As the word suggests, corporate laws are the laws that revolve around companies, whether private or public. As known, a company has to undergo many legal makeovers to be compliant or recognized by law. The list of corporate laws is not exhaustive. In this article, we have laid out major corporate laws that are mandatory for day to day functioning of a company.
Companies Act 2013
As we know the Companies Act 2013 is a legislation in India that governs everything that concerns a company from the incorporation to winding up, including registration and regulation of companies. It replaces the previous Companies Act of 1956 and consolidates various amendments made to the earlier act. The act aims to promote entrepreneurship, encourage investment, and balance stakeholders' interests, including shareholders, directors, creditors, and employees.
Key provisions of the act include:
- Definition of different types of companies, including Private Limited Companies, Public Limited Companies, Person Companies (OPC), Small Companies, and others.
- Requirements for the incorporation of a company such as a minimum number of directors, share capital, and other norms.
- Corporate governance standards such as rules for appointment and removal of directors, auditors, and other key personnel.
- Provisions for Corporate Social Responsibility (CSR) activities.
- Mechanisms for mergers, acquisitions, and takeovers of companies.
- Criminal and civil liabilities of directors, auditors, and other key personnel for various offenses.
The Companies Act specifically deals with the following provisions that concern private and public limited companies:
- Shareholder protection: The act provides various rights to shareholders, such as the right to participate in general meetings, the right to receive dividends, and the right to vote on important matters, such as the appointment of directors.
- Independent directors: The act requires certain categories of companies to have at least one independent director on their board to enhance the accountability and governance of companies.
- Board of directors: The act lays down the duties and responsibilities of directors, including the duty to act in good faith and in the company's best interests.
- Internal control systems: The act requires companies to establish internal control systems to ensure the accuracy and reliability of their financial statements and other records.
- Auditing: The act requires companies to appoint statutory auditors responsible for auditing the company's financial statements and reporting any irregularities to the central government.
- Securities and Exchange Board of India (SEBI): The act empowers SEBI to regulate the securities market and protect the interests of investors.
- Liquidation and winding-up: The act provides for the liquidation and winding-up of companies in a transparent and orderly manner.
- Tribunals: The act establishes various tribunals to resolve disputes between companies, shareholders, and other stakeholders.
These are some of the key provisions of the Companies Act 2013, which aims to promote corporate transparency and accountability and protect stakeholders' interests.
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Insolvency and Bankruptcy Code 2016:
The Insolvency and Bankruptcy Code, 2016, popularly known as IBC, is a legislation in India that provides a framework for resolving insolvencies and bankruptcies of companies in a time-bound manner. It replaces multiple laws that were previously in place for resolving insolvency and bankruptcy cases in India and aims to improve the ease of doing business in the country. Some of the key features of the IBC include:
- Time-bound resolution: The IBC provides a timeline of 180 days (extendable by 90 days) for resolving insolvency and bankruptcy cases, which is much shorter than the time taken under the previous laws.
- Insolvency professional: The IBC provides for the appointment of an insolvency professional who is responsible for managing the resolution process and overseeing the operations of the distressed company.
- Creditor-driven process: The IBC is a creditor-driven process, meaning that the resolution process is initiated by the creditors rather than the debtor. This aims to ensure that the interests of creditors are protected.
- Moratorium: The IBC provides for a moratorium during the resolution process, during which the creditors cannot take any action against the debtor or the distressed company's assets.
- Liquidation: If a resolution cannot be achieved, the IBC provides for the liquidation of the distressed company in a transparent and orderly manner.
- Priority of payments: The IBC provides for a priority of payments in case of liquidation, with operational creditors receiving priority over financial creditors.
Providing a time-bound, transparent, creditor-driven framework for resolving insolvency and bankruptcy cases in India is a significant advancement.
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Goods and Services Tax (GST) laws:
The most discussed law in the picture was the Goods and Services Tax (GST). It is a comprehensive indirect tax system in India that replaces multiple indirect taxes that the central and state governments previously levied. GST was introduced in 2017 and aimed to simplify the indirect tax system and improve the ease of business in India. Here are some of the key features of the GST laws:
- Comprehensive coverage: GST covers a wide range of goods and services, including inter-state and intra-state transactions.
- Multiple rates: GST is levied at multiple rates, including 0%, 5%, 12%, 18%, and 28%. Essential items are taxed at a lower rate, while luxury items are taxed at a higher rate.
- Input tax credit: GST allows for the credit of input taxes paid on the inputs used in producing goods or providing services. This reduces the cascading effect of taxes and simplifies the tax system.
