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The Companies Act of 1956 is now replaced by a new Act of 2013 and it has already been brought
into effect from 12th September 2013. The new Act is more comprehensive and caters for the new
requirements arising out new practices and methods in the running of businesses in India. There are
many new provisions in the Companies Act 2013, though the basic concept of Company, as a form of
doing business, remains unchanged.

This new Act also provides for many procedural issues for facilitating doing business with ease and to
empower industry to pursue their goals with added strength.

Some of the important provisions of the new Companies Act, 2013 are summarized below for the
information of students. The topics are enlisted first and they are explained one by one.

1. One Person Company (OPC)

2. Small Company
3. Dormant Company
4. Women directors
5. Corporate social responsibility

1. One person company (OPC)

The concept of One Person Company is entirely a new concept introduced in the new Companies
Act, 2013. It is a new form of doing business. As the name suggests, it is a company with only one
member. In a way, it is a mixture of sole-proprietorship and company. Persons doing business in
their own names entirely by themselves are called proprietorship businesses. The owner of business
has unlimited liability. Since the owner and the business are not considered separate from each
other, the personal property of the owner is liable for payment of debts of the business. Such
business was looked upon as an individual venture and therefore could not pass the test of
corporate world in market in many areas. Naturally, such businesses suffered many limitations and
inhibitions. They did not have a corporate image in the business-world and could not obtain credit
facilities from financial institutions as the registered companies could.

The new Act enables entrepreneurs carrying on the business in the sole-proprietorship form of
business to enter the corporate framework.

The following points may be noted with respect to the nature of such one person company:-

1. Only a natural person competent to contract who is an Indian citizen and resident in India
shall be eligible to incorporate a one person company. In this context, the term “resident in
India” means a person who has stayed in India for a period of not less than 182 days during
the immediately preceding one calendar year.

2. Such person (the sole shareholder) shall nominate another person who shall become the
shareholder in the event of death or incapacity of the original shareholder. Only a natural
person who is an Indian citizen and resident in India can become nominee for the sole
member of such One Person Company.

3. It must have minimum one Director. The sole shareholder can himself be the sole Director. If
he so desires, he can have more directors for management of business. However, the total
number of directors shall not exceed fifteen.
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4. No person is eligible to incorporate more than one Person Company. Similarly, a person can
become nominee only in one such company.

5. Minor can neither incorporate such one person company nor can become nominee in such
company.

6. Section 8 of the Companies Act permits incorporation of companies which are not for
profits. They are exempted from various procedural compliances as they are not engaged in
any commercial activities. One person company cannot be incorporated or converted into a
company under section 8 i.e. company not for profit.

7. Such company cannot carry on any non-banking financial investment activities including
investment in securities of any body-corporate.

8. Such company cannot convert itself into any other kind of company unless a period of two
years has passed from the date of its incorporation as One Person Company. However, if the
paid up share capital exceeds Rs. 50 lakhs or its average annual turnover exceeds Rs. 2
crores, it has to apply to Registrar of companies for conversion to private limited or public
limited company.

9. Every person desirous of becoming a Director of one person company must have Digital
Signature certificate and also Director Identification Number (DIN) issued to him from the
concerned authorities.

2. Small Company

This concept also has been introduced in the Companies Act for the first time in the history of
company law. An attempt is made to identify certain companies as small companies on the basis of
their capital and turnover. This is for the purpose of granting some relaxations or relief in the area of
procedural compliances.

It is true that the contribution of small companies in India is far in excess of that of large scale
companies. The efficiency of small companies either in production or service is much more than that
of large companies. It will not be incorrect to say that the strength of large companies is their huge
capital investment while the strength of small companies is their management.

Such small companies are however, bogged down by a plethora of procedural requirements which
affects their working. Therefore, in order to free them from avoidable procedural and administrative
tasks.

The following points may be noted with respect to Small companies:-

1. A Small Company means a company other than a public company. Thus, only a private
company can be classified as a small company.

