Distinction between Companies Act 1956 and companies act 2013

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The distinction between Company Act 1956 and the company act 2013


The word company is an amalgamation of the Latin word ‘Com’ meaning with or together and ‘Pains’ means “bread”. A company is nothing but a group of persons who have come together or who have contributed money for some common person and who have incorporated themselves into a distinct legal entity in form of company for that purpose.
Indian company law is now regulated by the Companies act 2013 and it regulates the companies which are registered under the Companies act 2013.

Previously it was regulated by the Companies act 1956 and all the companies registered under the Companies act 1956 was taken into the account.


Companies Act .1956 VS Companies Act 2013.
A.) Preliminary provisions
1.) This act was enacted in 1956 by Parliament of India on 1st April 1956 and the Companies act 2013 was in year 2013 by Parliament of India on 1st April 2014.

2.) 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.

3.) Companies Act 2013 consider some definitions which the Companies act 1956 did not consider as of :
– Associate company
– Auditing standards
– Independent director
– Small company
– Promoter
– Related party

– Global Depository receipt
– Key managerial.

4.) Some of the existing definition in the Companies Act 1956 has been modified in the Companies Act 2013 as follows:

– Earlier excluded, Corporation sole has now been covered in definition of body of corporate.- The term “listed company” now includes all companies listed on stock exchange.- Subsidiary of a public co. shall be deemed to be a public co. even if it is a private co. by its Article.- The definition of Employee stock option now covers Directors, officers & employee of holding and subsidiary also.- The scope of “officer in default” has been widened to include registrar and merchant bankers related to the issues.- Only “April-March” to be considered as financial year (exception: Foreign holding/subsidiary subject to tribunal approval.)

B.) Incorporation and Matters incidental

1.) Changes towards Incorporation of entity:
– Companies Act 2013 introduced a new concept which was not there in Companies act 1956 that was “One person company”.

– No approval is now required for conversion of the Private company to one person company or vice versa.

– No approval is required for conversion of private company into public company.

2.) Provisions regarding matters of incidental corporation:

– MOA to carry the object only. Bifurcation of the object clause into main ancillary & and other object done away with.

– Even the private companies have to file the declarations for commencement of business.

– Subsidiary can hold shares in holding company as trustee, which was not allowed in Companies Act 1956.

– Penalizing Provisions
1.) ROC is empowered to strike off the name of a company incorporated with wrong of incorrect information.
2.) Person deliberately furnishing false/incorrect information at the time of incorporation shall be punishable for fraud under section 470 of Companies Act 2013.

C.) Prospectus and allotment of securities.
1.) Scope is widened to include all type of securities now than just shares.

2.) Specification for raising of funds by public company through:
– Private placement
– Rights/Bonus shares.

3.) 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.

4.) Private placement offers have several conditions as:
– Offer to section of public other than QIBs
-Not more than 50 number of people
-In compliance of prescribed terms and conditions.
-Made through private placement offer letter not through prospectus.

5.) Public placement offer should comply with the provisions of Companies Act 2013, Securities Contract Regulation Act 1956, SEBI Act 1992.

6.) Person responsible for fraudulently inducing others to invest money is now liable for stringent punishment under the section 470 of the act which shall be non-compoundable.

Application of Cancellation of Bailable Warrant Format

7.) Any person affected by misleading statement, any inclusion/omission of a matter in the prospectus can file suit/take an action:
-For civil liability for misstatement in prospectus
– For Punishment of Fraud.

8.) 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.

– Penalizing Provision
1- Persons authorizing the issue of the prospectus having misleading information shall also be criminally liable besides holding the civil liability.
2-Civil liability for misstatement in prospectus has been extended to experts also.

D.) Share capital and debentures.
1.) There has been various changes in regard with the share and securities in the Companies act 2013.

A.) General Changes.

– Coverage of all types of securities, Act Seeks to regulate all types of securities as opposed to the Equity and debentures only.
-There are some new variation in shareholders right now company can issue shares with differential right as to other things also in addition to voting and dividend right.

