Incorporation of companies

Growth of business and rapid industrialization in early 19th century witnessed considerable changes in types of business organizations. Proprietary organization though an ideal type of organization for a small call business or for an enterprise which has grown from bits had its own limitations. It could not suit large type of organizations and meet growing needs of expanding business. Partnerships of organization, where two or more persons join hands and pool their resources both in form of labor and capital is in a way suited to the requirements of the business. But a partnership type of organization has the greatest disadvantage if unlimited liability of the partners.

Business continued to expand and capital to an limited extent was required. Unlimited liability of partners scared away the capital. Introduction of corporate sector proved a boom to society, especially to the business organization.

Company legislation in India owes its origin to English Company Law; First law regulating companies took its birth in 1850, as joint stock companies’ act. However, it was only in 1857 followed by the English Companies act, 1856 that the Joint Stock companies act, for the first time introduced the principle of limited liability. Principle of limited liability was extended to banking companies by Joint Stock companies Act 1860.

With the introduction of limited liability, corporate sector achieved more and more importance. The working of the Act revealed several loopholes following English Companies (Consolidation) Act of 1908 Indian companies Act, 1913 was passed. Even the act of1913 proved inadequate and therefore 1913 act was amended several times. World War II witnessed many changes in the organization and management of Joint stock companies. Government of India, therefore appointed a committee under the chairmanships of Mr HL Bhabha on 25-10-1950 of 12 members representing various interests. Committee submitted is report in April 1952. Based o this report present Companies act, 1956 was enacted on the lines of English companies act, 1948 Companies act, 1956 regulates entire organization and management of the companies in India. It came into force on and from 1st April 1956. However, the present act of 1956 was neither free from loopholes. This necessitated vast amendments by Amendment Act, 1960. Further amendments followed since 1962 and then by companies (amendment) act, 1956 with effect from 01.03.1997. As a result of introduction of Depositories Act, 1996 and amendment thereto by Amendment Act, 1997 consequential changes and amendments have been made in the companies act, 1956. By the Companies (Amendment) Act 1999, several provisions of the companies act, 1956 have been either amended or introduced like, provisions relating to company deposits, application for premiums received on issue of shares, power to issue redeemable preference shares, nature of shares unpaid dividend to be the transferred special dividend account, payments of unpaid dividend form and contents of balance sheet and Profit and loss account Boards report powers and duties of Auditors loans etc. to companies under the same management purchase by company of shares etc of other company power of company to purchase its own shares transfer of certain sum to capital redemption reserve account, prohibition of buy back in certain circumstances issues of sweat equity, nomination of shares, transmission of shares, establishment of investor education and protection fund, constitution of National Advisory Committee and accounting standards inter corporate loans and investments.

By companies (Amendment) Act 2000 SEBI is entrusted with powers to administer in case of listed public companies and also those companies which are likely to be listed on all matters relating to public issues and transfers including the power to prosecute defaulting companies and their directors. Strict penal provisions by increasing fines, penalties and prosecutions are introduced in an attempt at protecting investor interests and enhancing the level of good corporate practices. Provisions relating to managing agents, secretaries and treasures re deleted. Other important changes relate to payment of dividend and interim dividend, minimum paid up capital company deposits end of deemed public company; postal ballot, change of registered office directors accountability boards report protection of small shareholders role of SEBI good corporate governance and audit committee. These amendments have introduced comprehensive changes both as regards external and internal regulation of companies and in the system of company jurisprudence. The Companies (Amendment) Act, 2000 has come into effect from 13.12.2000.