- Electronic filing: GST requires the electronic filing of returns and payment of taxes, which helps reduce the compliance burden and improve the tax system's efficiency.
- Dispute resolution: The GST laws provide for a dispute resolution mechanism, including appellate tribunals and the National Anti-profiteering Authority, to resolve disputes arising from interpreting or applying the GST laws.
- Penalty and Interest: The GST laws impose penalties and interest in case of default or non-compliance, including the late filing of returns and the non-payment of taxes.
In addition to simplifying the indirect tax system and improving business ease in India, these features are some of the most important features of the GST laws.
Foreign Exchange Management Act (FEMA) 1999
The Foreign Exchange Management Act (FEMA) 1999 is a legislation in India that regulates foreign exchange transactions and management in the country. FEMA was enacted to replace the earlier Foreign Exchange Regulation Act (FERA) and aims to liberalize the foreign exchange regime in India. Some of the key features of FEMA include:
- Liberalization of foreign exchange transactions: FEMA liberalizes the foreign exchange regime in India and allows for greater flexibility in foreign exchange transactions.
- Regulation of capital flows: FEMA regulates the flow of capital into and out of India, including foreign direct investment, foreign portfolio investment, and remittances.
- Penalty for violation: FEMA provides for the imposition of penalties for violations of the act's provisions, including fines and imprisonment.
- Powers of the Reserve Bank of India (RBI): FEMA grants the Reserve Bank of India (RBI) the power to regulate and supervise foreign exchange transactions.
- Current account transactions: FEMA allows for greater flexibility in current account transactions, including trade-related transactions and remittances.
- Capital account transactions: FEMA regulates capital account transactions, including foreign direct investment, foreign portfolio investment, and remittances.
FEMA aims to provide a liberalized and simplified regime for foreign exchange management in India while ensuring that the government's regulatory objectives are met. It is an important legislation for businesses operating in India engaged in foreign trade and investment.
Labor Laws: Industrial Disputes Act 1947, Payment of Wages Act 1936:
Labor laws in India regulate various aspects of the employment relationship, including work conditions, wages, and resolving disputes between workers and employers. Some of the critical labor laws in India include:
- Industrial Disputes Act 1947: The Industrial Disputes Act governs the resolution of industrial disputes between workers and employers. The act provides for the appointment of conciliation officers and labor courts to resolve disputes and protects workers from unfair dismissal.
- Payment of Wages Act 1936: The Payment of Wages Act regulates the payment of wages to workers, including the time and manner of payment, and the deductions that can be made from wages.
- Minimum Wages Act 1948: The Minimum Wages Act sets minimum wages that must be paid to workers in various industries and provide for the revision of minimum wages periodically.
- Factories Act 1948: The Factories Act regulates the conditions of work in factories, including the hours of work, leave entitlements, and the health and safety of workers.
- Employees' Provident Fund and Miscellaneous Provisions Act 1952: The Employees' Provident Fund and Miscellaneous Provisions Act governs the provident fund scheme for workers, which provides retirement benefits to workers.
- Contract Labour (Regulation and Abolition) Act 1970: The Contract Labour (Regulation and Abolition) Act regulates the employment of contract labor and provides for the abolition of contract labor in certain circumstances.
These are some of the key labor laws in India, which aim to protect workers' rights and regulate the employment relationship in the country. These laws are essential for businesses operating in India, as they set the standards for employment conditions and the resolution of disputes.
Environmental Protection Laws: Water (Prevention and Control of Pollution) Act 1974 and Air (Prevention and Control of Pollution) Act 1981
Environmental protection laws in India aim to protect the environment and prevent pollution. Some of the key environmental protection laws in India include:
- Water (Prevention and Control of Pollution) Act 1974: The Water (Prevention and Control of Pollution) Act regulates the discharge of pollutants into water bodies and provides for the prevention and control of water pollution. The act requires industries and other polluting entities to obtain consent from the relevant authority before discharging pollutants into water bodies.
- Air (Prevention and Control of Pollution) Act 1981: The Air (Prevention and Control of Pollution) Act regulates the emission of pollutants into the air and provides for the prevention and control of air pollution. The act requires industries and other polluting entities to obtain consent from the relevant authority before emitting pollutants into the air.
- Forest (Conservation) Act 1980: The Forest (Conservation) Act regulates the diversion of forest land for non-forest purposes, including clearing forests for industrial and infrastructure development.
- Wildlife Protection Act 1972: The Wildlife Protection Act regulates the hunting, trade, and conservation of wildlife in India and protects threatened species of wildlife.
