UNIT III
Management and Administration
Introduction:
Both the Companies Act, 1956 Act and Companies Act, 2013 requires companies to maintain register and index of members, register and index of debenture holders, but the 2013 Act requires company to maintain register and index of other securities also.
The particulars of Register of members and other details are prescribed in Companies (Management and Administration) Rules, 2014
Registers to be maintained:
Every company shall keep and maintain the following registers:—
(a) Register Of Members indicating separately for each class of equity and preference shares held by each member residing in or outside India;
(b) Register of Debenture-holder and
(c) Register of any other security holders.
(1) Every company shall, from the date of its registration, keep and maintain a register of its members in one or more books in Form No. MGT-1.
In the case of existing companies, registered under the Companies Act, 1956, particulars shall be compiled within six months from the date of commencement of these rules.
(2) For Company not having share capital-
(a) ROM shall contain following Particulars:
Name of the guardian and
DOB of the member;
Name and address of nominee;
Date of becoming member;
Date of cessation;
Amount of guarantee, if any;
Any other interest if any.
Instructions, if any, given by the member with regard to sending of notices etc.
Every company which issues or allots debentures or any other security shall maintain a separate register of debenture holders or security holders, as the case may be, for each type of debentures or other securities in one or more books in Form No.MGT-2
Maintenance of the Register of members etc under section 88.
Every company shall maintain the registers in the following manner:-
(1) Entries after allotment or transfer of shares, debentures or other securities:
The entries in the registers maintained under section 88 shall be made within seven days after the Board of Directors or its duly constituted committee approves the allotment or transfer of shares, debentures or any other securities, as the case may be.
(2) Register at R.O/other place:
(3) Other entries in ROM or in respective registers:
Consequent upon any forfeiture, buy-back, reduction, sub-division, consolidation or cancellation of shares, issue of sweat equity shares, transmission of shares, shares issued under any scheme of arrangements, mergers, reconstitution or employees stock option scheme or any of such scheme provided under this Act or by issue of duplicate or new share certificates or new debenture or other security certificates, entry shall be made within seven days after approval by the Board or committee, in the register of members or in the respective registers, as the case may be
(4) Change in Status:
If any change occurs in the status of a member or debenture holder or any other security holder whether due to death or insolvency or change of name or due to transfer to Investor Education Protection Fund or due to any other reason, entries thereof explaining the change shall be made in the respective register.
(5) Reference of Order:
The necessary reference of order shall be indicated in the respective register –If any rectification is made in the register by the company pursuant to any order passed by the competent authority under the Act, any order is passed by any judicial or revenue authority or by Security and Exchange Board of India (SEBI) or Tribunal attaching the shares, debentures or other securities and giving directions for remittance of dividend or interest
(6) Particulars of pledge/charge/Lien/hypothecation created by promoter:
In case of companies whose securities are listed on a stock exchange in or outside India, the particulars of any pledge, charge, lien or hypothecation created by the promoters in respect of any securities of the company held by the promoter including the names of pledgee/pawnee and any revocation therein shall be entered in the register within fifteen days from such an event
If promoters of any listed company, which has formed a joint venture company with another company have pledged or hypthoticated or created charge or lien in respect of any security of the listed company in connection with such joint venture company, the particulars of such pledge, hypothecation, charge and lien shall be entered in the register members of the listed company within fifteen days from such an event.
Index of names to be included in Register
(1) Every register maintained under sub-section (1) of section 88 shall include an index of the names entered in the respective registers and the index shall, in respect of each folio, contain sufficient indication to enable the entries relating to that folio in the register to be readily found.
The maintenance of index is not necessary in case the number of members is less than fifty.
(2) The company shall make the necessary entries in the index simultaneously with the allotment or transfer of any security in such Register.
Foreign Register:
A company may keep a part of the register in any country outside India , if so authorized by its articles, in such manner as may be prescribed called “foreign register”, containing the names and particulars of the members, debenture-holders, other security holders or beneficial owners residing outside India.
Foreign register of members, debenture holders, other security holders or beneficial owners residing outside India
(1) A company which has share capital or which has issued debentures or any other security may, if so authorised by its articles, keep in any country outside India, a part of the register of members or as the case may be, of debenture holders or of any other security holders or of beneficial owners, resident in that country (hereafter in this rule referred to as the “foreign register”).
