Key Sections of the Companies Act, 2013 - Practical Insights

 

📜 Key Sections of the Companies Act, 2013 - Practical Insights

1. Section 149 - Board of Directors

• Key Point: Companies must have a minimum number of directors (3 for public companies, 2 for private companies).

• Compliance Tip: Ensure that your company’s board is diverse, with a required number of independent directors as per the regulations (minimum 1/3 for public companies).

• Independent Directors: Particularly important for large or listed companies to bring in impartial judgment on strategic matters.

2. Section 134 - Director’s Report

• Key Point: The Director’s Report is an essential document, containing a summary of the company’s performance, governance, financial statements, and disclosures like CSR activities.

• Compliance Tip: Directors must ensure that all material facts are disclosed, including any disputes, fraud, or other significant developments. This can help in ensuring accountability.

• Significance: The report must be signed by the Chairman and the CEO/CFO, ensuring that all directors are accountable for the contents.

3. Section 177 - Audit Committee

• Key Point: This section requires listed companies and certain public companies to establish an Audit Committee.

• Compliance Tip: The Audit Committee should comprise only non-executive directors, and the majority must be independent. Its role includes overseeing financial reporting, ensuring the accuracy of financial statements, and reviewing internal control systems.

• Significance: Regular meetings and reports from the Audit Committee are crucial for transparency and corporate governance.

4. Section 185 - Loans to Directors

• Key Point: Prohibits companies from providing loans or guarantees to directors or their relatives, except in certain circumstances.

• Compliance Tip: Ensure that any loans or advances to directors are made in accordance with the rules and receive approval from the Board of Directors.

• Significance: Prevents conflict of interest and ensures that the company’s resources are not misused for personal benefit.

5. Section 135 - Corporate Social Responsibility (CSR)

• Key Point: Companies meeting certain thresholds (net worth ₹500 crore, turnover ₹1000 crore, net profit ₹5 crore) must spend 2% of their average net profit over the last three years on CSR activities.

• Compliance Tip: Ensure that the CSR committee is formed, a CSR policy is in place, and the activities are aligned with the objectives of the policy. Submit annual reports on CSR activities.

• Significance: CSR compliance ensures that companies contribute to social causes, enhancing their image and complying with legal obligations.