Companies Act – Definition, Distinctions, Features, Acts


The Companies Act 1956 was an Act of the Parliament of India, enacted in 1956, which enabled companies to be formed by registration, and set out the responsibilities of companies, their directors , and secretaries.

The Companies Act 2013 is an Act of the Parliament of India on Indian company law that regulates the incorporation of a company, responsibilities of a company, directors, dissolution of a company.

Companies Act 2013

The 2013 Act is divided into 29 chapters containing 470 sections as against 658 Sections in the Companies Act, 1956 and has 7 schedules. However, currently there are only 484 (470-43+57) sections in this Act. The Act has replaced The Companies Act, 1956 (in a partial manner) after receiving the assent of the President of India on 29 August 2013.

Distinction between Companies Act 1956 & 2013

Some of the differences between the two Acts are as follows:

  1. Companies Act 1956 was separated into 13 parts having 658 sections, along with 15 schedules where as Companies Act 2013 has been divided into 29 chapters along with 470 sections and 7 schedules.
  2. No approval is now required for conversion of the Private company to one person company or vice versa.
  3. No approval is required for conversion of private company into public company.
  4. Now company after varying the terms of contract or objects mentioned in the prospectus cannot use amount raised by it through prospectus for buying/trading/otherwise dealing in equity shares of other company.
  5. In Companies Act 1956, only public financial institution, public sector banks or scheduled bank with main object of financing were allowed to issue there shelf prospectus but now Companies Act 2013 provides that the government shall prescribe the types of companies that can issue shelf prospectus.
  6. Private companies also to comply with the provisions of further issue of shares, which were applicable to public companies only.
  7. Maximum number of Directors will be 15 on board, earlier it was 12, if more than 15 is required there should be special resolution passed by the approval of shareholders.
  8. No dividend shall be declared or paid by a company from its reserves other than free reserves it was a major change done in the Companies Act 2013.
  9. Preference shareholders allowed to vote on every resolution placed before shareholders meeting, if dividend payable to any class of preference shareholders in arrears for more than 2 years.
  10. Public placement offer should comply with the provisions of Companies Act 2013, Securities Contract Regulation Act 1956, SEBI Act 1992.
  11. Person deliberately furnishing false/incorrect information at the time of incorporation shall be punishable for fraud under section 470 of Companies Act 2013.
  12. The scope of “officer in default” has been widened to include registrar and merchant bankers related to the issues.
  13.  Only “April-March” to be considered as financial year (exception: Foreign holding/subsidiary subject to tribunal approval.)


There are many definitions of a Company by various legal experts. However, Section 2(20) of the Companies Act, 2013, defines the term ‘Company’ as follows: “Company means a company incorporated under this Act or under any previous company law.”


Some of the features of a Company are:

1. Creation of law: A company is an association of persons who have agreed to form the company and become its members or shareholders with the object of carrying on a lawful business for profit. It comes into existence when it is registered under the Companies Act.
2. Separate legal entity: In the eyes of law, a company formed and registered under the Companies Act has a distinct legal entity. After registration, the company is treated as an artificial person because in reality such, natural person exists. It is invisible, intangible and without any physical or natural existence. Although a company is a legal person having a nationality and domicile, it is not a citizen. The legal status of a company has been aptly described by the Supreme court of India in Tata Engineering & Locomotive Co. Ltd v. State of Bihar.
3.  Limited Liability: A major advantage enjoyed by a company is that the liability of its members is limited. You will later on study that on the basis of lability, companies may be classified as (i) Companies limited by shares; and (ii) Companies limited by guarantee. In the case of former the liability of every member of the company is limited to the amount of shares subscribed by him. If the member has paid full amount of the face value of the shares subscribed by him, his liability shall be nil and he cannot be asked to-contribute anything more. Similarly, in the case of a company limited by guarantee, the liability of the members is limited upto the amount guaranteed by a member.
4. Perpetual Succession: The term perpetual succession means the continued existence. The existence of the company is not affected by reasons such as the insolvency, death, unsoundness of mind of its members. The company has a perpetual succession. Members may come and members may go but the company goes on. Even if all the members of a company die, the legal existence of the company will not come to an end. Cower puts it very interestingly when he says that even a hydrogen bomb cannot destroy a company. But this does not mean that it cannot come to an end
Company and its Formation can never come to an end. It can also be brought to an end by the process of law.
5. Transferability of shares: The shares of a public limited company are freely transferable. A shareholder can transfer his shares to any person without the consent of other members. Under the articles of association, even a public limited company can put certain restrictions on the transfer of shares but it cannot altogether stop it. A shareholder of a public limited company possessing fully paid up shares is at liberty to transfer his shares to anyone he likes in accordance with the manner provided for in the articles of association of the company. However, a private limited company is required to put certain restrictions on transferability of its shares.
6 Common seal: In view of the fact that a company is an artificial person and cannot sign its name on a contract, every company is required to have its own seal. The common seal of the company is of great importance. It acts as the official signature of the company. A metallic seal should be used. Every company must have a common seal with its name engraved on the same. The seal acts as a substitute for the signature of the company. Any document which does not bear the common seal of the company is not binding on the company.
7. May sue or be sued: As juristic person, company can sue and be sued in its own name. This is so because a company has a separate legal existence. A company may enter into contracts and can enforce the contractual rights against others and it can be sued by others if it commits a breach of contract.


One-Person Company

A company in which a single individual holds the whole, or virtually the whole, of the ‘ share capital is termed as ‘one-man company’. Though there may be other members also, but these members are usually his relatives, friends or nominees. This . dominating person is usually the managing director of the company and has full control over the company.

This is a means to enjoy the benefits of the corporate status and limited liability of the company. Although only one person runs the entire show in such a company, yet such type of companies are legal. The formation of one-man companies has certainly been to the disadvantage of creditors because they cannot proceed against the actual proprietor, Saloman’s case propounded the concept of ‘one-man company’.

Companies Act 1956

It explains about the whole procedure of the how to form a company, its fees procedure, name, constitution, its members, and the motive behind the company, its share capital, about its general board meetings, management and administration of the company including an important part which is the directors as they are the decision makers and they take all the important decisions for the company their main responsibility and liabilities about the company matter the most. The Act explains about the winding of the business as well and what happens in detail during liquidation period.

The Companies Act 2013

It is the law covering incorporation, dissolution and the running of companies in India. The Act came into force across India on 12th September 2013 and has a few amendments to the previous act of 1956. It has also introduced new concepts like a One Person Company.