2. The paid-up share capital of such company must not exceed Rs. 50 lakh (higher amount may
be prescribed which shall not be more than Rs. 5 crores) AND its turnover, as per the last
profit and loss account, must not exceed Rs. 2 crore (higher amount may be prescribed
which shall not be more than 20 crores).

3. No company can be classified as small company if it is a holding company or subsidiary

company, or a company registered under Section 8 (i.e. a company not for profits) or a
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company governed by any special Act.

4. A company may be eligible to be classified as small company in a particular year, but may
become ineligible in the next year and also may become eligible again the subsequent year.

5. As explained above, the privileges and exemptions available to a small company are the
same as available one person company, but not all privileges available to a one person
company are available to a small company. The exemptions avaible to a small company are
as follows:

a) The annual return of a small company can be signed by the company secretary
alone, or where there is no company secretary, by a single director of the company.
b) A small company may hold only two board meetings in a year.
c) A small company need not include Cash Flow statement as part of its financial
statement.

3. Dormant Company

The term Dormant means a company not in action or inactive. Therefore, a dormant company
means a company means a company which is not actively engaged in any business activity. In other
words, such company exists on paper but does not carry out any business activity or receives any
form of income for the present.

Where a company is formed and registered under this Act for a future project or to hold an asset or
intellectual property and has no significant accounting transaction, such a company or an inactive
company may make an application to the Registrar in such manner as may be prescribed for
obtaining the status of a dormant company.

For example, a group of persons who has invented a new product may desire to have the product
patented. They may opt for obtaining the patent not in the name of one of them as the whole group
has contributed to the invention. Such group may form a dormant company and get the patent
registered in the name of such company. This is how the group can later put the patent to industrial
application at some future time when the necessary capital is raised. This way there is no fear that
any one member of the group can take unfair advantage of the fact that patent is registered in his
name.

The following points may be noted with respect to Dormant company:-

1. Where a company is formed and registered under this Act for a future project or hold an
asset or intellectual property and has no significant accounting transaction, such a company
or inactive company may make an application to the Registrar for obtaining the status of
Dormant company.

2. An already existing and active company may also make an application to the Registrar for
obtaining the status of Dormant company, if for a period of two financial years it has not
carried on any business activity or has not done any significant accounting transaction or has
not filed any financial statements and returns.

3. Significant accounting transactions does not include,

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a) Payment of fees to the Registrar,

b) Payments made to fulfill the requirements under Companies Act or any other Act,
c) Allotment of shares, or
d) Payments for maintenance of its office and records.

4. A dormant company can at any time apply to the Registrar to revert back to status of Active
Company. However, the company can remain a dormant company for a maximum period of
five financial years.

4. Women Directors

Some sections of the society need special protection and assistance from the government in order to
help them ameliorate their status in the society. These sections find it almost impossible to do
themselves as they have been deprived the privileges which are otherwise available to other
sections of the society.

Children, old people, socially backward or economically and educationally backward are some of
such sections of the society. Women too form part such section of the society. For centuries, they
have been denied the rights and opportunities available to men. With increase in awareness about
the unjust treatment meted out to these sections, the societies all over the world have undertaken
special programmes for their upliftment.

These special programmes or measures not only offer the opportunities denied to them earlier, but
also provide special assistance and privileges in order to compensate for the losses suffered by them
for centuries. This is known as affirmative action or positive discrimination. The provision in the new
Companies Act with respect to women directors is one such welcome provision for the
empowerment of women by granting them special rights. Whether such social assistance granted to
women through legislative measure can achieve its purpose or not can be debated. However, it
cannot be gainsaid that it is certainly a step forward in this direction.

The following points may be noted with respect to women directors:-

1. Every public company with paid up share capital of Rs. 100 crores or more and a turnover of
Rs. 300 crores or more has to appoint at least one woman director in the board of directors
within three years from the date when these provisions come into force.

2. Every listed company has to appoint at least one woman director in its board of directors
within a period of six months.

