The Companies Act 2013 is the central law that governs how companies are formed, run, audited, and closed in India, and its key provisions cover company structures, incorporation through the Ministry of Corporate Affairs, board composition, annual filings, statutory audits, mandatory corporate social responsibility spending, related party dealings, private placements, fraud liability, and dispute resolution before the National Company Law Tribunal. It replaced the Companies Act of 1956 and brought Indian corporate law closer to global governance standards, with stronger protections for minority shareholders, tighter accountability for directors, and a corporate social responsibility framework that was the first of its kind among major economies. It applies to every company incorporated in India, from a solo-owned One Person Company to a listed public corporation.
Company Structures the Act Recognizes
The structure you choose fixes your liability exposure, your membership limits, and how easily you can bring in outside capital later.
A One Person Company has a single member who is also the sole shareholder. It gives a solo entrepreneur a separate corporate identity with limited liability. The sole member must nominate another individual who would take over the membership on the member’s death or incapacity, so the business does not die with its owner.
A Private Limited Company needs at least two members and caps membership at 200, excluding current and former employees who hold shares. Its articles must restrict the transfer of shares and prohibit any public invitation to buy its securities. This is the most common form for closely held businesses.
A Public Limited Company needs at least seven members, has no upper cap, and does not restrict share transfers. Listed public companies carry additional obligations around independent directors, disclosure, and compliance with Securities and Exchange Board of India (SEBI) regulations.
A Small Company is any private company with paid-up share capital of ₹10 crore or less and turnover of ₹100 crore or less. This classification carries meaningful relief: simplified Board reports, fewer mandatory Board meetings, and exemption from certain audit requirements. Holding companies, subsidiaries, Section 8 not-for-profits, and companies governed by special Acts are excluded regardless of size.
How a Company Is Incorporated
Incorporation runs entirely through the Ministry of Corporate Affairs (MCA) digital portal. Every proposed director needs a Digital Signature Certificate (DSC) to sign electronic filings. The Director Identification Number (DIN), a unique eight-digit identifier that stays with a director for life, is assigned during incorporation itself rather than through a separate application.
Two constitutional documents anchor the filing. The Memorandum of Association states the company’s name, the state of its registered office, the objects for which it is being formed, the liability of its members, and its initial share capital. The Articles of Association set out the internal rules: Board meeting procedures, share transfer mechanics, dividend declarations, and the like.
Applicants also submit subscriber identity proof such as PAN cards or passports, proof of the registered office through utility bills or a lease, and declarations from directors that they carry no disqualifying convictions or fraud findings from the preceding five years.
Registration itself happens through the SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) web form. This single integrated form handles name reservation, incorporation, and several tax and labor registrations at once. Through real-time integration with other departments, it automatically triggers allotment of PAN and TAN from the Department of Revenue, plus registration with the Employees’ Provident Fund Organisation and the Employees’ State Insurance Corporation. When the Registrar of Companies approves the submission, the company receives its Certificate of Incorporation containing the Corporate Identity Number (CIN). Applicants track progress using the Service Request Number generated at filing.
Board Composition and Director Duties
Every company must have a Board of Directors, with at least one director who has been resident in India for 182 days or more during the financial year. Listed public companies must ensure at least one-third of the Board consists of independent directors, and certain prescribed classes of companies must appoint at least one woman director.
Key Managerial Personnel
Every listed company, and every public company with paid-up share capital of ₹10 crore or more, must appoint whole-time Key Managerial Personnel: the Managing Director or Chief Executive Officer, the Company Secretary, and the Chief Financial Officer. These individuals carry direct legal responsibility for statutory filings, internal governance, and the accuracy of the company’s regulatory submissions.
Who Cannot Serve as a Director
A person is disqualified if they are of unsound mind (as declared by a court), an undischarged insolvent, or have been convicted of any offence and sentenced to six months or more of imprisonment within the preceding five years. A conviction carrying seven years or more results in a permanent bar.
