The Companies Act 2013 is the primary law that governs how companies are formed, managed, and regulated in India. For CMA students, this Act is very important because a significant portion of questions in CMA Paper 5 are based on it. It covers topics like company formation, types of companies, responsibilities of directors and key managerial personnel, financial reporting, corporate governance, and shareholders’ rights (voting, dividends, inspection, and minority protections).
Understanding this Act helps students not only for exams but also for practical corporate work such as auditing, financial control, and advisory roles. In this guide, we have simplified all the important sections into easy study notes that CMA students can read and revise efficiently.
What is the Companies Act 2013?
The Companies Act 2013 replaced the older Companies Act of 1956 to bring Indian corporate law up to date with modern business requirements. The law sets clear rules for how companies should operate, how directors and officers should behave, and how financial statements should be reported and audited.
Main objectives:
- Transparency and accountability
- Protection of stakeholders (shareholders, creditors, employees)
- Standardisation of financial reporting
- Strengthening corporate governance
Key Features of Companies Act 2013
- Introduction of One Person Company (OPC)
- Recognition of Section 8 (non-profit) companies
- Mandatory Corporate Social Responsibility (CSR)
- Clearly defined duties of directors (Section 166)
- Strengthened audit and internal control systems
- Improved corporate governance framework
CSR Applicability (Section 135):
CSR provisions apply if a company meets any one of the following in the previous financial year:
- Net worth ≥ ₹500 Crore OR
- Turnover ≥ ₹1000 Crore OR
- Net profit ≥ ₹5 Crore
Important :
- If the amount to be spent on CSR in a financial year does not exceed ₹50 Lakh, the constitution of a CSR Committee is not mandatory; the Board of Directors can discharge its functions.
- CSR spend = 2% of average net profits of the last 3 financial years (Schedule VII activities
Difference Between Companies Act 1956 and 2013
| Feature | 1956 | 2013 |
|---|---|---|
| Audit requirements | Less strict | Section 143 & internal controls |
| CSR | Not mandatory | 2% of profit required |
| Company types | Private / Public | Added OPC, Section 8 |
| Director roles | Less defined | Clearly defined |
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Types of Companies Under Companies Act 2013 (CMA Notes)
| Type | Directors | Share Capital | Liability | Notes |
|---|---|---|---|---|
| Private Ltd | 2+ | No minimum requirement | Limited | Section 2(68) |
| Public Ltd | 3+ | No minimum requirement | Limited | Section 2(71) |
| OPC | 1 | No minimum requirement | Limited | The incorporator/nominee must be an Indian citizen and resident in India (minimum 120 days stay in the previous financial year). Must have at least one director who stays in India for 182 days (Section 149(3)). |
| Section 8 | 2+ (private) / 3+ (public) | May or may not have share capital | Limited | Formed for charitable purposes. Profits are not distributed as dividends. Exempt from Independent Directors (Section 149). |
Small Company Definition :
- Paid-up capital is less than or equal to ₹10 Crore, and Turnover is less than or equal to ₹100 Crore (both conditions must be satisfied)
- Exclusions: Holding/Subsidiary companies, Section 8 companies, companies governed by Special Acts, and public companies (a public company is never a small company, even if its capital and turnover are zero)
- All small companies are private, but not all private companies are small.
Exam Tip: Sections 2(68) (Private Company) and Section 2(71) (Public Company) are frequently asked.
Company Formation Process Under Companies Act 2013 (Sections 1-122)
- Prepare Memorandum of Association (MOA) and Articles of Association (AOA)
- Obtain Director Identification Number (DIN) before appointment; mandatory for all directors, including KMPs
- Submit forms to the Registrar of Companies (ROC)
- Receive Certificate of Incorporation
MOA vs AOA
| Feature | MOA | AOA | CMA Tip |
|---|---|---|---|
| Purpose | Defines objectives | Rules for internal management | MOA = What, AOA = How |
| Contains | Company name, capital, objectives | Rules for directors, meetings | High focus |
| Hierarchy | Subordinate to Act | Subordinate to Act + MOA | AOA cannot override MOA; it must comply with it |
| Validity | Ultra vires = void | Can be ratified by shareholders; illegal acts beyond the AOA attract penalties | Exam MCQs |
Key Doctrines:
- MOA: Doctrine of Ultra Vires
- AOA: Doctrine of Indoor Management
Directors Duties Under Companies Act 2013
| Duty | Section | Key Points |
|---|---|---|
| Act in good faith | 166(1) | Must act in the company’s best interest |
| Attend board meetings regularly | 173 | Maintain proper attendance |
| Maintain financial records | 134 | Ensure accurate accounts |
| Avoid conflicts | 166(4) | Duty to avoid conflicts |
| Disclose interest | 184 | Procedure for disclosing conflicts |
Disqualification (Section 164):
- Mentally incapable
- Undischarged insolvent
- Convicted of an offence and sentenced to imprisonment for 6 months or more
- Company defaults in filing Financial Statements (Sec 137) or Annual Returns (Sec 92) for 3 consecutive financial years
Internal Financial Control and Corporate Governance
- Internal Financial Control (IFC) ensures proper management of funds and prevents fraud.
- Auditors (Section 143) report on the fairness of financial statements and flag irregularities.
- Effective IFC and corporate governance protect shareholder interests.