(2) The company shall file Form MGT-3 with the Registrar for notice of the situation of the office within 30 days from the date of the opening of any foreign register along with the fee as provided in Annexure B where such register is kept and any change in the situation of such office or of its discontinuance, within 30 days from the date of such change or discontinuance.
(3) A foreign register shall be deemed to be part of the company’s ROM or of Register of Debenture holder or of any other security holders or BO. maintained in the same format as the Principal Register open to inspection and extracts may be taken there from and copies thereof may be required, in the same manner, mutatis mutandis, as is applicable to the principal register closed but advertisement before closing the register shall be inserted in at least two newspapers circulating in the place where it is kept.
(4) If a foreign register is kept by a company in any country outside India, the decision of the appropriate authority in regard to the rectification of the register shall be binding.
(5) The company shall –
(a) Transmit to its registered office in India a copy of every entry in any foreign register within 15 days after the entry is made; and
(b) Keep at such office a duplicate register of every foreign register duly entered up from time to time.
(6) Every such duplicate register shall, for all the purposes of this Act, be deemed to be part of the principal register.
(7) with respect to duplicate registers, the shares or as the case may be, debentures or any other security, registered in any foreign register shall be distinguished from the shares or as the case may be, debentures or any other security, registered in the principal register and in every other foreign register; and no transaction with respect to any shares or as the case may be, debentures or any other security, registered in a foreign register shall, during the continuance of that registration, be registered in any other register.
(8) The company may discontinue the keeping of any foreign register; and thereupon all entries in that register shall be transferred to some other foreign register kept by the company outside India or to the principal register.
Authentication:
(1) The Entries in the registers and index included therein shall be authenticated by- the company secretary of the company or any other person authorised by the Board for the purpose, and the date of the board resolution authorising the same shall be mentioned.
(2) The Entries in the foreign register shall be authenticated by – the company secretary of the company or any other person authorised by the Board by appending his signature in each entry.
Declaration in respect of beneficial interest in any shares.-
(1) A person whose name is entered in the register of members of a company as the holder of shares in that company but who does not hold the beneficial interest in such shares (hereinafter referred to as “the registered owner”), shall file with the company, a declaration to that effect in Form No.MGT.4 in duplicate, within a period of 30 days from the date on which his name is entered in the register of members of such company:
If any change occurs in the beneficial interest in such shares, the registered owner shall, within a period of thirty days from the date of such change, make a declaration of such change to the company in Form No.MGT.4 in duplicate.
(2) Every person holding and exempted from furnishing declaration or acquiring a beneficial interest in shares of a company not registered in his name (hereinafter referred to as “the beneficial owner”) shall file with the company, a declaration disclosing such interest in Form No. MGT.5 in duplicate, within 30 days after acquiring such beneficial interest in the shares of the company.
If where any change occurs in the beneficial interest in such shares, the beneficial owner shall, within a period of 30 days from the date of such change, make a declaration of such change to the company in Form No.MGT.5 in duplicate
(3) Where any declaration under section 89 is received by the company, the company shall make a note of such declaration in the register of members and shall file, within a period of thirty days from the date of receipt of declaration by it, a return in Form No.MGT.6 with the Registrar in respect of such declaration with fee.
Closure of register of members or debenture holders or other security holders.-
(1) A company closing the register of members or the register of debenture holders or the register of other security holders shall give at least seven days previous notice and in such manner, as may be specified by Securities and Exchange Board of India, if such company is a listed company or intends to get its securities listed, by advertisement at least once in a vernacular newspaper in the principal vernacular language of the district and having a wide circulation in the place where the registered office of the company is situated, and at least once in English language in an English newspaper circulating in that district and having wide circulation in the place where the registered office of the company is situated and publish the notice on the website as may be notified by the Central Government and on the website, if any, of the Company.
(2) The provisions contained in sub-rule (1) shall not be applicable to a private company provided that the notice has been served on all members of the private company not less than seven days prior to closure of the register of members or debenture holders or other security holders.