3. The duties and rights of women directors are the same as any other director. However, no
special qualifications have been laid down for women directors.

4. Such woman director has to furnish her written consent for the appointment and obtain her
Director Identification Number (DIN). She also has to furnish a written declaration that she is
not disqualified to become director under any law.

5. There is vast talent available among women, but the mindset of corporate world has to
change to come forward to appoint woman directors. With this mandatory provision for
representation of women on the Boards, India Inc is likely to have more talented woman on
the boards of their companies. Gender bias has deterred many companies to induct women
directors on their Board. Now with the new Act requiring compulsory appointment of at
least one woman director, companies will have to search for good woman directors within
the time frame allowed. There are about 6000 listed companies on the stock exchanges and
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it will create a demand for woman directors. Let us hope that such competent women found
will stretch themselves to represent as many companies as possible to meet the
requirements.

6. Corporate Social Responsibility

The provisions introduced in the new Companies Act changes the face of corporate world in
the society. Every company draws its resources in the form capital, manpower etc. from the
society. These inputs are processed in the company and the final output is again offered to
society, thereby making profits. No company functions in isolation but is an integral part of
the society. Thus, it will not be incorrect to say that the prosperity of any company largely
depends on the health of the society in which it operates.

It is therefore only fair to expect that such companies put in conscious, positive and planned
efforts for the well being of the society. Every company is responsible and accountable to
the society. This responsibility of company towards social welfare is called corporate social
responsibility. It is a give and take transaction. Many companies in fact had undertaken
several social welfare programmes or had funded such programmes undertaken by the
others. However, such efforts were purely voluntary and their continuation was always
subject to the willingness of the management of companies. The new Act now introduces a
statutory obligation on the companies to undertake social welfare programmes and bear
their cost out of a portion of their profits.

The following points may be noted with respect corporate social responsibility of
companies:-

1. The provisions of corporate social responsibility introduced in the new Act are applicable to
companies, where –

a) The net worth of the company is Rs. 500 crores or more;

b) The turnover of the company is Rs. 1000ccrores or more;
c) The net profit of the company is Rs. 5 crores or more.

2. Further as per the CSR Rules, the provisions of CSR are not only applicable to Indian
companies, but are also applicable to branch and project offices of a foreign company
operating in India.

3. Every company so covered under the CSR Rules has to spend at least 2% of its average net
profits of the immediately preceding three years on CSR activities.

4. Every such company is required to constitute a CSR Committee of Board of Directors

consisting of three or more directors.

5. The CSR Committee shall formulate and recommend to the Board, a policy which shall
indicate the activities to be undertaken (CSR Policy); recommend the amount of expenditure
to be incurred on the activities referred and monitor the CSR Policy of the company. The
Board shall take into account the recommendations made by the CSR Committee and
approve the CSR Policy of the company.
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6. The activities that can be done by the company to fulfill its CSR obligations include
eradicating extreme hunger and poverty, promotion of education, promoting gender
equality and empowering women, reducing child mortality and improving maternal health,
combating human immunodeficiency virus (HIV), acquired immune deficiency syndrome
(AIDS), malaria and other diseases, ensuring environmental sustainability, employment
enhancing vocational skills, social business projects, contribution to the Prime Minister's
National Relief Fund or any other fund set up by the Central Government or the State
Governments for socio-economic development and relief and funds for the welfare of the
Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women, and
such other matters as may be prescribed.

7. Under the Companies Act, preference should be given to local areas and the areas where the
company operates. Company may also choose to associate itself with one or more
companies for fulfilling the CSR activities provided they are able to report the compliance
individually. The CSR Committee shall also prepare the CSR Policy in which it includes the
projects and programmes which are to be undertaken, prepare a list of projects and
programmes which a company plans to undertake during the implementation year and also
focus on integrating business models with social and environmental priorities and process in
order to create share value.

8. If a company covered under these CSR rules is unable to spend the minimum amount which
it is required to spend on CSR activities, it has to give reasons for the non-compliance in its
Board Report.