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Regulatory Requirements:
Companies Act
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In India, the Companies Act, 1956, is the most important piece of legislation that empowers the Central Government to regulate the formation, financing, functioning and winding up of companies. The Act contains the mechanism regarding organisational, financial, managerial and all the relevant aspects of a company. It empowers the Central Government to inspect the books of accounts of a company, to direct special audit, to order investigation into the affairs of a company and to launch prosecution for violation of the Act. These inspections are designed to find out whether the companies conduct their affairs in accordance with the provisions of the Act, whether any unfair practices prejudicial to the public interest are being resorted to by any company or a group of companies and to examine whether there is any mismanagement which may adversely affect any interest of the shareholders, creditors, employees and others. If an inspection discloses a prima facie case of fraud or cheating, action is initiated under provisions of the Companies Act or the same is referred to the Central Bureau of Investigation.

The Companies Act is administered by the Central Government through the Ministry of Corporate Affairs and the Offices of Registrar of Companies,Official Liquidators, Public Trustee, Company Law Board, Director of Inspection, etc. The Registrar of Companies (ROC) controls the task of incorporation of new companies and the administration of running companies.

Under the Companies Act, 1956, the term 'company' means " a company formed and registered under the Act or an existing company i.e. a company formed or registered under any of the previous company laws". The basic objectives underlying the law are :

  • A minimum standard of good behaviour and business honesty in company promotion and management.

  • Due recognition of the legitimate interest of shareholders and creditors and of the duty of managements not to prejudice to jeopardise those interests.

  • Provision for greater and effective control over and voice in the management for shareholders.

  • A fair and true disclosure of the affairs of companies in their annual published balance sheet and profit and loss accounts.

  • Proper standard of accounting and auditing.

  • Recognition of the rights of shareholders to receive reasonable information and facilities for exercising an intelligent judgement with reference to the management.

  • A ceiling on the share of profits payable to managements as remuneration for services rendered.

  • A check on their transactions where there was a possibility of conflict of duty and interest.

  • A provision for investigation into the affairs of any company managed in a manner oppressive to minority of the shareholders or prejudicial to the interest of the company as a whole.

  • Enforcement of the performance of their duties by those engaged in the management of public companies or of private companies which are subsidiaries of public companies by providing sanctions in the case of breach and subjecting the latter also to the more restrictive provisions of law applicable to public companies.

The Companies Act, 1956 has been amended from time to time in response to the changing business environment. These amendments include:-

For more details visit our Section on "Legal Aspects"

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