Penalty:
If a company does not maintain; a Register Of Members or a Register Of Debenture holders other security holders or fails to maintain them in accordance with the provisions of sub-section (1) or sub-section (2),Company & Every officer of the company shall be liable for a fine which shall not be less than Rs.50,000/- but which may extend to Rs3,00,000/- and failure is a continuing one- fine which may extend to Rs.1000/- for every day, after the first during which the failure continues.
Key Takeaways:
An annual return is a document that contains details of a company’s share capital, indebtedness, directors, shareholders, changes in dictatorships, corporate governance disclosures etc. The regulations of the Companies Act, 2013 specifies that every company must prepare and file annual return with the registrar each financial year before the 29th of November. In this article, we look at the information filed by company in its annual return in detail.
Authorized Signatories:
An annual return should have the authorized digital signature of a director and the company secretary. In the absence of a company secretary, a company secretary in practice can fulfill this responsibility. If the particular firm is a one-person company or small company, the annual return can be signed by a director only.
Annual Return Forms:
Annual returns must be filed in Form MGT-7 within 60 days from the date of Annual General Meeting (AGM).
Annual Returns of listed companies and companies having a paid-up share capital of Rs 10 crores or more must be certified by a company secretary in practice in Form MGT 8.
Every foreign company must file their annual returns in Form FC-4 within a period of 60 days from the last day of its financial year.
All the companies must prepare the extract of Annual Return in Form MGT-9.
Contents of Annual Return:
A company’s annual return must contain the following details:
Since we now know the gist of the contents, let us have in-depth examination of the details that must be included in the above-mentioned contents.
Details of Registration:
Particulars of the Company’s Registered Office
Principal Business Activities Pursued by the Company
Specification of the business activities that contributes to 10% or more of the company’s turnover.
Particulars of Holding, Subsidiary and Associate Companies
Particulars of Shares, Debentures and other Securities of the Company
Particulars of Turnover and Net Worth of the Company:
This section is self explanatory, as the title covers the details to be included i.e. details of the company’s turnover and its net worth should be mentioned. These details are sufficient and other details needn’t be mentioned.
Details of Share Holding Pattern:
This part of the return relates to the breakup of equity share capital as percentage of total equity. The specified details must be in connection with category-wise shareholding, which includes:
Indebtedness:
Total indebtedness at the beginning of the financial year, changes during the financial year and indebtedness at the end of the financial year.
Details of Members, Debenture Holders and other Securities Holder
Furthermore, the company needs to provide the following details without share capital:
Details of Shares/Debenture Transfer Since the end of the Previous Financial Year
Particulars of Promoters
Particulars of Directors
Particulars of Key Managerial Personnel:
If the concerned person holds the position of a Managing Director/CEO/manager/Whole-time Director:
If the concerned person holds the position of a company secretary:
If the concerned person holds the position of a Chief Financial Officer:
Details of meetings of members/class of members/Board/Committees of the Board of Directors
Details of Members/class/requisitioned/NCLT/Court Convened Meetings:
Details of Board Meeting
Details of Committee Meeting
Remuneration of Directors:
Particulars of remuneration paid to Managing Director, Whole Time-director or manager:
Particulars of remuneration paid to Independent Director:
Particulars of remuneration paid to Key Managerial Personnel other than MD/Manager/WTD
Details on penalties/punishment/compounding of offences on company, directors and other officers in default
Details of the fees penalized with; accompanied with the following details:
Details of Matters Pertaining to Certification of Compliances and Disclosure
Details of events/matters owing to which the company was liable to file returns or comply with the required provisions of the Companies Act and the pertinent rules.
Details in respect of shares held by or on behalf of the Foreign Institutional Investor (FII)
This section is self explanatory, as the title covers the details to be included i.e. details in respect of shares held by on or behalf of the FII. These details are sufficient and no additional details are required.
Other Vital Disclosures:
Key Takeaways:
An Annual General Meeting (AGM) is held to have an interaction between the management and the shareholders of the company.
Which Companies Are Required to Hold an AGM?