A separate and more common disqualification catches directors of companies that have failed to file financial statements or annual returns for three consecutive years, or that have defaulted for a year or more on repaying deposits, redeeming debentures, or paying declared dividends. Directors of such defaulting companies lose eligibility to serve on any board for five years from the date of default. This provision has affected thousands of directors in practice and is the single most frequent reason directors find themselves disqualified.
Annual Filing Deadlines That Matter Most
Missing filing deadlines is one of the costliest mistakes a company can make, and the penalties escalate by the day. Every company other than a One Person Company must hold an Annual General Meeting within six months of the close of each financial year (which ends March 31 for most companies), with no more than fifteen months between consecutive AGMs.
After the AGM, two critical filings must go to the Registrar:
- Financial statements on Form AOC-4, within 30 days of the AGM. Late filing attracts an additional fee of ₹100 per day of delay.
- Annual return on Form MGT-7, within 60 days of the AGM. The same ₹100-per-day late fee applies. Even if the company skips the AGM entirely, the annual return remains mandatory, with the deadline calculated from the date the AGM should have been held.
The daily penalty is only the immediate cost. Three consecutive years of non-filing triggers the director disqualification described above, sweeping in every person who served on the board during those years.
Audit Requirements
Every company must maintain books of accounts at its registered office. Financial statements are prepared annually, adopted at the AGM, and filed with the Registrar. The National Financial Reporting Authority, established under Section 132, oversees audit quality and enforces accounting and auditing standards.
Auditor Rotation
Listed companies and prescribed classes of large unlisted companies must rotate their auditors. An individual auditor can serve a maximum of one five-year term, then becomes ineligible for reappointment at the same company for another five years. An audit firm can serve two consecutive five-year terms, followed by a five-year cooling-off period. The rule exists to prevent long-standing relationships from eroding audit independence.
Secretarial Audit
Beyond the financial audit, every listed company must obtain a secretarial audit report from a practicing Company Secretary. The requirement also catches public companies with paid-up share capital of ₹50 crore or more, public companies with turnover of ₹250 crore or more, and any company with outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more. The secretarial audit examines compliance with the Companies Act, SEBI regulations, and other applicable laws. The Board must explain any qualifications or adverse observations in its response.
Corporate Social Responsibility Spending
India’s mandatory CSR framework requires qualifying companies to direct a portion of their profits toward social and environmental causes. A company falls under the mandate if, during the immediately preceding financial year, it had a net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more. Qualifying companies must form a CSR Committee of at least three directors, including one independent director, to develop and oversee the CSR policy.
How Much and Where It Goes
The Board must ensure the company spends at least 2% of its average net profits from the three preceding financial years on CSR activities. If the full amount is not spent because of an ongoing project, the unspent balance must be transferred within 30 days of the financial year’s end to a special Unspent Corporate Social Responsibility Account at a scheduled bank. The company then has three financial years to use those funds. Any amount still unspent after that window must be transferred to a government fund specified in Schedule VII.
Schedule VII lists the eligible activity categories: eradicating hunger and poverty, promoting education and vocational skills, promoting gender equality, ensuring environmental sustainability, protecting national heritage and art, supporting armed forces veterans and their dependents, promoting rural and Olympic sports, contributing to government relief funds, funding scientific research aimed at sustainable development goals, rural development, slum area development, and disaster management including relief and reconstruction.
Penalties for CSR Default
The Companies (Amendment) Act of 2020 replaced earlier criminal penalties for CSR violations with a monetary penalty structure. A company that defaults on its CSR spending or transfer obligations faces a penalty of twice the amount it was required to transfer, or ₹1 crore, whichever is less. Each defaulting officer faces a penalty of one-tenth of the required transfer amount, or ₹2 lakh, whichever is less. Imprisonment is no longer on the table for CSR defaults, though the financial exposure is significant enough to make compliance the cheaper option.
