Indian company law

Incorporation

Incorporating a company in India requires preparation of several documents. Requirements vary based on type of company. Historically, there have been various types of corporations incorporated under different regulations:

• Companies incorporated under royal charter, a practice employed by the British government. For example, the British East India Company came under a royal charter, which means it was granted a charter by the King or the Queen of Britain, and was controlled by the charter. This type of incorporation is no longer performed.
• Companies incorporated by special legislature, such as the Indian Parliament or a state legislature. Examples of this include the Reserve Bank of India or State Bank of India.
• Companies incorporated under the Indian Companies Act, 1956, which come under the memorandum of association and articles of association.

Modern companies, however, fall into the following categories.

• Sole proprietorship: also known as a trader firm or proprietorship exclusively owned by one person, a sole proprietor may use a trading name or business name other than his or her name.
• Unregistered: some business activities do not require formal incorporation, and registration is not compulsory; this is sometimes an appealing option due to the ease of setting up operations and lack of required compliance activities. However, the main disadvantage is unlimited liability.
• Partnership: liability is joint and unlimited.
  • Active partners take part in day-to-day operations of the business, in addition to investing in it; they are entitled to a share of profits.
  • Sleeping partners invest in the business and are entitled to a share of its profits, but do not participate in day-to-day operations.
• Limited Liability Partnership: a partnership in which the partners' liability is limited.
• Hindu Undivided Family (HUF): businesses owned by a joint family. While this conventionally involves Hindu families, Jain and Sikh families (while not governed by the Hindu law) can still form a HUF.
• Cooperative
• consortium
• Joint venture
• nidhi company
• Family Owned Business
• private held company
• startup company
• Dormant company: a company created either for use in a future project or for holding assets (including intellectual property).
• Private limited company: a company that may have 2–200 shareholders, whose shares are held privately and cannot be offered to the public.
• Small Company: a non-public company whose paid-up capital does not exceed ₹5,000,000 (50 lakh), and whose turnover does not exceed ₹10,000,000 (one crore).
• Public Limited Company: a category analogous to the category of the same name in other systems of corporate law.
• Public Sector Undertaking (PSU): alternatively known as a Public Sector Enterprise (PSE). A PSU may be a public limited company (listed on stock exchanges) or unlisted entity, with majority ownership by a government body. Some of these entities are formed as business entities through special legislation, where these entities are governed by the statutes of these legislation and may or may not be governed by company laws like a typical business entity.
• Unlimited Company - A company, similar to its limited counterpart, but where the liability of the members or shareholders is not limited.

Corporate governance

Section 149 of the Companies Act, 2013 mandates that every company shall have a board of directors.

The provisions of the Companies Act, 2013 (section 169) establish that any company director may be removed by the general meeting with a simple majority vote, after giving "special notice" of 28 days. In companies which elect the board by proportional representation according to section 163, there is an exception, so that directors appointed by one particular group of members cannot be ousted by the majority. Those directors can only be removed by the members that appointed them, so as to protect the system of proportional voting.

Employee rights

It was the view of many in the Indian Independence Movement, including Mahatma Gandhi, that workers had as much of a right to participate in management of firms as shareholders or other property owners. Article 43A of the Constitution, established by the Forty-second Amendment of the Constitution of India in 1976, created a right to codetermination, requiring legislation to "secure the participation of workers in the management of undertakings". However, like other rights in Part IV, this article is not directly enforceable; it instead creates a duty upon state organs to implement its principles through legislation (and potentially through court cases). In 1978, the Sachar Report recommended legislation for inclusion of workers on boards; however, this has not yet been implemented.

The Industrial Disputes Act 1947 (section 3) created a right of participation in joint work councils to "provide measures for securing amity and good relations between the employer and workmen and, to that end to comment upon matters of their common interest or concern and endeavour to compose any material difference of opinion in respect of such matters". However, trade unions had not taken up these options on a large scale. In National Textile Workers Union v Ramakrishnan the Supreme Court (with Bhagwati J giving the leading judgment) held that employees had a right to be heard in a winding-up petition of a company, because their interests were directly affected, and their standing was not excluded by the wording of section 398 of the Companies Act, 1956.

• Excel Wearv. Union of India A.I.R. 1979 S.C. 25, 36

Directors' duties

Directors owe a range of duties to the company, which primarily involve acting within its constitution, avoiding conflicts of interest, and performing their role to a desired standard of competence. The Companies Act 2013 (section 166) lists directors' duties, which reflect existing principles developed by case law in most Commonwealth countries, in common law and equity. Part of the reason for codification of directors' duties was to provide a transparent statement of the duties directors owe, thereby publicizing principles of best practice.

Corporate social responsibility

In a new with the Companies Act 2013, section 135 requires companies to spend 2% of their net profit on socially responsible projects, if they have a net worth of over ₹5,000,000,000 (500 crore), or a turnover of over ₹10,000,000,000 (1000 crore), or a net profit over ₹50,000,000 (5 crore). Socially responsible projects are defined in Schedule VIII, and mainly involve community development.

Enforcement

• National Company Law Tribunal, replacing the previous Company Law Board and Board for Industrial and Financial Reconstruction.
• Indian Corporate Law Service