B.) Changes with respect to voting right.

-Equitable voting rights for equity and preference shareholders with respect to their paid up capital, for vote on resolution affecting rights of both categories.
-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.
– No classification between cumulative and non-cumulative preference share, for identification of voting right.

C.) Changes with respect to Issue of Shares.

– Private companies also to comply with the provisions of further issue of shares, which were applicable to public companies only.

D.) Issues on shares on discount

– No other shares except sweat equity share to be issued at discount.

E.) Prohibition on bonus issue if the company has defaulted in payment of:

-Interest/Principal in respect of fixed deposits or debt secured issued by it
-Statutory dues of employees such as contribution to provident fund, gratuity and bonus.

E.) Acceptance of Deposit.

1.) NBFC will be governed by the rules issued by the Reserve Bank of India Only.
2.) Deposit from persons other than members are not allowed.
3.) Shareholder’s approval required for accepting deposits from members.

F.) Charges.

1.) According to the Companies Act 2013 all type of charges to be registered as per the act:

-Whether created in or outside India:
I.) On property
II.) On Assets
III.) On any undertaking whether tangible or otherwise
IV.) Whether situated in or out of India.

G.) Management and meetings.

1.) Directors
A prescribed class of company will required to have:
-MD, CEO, Manager.
-Whole time manager in absence of the MD, CEO, Manager.
-Company secretary

2.) 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.

3.) Only prescribed number of person can pass a resolution for the removal of a director in the following cases:
– Company with capital share = members holding 1/10th of the voting power or members holding share valued to Rs.5 lakh aggregate or more, in other company it is 1/10th of the voting power.

4.) Duties of Directors
-Act in accordance to the AOA
-To act in good faith
-To exercise duty with due care and diligence.
-To not involve in acts where object of company in contradicting
-To do not achieve undue gains
-To not assign its office.

5.) Board meetings have some new provisions in the new act those are:
-Notice of meetings should be minimum 7 days prior and it should be given to all the all the directors whether or not in India, it can be sent through any means.
-Participation of Directors can be in person or by video conference.
-Number and timings of meetings should be at least 4 in a financial year though it is not necessary to be held quarterly, Time gap should not be more than 120 days between two meetings.

H.) Audit and Auditors.
1.) Listed and other prescribed companies shall not appoint or reappoint:
-An individual auditor for more than 1 term of 5 consecutive years
-An auditor firm for more than 2 term 5 consecutive years

There should be a gap of at least 5 years should elapse after the completion of the aforesaid term before the same auditor can be reappointed.

Difference between MRTP Act 1969 and Competition Act 2002

2.) Auditor shall not provide the following services whether directly/indirectly to company and its holding and subsidiary companies:
– Design and implementation of financial information system
-Accounting and book-keeping service.
-internal Audit
-Actuarial services
-Investment banking and advisory
-Management services.

I.) Payment of dividend.
1.) 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.

J.) Restructuring and revival.
1.) Reduction of capital
– No application to be sanctioned unless accounting treatment proposed by the company for such reduction is in conformity with the accounting standards.
– No reductions allowed if the company is in arrears for payment of deposits.

2.) Compromise or arrangement
-Notice of any meeting in this matter also to be given to central government, income tax authorities, RBI, SEBI and CCI.
– Calling of meeting of the members or creditors now mandatory (After consent received by postal ballot) for the approval of the compromise by persons representing at least 3/4th of the value of members of creditors.
-Abolition of Treasury stocks

3.) Fast track merger
-Short route is prescribed in the act
-Central government has power to approve the scheme.
-Cross mergers are allowed now.
-Prior approval of the RBI is required.

4.) Sick Company
– Applicability = any company can be declared as sick company and not necessarily and industrial unit.
– Criteria for application is that:

Criteria of 50% net worth erosion dispend with
A company unable to repay 50% or more of secured debts within 30 days of notice served by the creditors can be declared sick on the application moved by the:
– Company itself.
– The creditors.


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