situations arising in a company, firm, corporation or cases involving individuals and the legal process that follows such conditions.
Significance of Corporate Laws in India
There has been immense growth in the functioning of businesses, markets, people or companies involved on these planes and other transactional elements that interplay with it. With globalisation and digitisation this has evolved into an entirely different screenplay with cross-border access, trades and transactions, huge inflow and outflow, effectively no physical borders or limitations, followed by many other complexities that are involved with such a bulk of transactions at play. The primary reason for the existence and the importance of corporate laws is to lay down a framework for harmonious and well-regulated functioning of the businesses in India. Its major objective is to give a uniform platform for legal entities to function freely and fairly. Corporate Law also regulates the rights and obligations of the legal entities, directors of company, and the company officers to align the vision of the company with the working mechanism. This governs not only external functioning but also internal affairs of a company. These laws and regulatory provisions oversee a proper functioning, and effective resolution and prevent impropriety at any possible tangents.
The Difference between Commercial Laws and Corporate Laws
Corporate laws and commercial laws are two different laws and operate in different legal fields, though the functioning or the application may overlap or intersect.
As discussed above, corporate law in itself deals with corporate function, regulations, framework, and its governance. Commercial laws on the other hand deal with commercial space and commercial transactions, trade, and commerce. These transactions may of course involve corporate structures, individuals, organisations, trade channels or any other element of the network and hence deals with and regulates the commercial interaction in general.
As an analogy corporate law deals with company itself and the commercial laws in such cases deals with the commercial and business transactions involving the company.
Conclusion
In conclusion, Corporate laws play a huge significance on businesses and companies by laying out a framework that regulates its formation, structure, and general operations. Corporate laws overarc the entire legal knitting involved from inception to conclusion of companies, firms, or corporate bodies. Considering the same, the above analysis clearly shows that the functioning of the business cannot be done without the corporate law, especially in a business-oriented country like India where the essence of its economy hugely relies on the entrepreneurial spirit of the people.
Recommended Books for Understanding Corporate Laws in India
To know more about the subject and for an in-depth analysis of the provisions of corporate laws refer-
Corporate Governance by Vinod Kothari & Company
The book encompasses a multi-jurisdictional coverage, with an emphasis on Indian laws. The book exhaustively dwells on ‘Corporate Governance’ as a concept and its evolution.
The book comprises of 25 chapters with important topics like: (i) The Trajectory of Corporate Governance; (ii) The Pillars of Governance; (iii) Conflicts of Interest; (iv) Accountability and Assurance; (v) Corporate Democracy; (vi) Information Symmetry; (vii) Enterprise-wide Governance; (viii) Sustainability and Social Responsibility; (ix) Governance Considerations in Financial Sector Entities.
Securitisation, Asset Reconstruction and Enforcement of Security Interests (7th Edition) by Vinod Kothari
This is the seventh edition of one of the most trusted references on securitisation -of non-performing loans, enforcement of security interests, asset reconstruction companies, and a brilliant reference book for peculiarities of SARFESI Act.
The commentary covers the securitisation of performing loans, encompassing RBI directions on the securitisation of standard assets, as well as the legal, taxation, and accounting aspects of securitisation.
K R Chandratre’s Company Meetings – Law, Practice and Procedure
The comprehensive commentary deals with changes brought by the Companies Act, 2013, along with the governing principles.
This book is a ready reference and trustworthy resource for all types of companies, company secretaries, lawyers, and judges. Moreover, organizations other than companies can also use it as a practical guidebook to look into its practical aspect.
Corporate Law eBook package
Corporate Law eBook package consists of eBooks on corporate law including the latest titles such as Securitisation, Asset Reconstruction and Enforcement of Security Interests, 7th edition by Vinod Kothari, and Corporate Governance by Vinod Kothari & Company.
Commercial, Banking, and Corporate Laws Bare Acts eBook package is a set of 14 digital bare acts that can be used for easy reference.
You can also subscribe to Commentaries and Digital Bare Acts eBook package – Corporate, Banking, and Commercial which is a set of 62 titles and digital bare acts pertaining to Corporate law. It has an exhaustive range of reference resources for the subject at one place.
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