A Primer on Key Indian Business Laws
by Kunwar Surya Pratap
Posted on Wed, 23 September, 2020, 03:59 PM IST
Business laws or commercial laws are better referred to as the set of rules and legislations, global or local, that govern worldwide commerce in all possible ways. It governs the day-to-day business dealings along with the conduct of people associated with it. Such commercial laws have always proved to be one of the supporting pillars of the entrepreneurial dynamic global economy that we live in. India majorly follows the common law system and has a written constitution of its own. Also, owing to several changes in the economic infrastructure of the country in the past few decades, numerous commercial legislations and statutes have been put into place for effective governance of the businesses. However, for maintaining the brevity of this article, we would only discuss some of the crucial regulatory laws of India namely:
- Company Laws
- Securities and Exchange Board of India
The Companies Act, 2013 is forward-looking legislation focusing primarily on good governance practices. Its advent in the Indian legal system raised the bar of corporate governance. The statute functions on a disclosure-based regulation i.e. where the regulators are concerned with the accuracy of the disclosures made by the company management to the investors. This puts the investors in a position where they ought to assume full responsibility of their informed decisions. This also makes it more of ‘self-regulated’ than ‘regulated’.
This is the set of laws that stays with your company right from the incubation during the registration of the company’s separate legal identity until its meltdown during the procedure of winding up. All of it is done in accordance with the procedures prescribed in the Companies Act 2013, the rules thereof and some other laws. Therefore the legislations that can be said to form part of the company laws in our country are:
- Companies Act, 2013
- Societies Registration Act, 1860
- The Indian Partnership Act, 1932
- The Limited Liability Partnership Act, 2008
The aforementioned regulations as a whole ensure a fair corporate environment among the businesses and endeavors to deters all kinds of malpractices. Since, the incorporation of companies in India is done through the Companies Act, 2013, it continues to top the list in terms of relevance in most facts and circumstances.
Company – What is it?
Did you know that since historical times, the merchants have been taking advantage of festive gatherings to discuss matters of business. And actually that’s how the word ‘company’ was coined from the Latin roots com i.e. to come together and panis i.e. bread. That aside, a company is said to be a body corporate with a legal personality separate from the people constituting it or ‘a separate legal entity’. However, the ‘legal personality’ of a company shall not be confused with ‘citizen’ as they are radically different. While the former is regarded as a ‘juristic person’ under law, the latter status can only be conferred on a ‘natural person’. A ‘juristic person’ as opposed to a ‘natural person’ i.e. a human being, is an entity whom the law vests with personality such a company, river Ganga, etc. The Companies Act, 2013 in Section 2(20) says that a “company” means a company incorporated under this Act or any previous company law.
Company – Why is it?
It is pertinent to understand some essential attributes of the company so as to gauge its benefits. While there are multiple characteristics of a company that merit discussion, the cardinal ones have been given prime regard in the following section:
- Independent corporate personality distinct from its members making it a legal person under the commercial laws of India.
- The property of a company is vested in it and the company has the ability to hold and enjoy it in its own name.
- Limited liability of the members associated with the company for the business debts arising in the course of the company’s business subject to requisite exceptions under the law.
- A perpetual succession of the members keeps a company going endlessly unless it is wound up by law. A company is said to have its life with its Memorandum of Association.
- Capacity to sue, seek damages, and be sued in its own name owing to the separate identity under the law.
- Transferability of the shares of a company analogous to any other movable property except under circumstances prohibited by law.
- Legal access to the money market for the formation of its shares and loan capital as per law.
For information on registration and incorporation, please follow the link here. (*would take the reader to a different article on incorporation and registration*)
Securities and Exchange Board of India
As we discussed the legal ticket of the companies to the money market, the ride and stay cannot be left unmonitored. Well…there comes another watchdog body corporate with the name that is not unheard of, Securities and Exchange Board of India (SEBI). While the market has a lot to offer both to the investors and the investees, the confidence of the player is eroded on the occasion of abuse. With the quantum of money being floated therein, huge manipulations or wrongful advantages may take place. Therefore, the market is packed with the rules and regulations emanating out of the SEBI Act, 1992 so as to meet the needs of the investors, investees, and the intermediaries and offer an amenable working environment to them.
The functions of SEBI can be condensed into two factions which are described hereinbelow:
- Regulatory Functions: It includes the regulatory obligation of the Board towards all the stock exchanges and any other securities market. In addition to that, it shall also look over the working of the intermediaries, venture capital funds including mutual funds. It ought to prohibit insider trading in securities and all fraudulent and unfair trade practices relating to the securities market. In addition to that, the regulatory role also extends to the substantial acquisition of shares and take-over of companies.
- Developmental Functions: These include the duties of the Board to promote investor’s education, train the intermediaries, conduct research, and publish information useful to stakeholders, promote fair practices, and self-regulatory organizations.
Furthermore, if any listed public company intends to get its securities listed on any recognized stock exchange, the Board has the requisite authority to take measures towards inspection of its books, register, records, or any documents where the Board has cited a reasonable belief that the said company has indulged itself in insider trading or fraudulent trade practices relating to the securities market. Thus, there are three sets of functions rolled into one body corporate: quasi-legislative, quasi-judicial, and quasi-executive. All these roles discussed hereinabove with respect to the SEBI are inclusive and not exhaustive in any manner.
A detailed deliberation of the contents discussed herein was not practicable for the purposes of this article. However, you may always raise your general/specific query through our simple form and get an expert and reliable assistance on the matter within a short span of time. We at Caim Consulting are always glad to serve you with meaningful and relevant information on your business!