Related Party Transactions
Transactions between a company and its directors, their relatives, or entities in which directors hold significant interest require Board approval by resolution at a Board meeting. Covered transactions include buying or selling goods, leasing property, receiving or providing services, and appointing related parties to positions of profit. Transactions above prescribed thresholds additionally require shareholder approval through a special resolution, with the interested related party barred from voting. An exception applies for arm’s-length transactions entered into during the ordinary course of business.
Raising Money Through Private Placement
Companies that want to raise funds without a public offering can issue securities through a private placement, but the Act polices the boundary carefully so that a public offer cannot be dressed up as a private one.
A private placement can only be made to a select group of persons identified by the Board, and the total number of offerees cannot exceed 200 in a financial year, calculated separately for each type of security. Offers to qualified institutional buyers and to employees under stock option schemes do not count toward this cap. The company must pass a special resolution for each offer, issue a specifically addressed and serially numbered offer letter on Form PAS-4 to each identified person, and file a return of allotment with the Registrar within 15 days of allotment.
Breach the 200-person limit or the procedural requirements and the offer is automatically treated as a public offer, triggering the far heavier disclosure and regulatory obligations under the SEBI Act. The company, its promoters, and its directors also face a penalty of up to the amount raised or ₹2 crore, whichever is lower.
Fraud Liability Under Section 447
Section 447 defines fraud broadly as any act, omission, concealment, or abuse of position committed with intent to deceive or to gain an undue advantage at the expense of the company, its shareholders, or its creditors. Fraud involving ₹10 lakh or more, or 1% of the company’s turnover (whichever is lower), carries imprisonment of six months to ten years plus a fine equal to the fraud amount and up to three times that amount. Where the fraud involves public interest, the minimum imprisonment jumps to three years.
Smaller-scale fraud below the ₹10 lakh threshold, and not involving public interest, carries up to five years of imprisonment, a fine of up to ₹20 lakh, or both. The penalties apply to any person found guilty, not just directors and officers, so auditors, advisors, and third parties who participate in fraudulent conduct face personal criminal liability.
National Company Law Tribunal and Class Actions
The Act established the National Company Law Tribunal (NCLT) as the primary adjudicatory body for corporate disputes. It handles matters ranging from oppression and mismanagement petitions to mergers, demergers, and winding up. Appeals go to the National Company Law Appellate Tribunal (NCLAT).
Section 245 gives shareholders and depositors the right to bring class action applications before the NCLT when they believe the company’s affairs are being conducted in a way that harms their interests. A class action can seek to restrain the company from acting beyond its memorandum or articles, declare resolutions void if passed through suppression of material facts, or claim damages from directors, auditors, or professional advisors for fraudulent or unlawful conduct. For a company with share capital, the application requires at least 100 members or the prescribed percentage of total members, whichever is less. For a company without share capital, at least one-fifth of the total members must join.
Dormant Status and Voluntary Closure
Not every company stays active, and the Act provides two paths for those that have gone quiet or want to wind down.
A company formed to hold an asset or intellectual property, or one that has simply stopped doing business, can apply to the Registrar for dormant status. An “inactive company” is one that has made no significant accounting transactions and has not carried on any business during the last two financial years. Routine payments like Registrar fees, statutory compliance costs, and office maintenance do not count as significant transactions. A dormant company must still maintain a minimum number of directors, file prescribed documents, and pay an annual fee to keep its dormant registration alive. It can return to active status at any time by filing the required documents and paying the applicable fee. Failure to meet even the reduced dormant requirements will prompt the Registrar to strike its name from the register.
Companies that want to close permanently can apply for voluntary strike-off through Form STK-2, which removes the company from the register entirely. The company must have settled all liabilities and obtained consent from its members. The Registrar may also initiate strike-off against companies that have been inactive without filing returns, even without a voluntary application. Directors of struck-off companies may apply to the NCLT for revival if the strike-off was improper or if grounds exist to restore the company to the register.