Rights of Shareholders and Key Managerial Personnel (KMP)
Shareholders: Vote, receive dividends, inspect records, and have minority protections.
KMP (Section 203):
- MD: Automatically a KMP with statutory powers
- A CEO is considered a KMP only if designated as such by the company
- CFO and CS: Mandatory for public companies with paid-up capital of ₹10 Crore or more; private companies with paid-up capital of ₹10 Crore or more must have a whole-time CS
Important Sections of Companies Act 2013 for CMA Exams
| Section | Topic | What You Must Remember | Why It Matters (CMA Exam) |
|---|---|---|---|
| 3 | Formation of the Company | Minimum members, company types | Basic concept, MCQs |
| 7 | Incorporation | Documents, registration process | Theory questions |
| 12 | Registered Office | Must have a registered office | 1–2 mark questions |
| 92 | Annual Return | Filing with ROC | Compliance |
| 128 | Books of Accounts | Proper books | Accounting + audit |
| 129 | Financial Statements | True & fair view | Core concept |
| 134 | Financial Statements Approval | Signed by the Board; auditor reports fairness | Very important, frequently asked |
| 139 | Appointment of Auditor | Rules for appointing auditors | Common theory |
| 143 | Powers & Duties of Auditor | Auditor checks accounts, reports irregularities | High weightage |
| 149 | Board of Directors | Minimum number of independent directors | Frequently asked |
| 166 | Duties of Directors | Good faith, avoid conflicts | Short theory + case-based |
| 177 | Audit Committee | Mandatory for certain public companies | Governance topic |
| 180 | Board Powers | Borrowing/selling assets requires shareholder approval | Case-based |
| 184 | Disclosure of Interest | Procedure for disclosing conflicts | Case-based |
| 186 | Loans & Investments | Limits, approvals | Case-based, tricky |
| 188 | Related Party Transactions | Board approval required if not in ordinary course or not at arm’s length; shareholder approval if thresholds exceeded | High-weightage |
| 197 | Managerial Remuneration | Single MD/WTD: 5%; Multiple MDs/WTDs: 10%; Part-time Directors: 3%; Above 11% needs Special Resolution | Exam MCQs |
| 206–207 | Inspection of Records | Right of inspection by members | Exam-relevant |
| 248 | Strike-off of Companies | Voluntary/involuntary rules | Exam-relevant |
Audit Committee (Section 177)
Mandatory for public companies only to meet any threshold:
- Paid-up capital ≥ ₹10 Cr
- Turnover ≥ ₹100 Cr
- Borrowings ≥ ₹50 Cr
Related Party Transactions (Section 188)
- Section 188 does not apply to transactions:
- Entered in the Ordinary Course of Business AND
- On Arm’s Length Basis
- If outside this exception:
- Board approval is required
- Shareholder approval is required if the transaction exceeds the prescribed thresholds
Quick Revision Points for CMA Students
- MOA = objectives; AOA = rules for management
- DIN must be obtained before the director’s appointment (mandatory for all directors)
- OPC has 1 director; Private Ltd has 2+; mandatory OPC conversion removed
- Section 134: financial statements & auditor responsibilities
- Directors: act in good faith, avoid conflicts (disclosure under Section 184)
- Audit committees for certain public companies
- CSR Schedule VII activities; spending is 2% of the average profits of the last 3 financial years; CSR Committee is not mandatory if spending is up to ₹50 Lakh
- Small company limits: Paid-up capital up to ₹10 Crore and turnover up to ₹100 Crore; public companies, Section 8 companies, holding and subsidiary companies, and companies governed by special Acts are excluded
- Managerial remuneration: For a single MD, WTD or Manager, 5% of net profits; for multiple MDs or WTDs, 10% of net profits in aggregate; for part-time directors, 3% of net profits; overall maximum 11% of net profits without special resolution
- Secretarial compliance (Sections 206-207, 248)
CMA Exam Strategy for Companies Act 2013
Focus on high-weight sections first:
- Sections 134, 143, 149, 166, 177, 188, 197
- Company formation basics
- Directors and audit topics
Practice case-based questions and revise tables regularly.
Example Case:
Case: A director enters into a contract with a company without disclosure.
Answer: Violation of Section 184 – The contract may be voidable at the option of the company, and penalties may apply.
Conclusion
The Companies Act 2013 is a high-scoring area for CMA students if you focus on the right sections and concepts. Prioritise: company formation, directors’ duties, audit, and financial statements. Use tables and short notes for quick revision. Focus on understanding key concepts and applying them in case-based questions rather than memorising sections. With consistent practice and guidance from experienced mentors at Xylem Commerce Pro, this subject can become one of your strongest scoring areas.
Faqs
The Companies Act 2013 is the primary law that governs how companies are formed, managed, and regulated in India. For CMA students, this Act is very important because a significant portion of the questions in CMA Paper 5 are based on it.
Sections 3, 134, 149, 177, 188, 197, 206-207, 248
There are four main types: Private Company, Public Company, OPC, and Section 8 Company.
Yes, shareholders can remove a director under the provisions of the Companies Act 2013.
The Managing Director (MD) holds statutory powers under the Companies Act, while the Chief Executive Officer’s (CEO) powers are limited to what the board delegates.
It can feel difficult at first, but with proper revision and understanding, it becomes manageable, especially when guided by experienced mentors from institutes like Xylem Commerce Pro.