- National Green Tribunal: The National Green Tribunal is a specialized court established under the National Green Tribunal Act 2010 to hear and resolve environmental protection and conservation disputes.
These are some of India's key environmental protection laws, which aim to prevent pollution and protect the environment. These laws are important for businesses operating in India, as they set the standards for environmental protection and prescribe penalties for non-compliance.
Competition Act 2002:
The Competition Act 2002 is legislation in India that regulates anti-competitive practices and promotes competition in the country. The act aims to ensure that businesses compete fairly in the market and consumers have access to a broader choice of goods and services at competitive prices. Some of the key features of the Competition Act include the following:
- Prohibition of anti-competitive practices: The Competition Act prohibits anti-competitive practices such as abuse of dominant position, anti-competitive agreements, and anti-competitive mergers and acquisitions.
- Promotion of competition: The act aims to promote competition in the market by encouraging businesses to compete fairly and providing consumers with a wider choice of goods and services at competitive prices.
- Powers of the Competition Commission of India (CCI): The Competition Commission of India (CCI) is the regulator established under the Competition Act, with the powers to investigate, regulate, and enforce the provisions of the act.
- Penalties for violation: The act provides for the imposition of penalties for violations of the act's provisions, including fines and imprisonment.
- Merger control: The act requires businesses to notify the CCI of proposed mergers and acquisitions that meet certain thresholds. The CCI has the power to block such transactions if they are anti-competitive.
The Competition Act 2002 is an important legislation in India that regulates anti-competitive practices and promotes competition in the market. The act is relevant for businesses operating in India, as it sets the standards for fair competition and provides penalties for anti-competitive practices.
Limited Liability Partnership (LLP) Act 2008:
The Limited Liability Partnership (LLP) Act 2008 is legislation in India that provides for the incorporation and regulation of Limited Liability Partnerships (LLPs) in India. An LLP is a form of business structure that combines the features of a partnership and a private limited company. Some of the key features of the LLP Act include the following:
- Limited Liability: One of the key features of an LLP is that the liability of each partner is limited to the extent of their capital contribution to the LLP. This means that the partners' personal assets are not at risk in case of the LLP's liabilities.
- Separate Legal Entity: An LLP is a separate legal entity distinct from its partners. This means that the LLP can sue or be sued in its name, enter into contracts, and hold assets in its name.
- Partnership Structure: An LLP has a partnership structure, which means that the partners run it, and the profits are shared among the partners as agreed upon in the LLP agreement.
- Flexibility: LLPs are more flexible than private limited companies, as they have fewer compliance requirements and provide greater flexibility in the management and operation of the business.
- Regulatory Framework: The LLP Act provides a regulatory framework for the incorporation, operation, and regulation of LLPs in India. The act provides for filing annual returns, auditors' appointments, and other compliance requirements.
The Limited Liability Partnership (LLP) Act 2008 is an important legislation in India that provides for the incorporation and regulation of LLPs in India. The act is relevant for businesses considering incorporating an LLP in India, as it sets the legal and regulatory framework for the formation and operation of LLPs in the country.
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Takeover Code under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011
The Takeover Code under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011 is a regulation in India that governs takeovers and substantial acquisitions of companies listed on the stock exchanges in India. The Takeover Code is issued by the Securities and Exchange Board of India (SEBI) and sets out the rules and procedures for takeovers and substantial acquisitions of companies in India. Some of the key features of the Takeover Code include:
- Definition of Takeover: The Takeover Code defines a takeover as the acquisition of shares or voting rights in a company that results in a change in control of the company.
- Substantial Acquisition of Shares: The Takeover Code provides for the disclosure of substantial acquisitions of shares, defined as acquisitions that result in the acquisition of shares carrying more than 5% of the voting rights in a company.
- Open Offer: The Takeover Code requires the acquirer to make an open offer to the target company's shareholders in case of a takeover or substantial acquisition of shares. The open offer is an opportunity for the target company's shareholders to sell their shares to the acquirer at a fair price.
- Disclosure Requirements: The Takeover Code requires the acquirer to disclose information such as the details of the offer, the terms of the offer, and the reasons for the offer, among other things.
- Fair Treatment of Shareholders: The Takeover Code requires the acquirer to treat all target company shareholders fairly and equally and not discriminate against any shareholder in the offer.
The Takeover Code under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011 is an essential regulation in India that governs takeovers and substantial acquisitions of companies listed on the stock exchanges in India. The Takeover Code sets out the rules and procedures for takeovers and substantial acquisitions of companies. It provides for the protection of the interests of the shareholders of the target company.