HISTORICAL

BACKGROUND
OF
CORPORATE
GOVERNANCE

Submitted To
Dr. Suman Dahiya Ma’am

Submitted By
Aashna Khanna 200947
Swati Yadav 200990
Origin and growth in
England

11 - 13th century: Period of Merchant

Guilds. 
• The earliest business associations in
England were called the Merchant Guilds. 
• Purpose : secure monopoly 
• Gradually , the started trading in joint
account. 
• Two types of guilds :
1- Commendas 
2- Societas
14th century : Guilds Extended to Foreign Trade
• Merchant adopted the word “Companies” for their overseas ventures. And these
were known as regulated companies,
• By end on 16th century, Royal Charter were issued which granted monopoly of
trade to members of company over certain territory.

16th century : Period of Regulated Companies

• Joints trading started growing 
• Separate trading or private trading by members of guilds/ joint trading companies
was allowed.

17th century : Period of Joint Stock Companies

• Period of joint stock companies . 
• Era of Mercantilism.

18th century : Enactment of Bubble Act, 1719. 

• The act prohibited formation of joint stock companies except by royal charter. 
• Aim :Check on the growth of unregistered companies 
• Act had led to widespread panic amongst unregistered companies.
19th century : Replacement of Bubble Act and Growth of Company Law. 
1825: The Bubble Act was Ultimately Repealed in 1825.
• Both companies registered and unregistered comes under royal charter and
started developing 
1844: Joints Stock Companies Act, 1844.
•  Provision for the registration of companies and registrar of joint stock
companies was created. 
1855: Limited Liability Act, 1855.
• Provide limited liability to member of registered companies.
• Similar act was passed in India in 1857.
1856: Joints Stock Companies Act, 1856.
• Comprehensive Act of 1856 superseded Act of 1844 
• Introduced mode of formation of companies MOA and AOA 
1862: Companies Act, 1862.
• MOA and AOA mandatory
• Alteration in MOA prohibited. Company could be formed with limited liability
by guarantee 
• Provision of winding up also introduced 
1890: Companies (Memorandum of Association) Act, 1890.
• Relaxation regarding MOA and AOA 
• Changes was allowed by passing special, resolution in general meeting.
20th century :Development of Modern Company Law
1900: Companies Act 1900
• Audit of companies account compulsory 
1908 : Companies Act 1908 
• Also known as companies ( consolidation) act 1908 
• Concept of private company introduced 
• Similar act passed in India in 1913. 
1948: Companies Act 1948 
• It was principal act in force in England. 
• Based on report of committee under lord Cohen. 
• Exempt private company was introduced
• Emphasis on public accountability of the company 
• Protection of minority
• Incorporation of investigation of companies affair. 
• Power given to shareholder to remove a directive
before the expiration of his period of office.  
•Companies (Amendment) Act, 1967
This act was based upon Jenkins Committee recommendations
presented in 1962.
Abolished the concept of exempt private company.
Precise provisions were introduced in relation to director’s interests in
the company and disclosures.

•Companies Act, 1976

Strengthened the requirements of public accountability and those
relating to disclosures of interests in the shares of the company.

•Companies Act, 1980

Company law reforms process initiated in 1980.
Changed the structure of company law.
Insider trading treated as offense.
Shareholders will be given right of pre-emption in case new issues
shares.
Dealings between directors and their companies were restricted and
maximum financial limits were introduced.
•Companies Act,1981
The companies were divided into small, medium sized and other companies.
Laws related to company’s name were abolished by the Department of Trade.
Business registered abolished which were under the Registration of Business Names Act, 1916.
Companies were authorised to purchase its own share.
Companies can issue redeemable shares.

•Companies Act, 1985

Enabled companies to be formed by registration, and set out the responsibilities of companies, their
directors and secretaries.

•Companies Act, 1989

Many schedules were revised and reinserted in Companies Act, 1985 by Amending Act in 1989.

•Companies Act,2006
 comprise of 46 chapters,1300 sections, 16 schedules.
To reform company law
To make other provisions related to companies and other forms of business organisation.
To make provision about director’s disqualification, business names, auditors and actuaries.
This act was very comprehensive.
 Growth of Company Law in India

•Joint Stock Companies Act, 1850

Based on Joint Stock Companies Act 1844 of England.
Registration of Joint Stock Company in India.
Office of Registrar created.
Supreme court of Bombay, Madras, Calcutta were authorised to
order the registration of the company.

•Joint Stock Companies Act, 1857

Given right of registration with or without limited liability.
Doesn’t benefitted banking and insurance companies
But in 1860, rights were given to banking and insurance
companies.

•Companies Act, 1866

1st enactment to bear the title of Companies Act.
Laws related to incorporation, regulation and winding up of
trading companies and other associations.
•Indian Companies Act, 1913
Based on UK Companies Act,1908
Concept of Private Limited Company
Found highly unsatisfactory; didn’t take into account the peculiar features of Indian Trade.
Thus, it was amended in 1914, 1915, 1920, 1926, 1930, 1932,1936 and then almost every
year up to 1951.

•HC Bhaba Committee 1950

After world war IInd and comprehensive companies act 1948 in England; need felt for a
similar comprehensive companies act in India.
Govt. of India on 25th October 1950 appointed a 12 member committee under the
chairmanship of Shri HC Bhaba.
Submitted its report on all aspects of Companies Law in April 1952.
Govt. accepted recommendations and the Companies Act 1956, which was based on the
Companies Act of 1948 of UK was enacted.

•Companies Act, 1956

Repealed all earlier Companies Act.
Effective from April 1st, 1956.
Biggest of all procedural laws in country; XIII parts with 658 sections, 6 tables and 15
schedules.
 Radical Changes in the Indian Company Law
•Started giving attention to the concept of Corporate Governance and laws
related to it were made.
•Effort was made in India in 1999, 2000, 2002and 2006 when certain corporate
governance reforms were announced by amending Companies Act.
•Companies Amendment Act, 2002 provided provisions for the replacement of
Company Law Board by the mechanism of Tribunal.
•The electronic filing has been made mandatory from September 16,2006 based
on the recommendations of JJ Irani Committee.
•DIN will be allotted to the existing and future directors .
•A stage came where the need was felt to replace the existing Companies Act,
1956 with the new one i.e. Companies Act 2013.
•Many new and unheard concepts were introduced in this and attention given to
corporate governance.
•Corporate governance were strengthened by introducing provisions related to
independent director, rotation of auditors, class action, secretarial audit, insider
trading and CSR.
References
Corporate Governance, business Ethics and CSR
By J.P. Sharma