All companies except one person company (OPC) should hold an AGM after the end of each financial year. A company must hold its AGM within a period of six months from the end of the financial year. However, in the case of a first annual general meeting, the company can hold the AGM in less than nine months from the end of the first financial year. In such cases where the first AGM is already held, there is no need to hold any AGM in the year of incorporation. Do note that the time gap between two annual general meetings should not exceed 15 months. The Companies Act, 2013 makes it compulsory to hold an annual general meeting to discuss the yearly results, auditor’s appointment and so on. A company should follow the procedures under the Companies Act, 2013 to conduct the AGM.
What is the Procedure to Hold an AGM?
The company must give a clear 21 days’ notice to its members for calling the AGM. The notice should mention the place, the date and day of the meeting, the hour at which the meeting is scheduled. The notice should also mention the business to be conducted at the AGM.
A company should send the notice of the AGM to:
– All members of the company including their legal representative of a deceased member and assignee of an insolvent member.
– The statutory auditor(s) of the company.
– All director(s) of the company.
The notice may be given in writing through speed post or registered post or via electronic mode. The notice should be sent to the address of the member as per the records of the company. In the case of electronic communication, the notice should be sent to the e-mail address of the member as per the records of the company. The notice can be text typed in an email or an attachment to an email.
The notice of the AGM should be placed on the website of the company or any other website as may be mentioned by the government.
An AGM can be called at a notice period shorter than 21 days’ if at least 95% of the members entitled to vote in the meeting agree to the shorter notice. The consent may be given in writing or through electronic mode.
Matters Discussed in an AGM or Agenda for an AGM
The matters discussed or business transacted in an AGM consists of:
– Consideration and adoption of the audited financial statements.
– Consideration of the Director’s report and auditor’s report.
– Dividend declaration to shareholders.
– Appointment of directors to replace the retiring directors.
– Appointment of auditors and deciding the auditor’s remuneration.
– Apart from the above ordinary business, any other business may be conducted as a special business of the company.
The ordinary business of the company will be passed by an ordinary resolution where the votes cast in favour are more than the votes cast against the resolution. However, in case of special business transactions, the resolution may be passed as an ordinary resolution or a special resolution, depending on the applicable legal provisions. A special resolution requires at least 75% votes in favour of the resolution.
An AGM should be conducted during the business hours between 9 a.m. and 6 p.m. only. The meeting can be conducted on any day, which is not a national holiday, including holidays declared by the Central Government. The meeting can be held at any place which is within the limits of the city or town or village in which the registered office is situated. A government company can also hold its AGM at any other place as the Central Government may approve. An unlisted company can hold an AGM at any place in India after obtaining consent from its members in writing or in electronic mode.
In the case of a Section 8 company, the Board decides the date, time and place of the AGM as per the directions given in a general meeting of the company.
What is the Quorum for an AGM?
In the case of a private company, two members present at the meeting shall be the quorum for the AGM.
In the case of a public company, the quorum is:
– Five members present at the meeting if the number of members is within one thousand.
– Fifteen members present at the meeting if the number of members is more than one thousand but within five thousand.
– Thirty members present at the meeting if the number of members is more than five thousand.
In case the quorum for the meeting is not present within half an hour from the scheduled time, the meeting will be adjourned to the same day in the following week for the same time and at the same place.
Members’ Rights in an AGM
The members (including shareholders) of the company are entitled to attend and vote at the AGM. Members can cast their votes by a physical ballot or postal ballot or through e-voting. Members can appoint proxies to attend an AGM and vote on their behalf. The proxy should be appointed in writing, and the proxy form should be signed by the member. In case the proxy is appointed by a corporate shareholder, the proxy form should be signed and sealed by an authorised signatory of the corporate.
The members can elect one among themselves as the chairman of the meeting. However, if the articles of association of the company provide for a chairman, such person shall chair the AGM of the company.
Reporting of the AGM in Form MGT-15
After the conduct of AGM, every listed company has to file a report on the AGM in form MGT-15 within a period of 30 days from the conclusion of the AGM.
Consequences and Penalty for Default in Holding an AGM
In case a company fails to hold an AGM within the stipulated time or extension obtained by it, the Tribunal may itself or on an application made by any director or member order an AGM to be conducted as per its directions.
If the company further defaults in holding a meeting in accordance with the directions of the Tribunal, the company and every officer of the company who commit the default shall be punishable with a fine of up to Rs 1 lakh. In case of continuing default, a fine of Rs 5,000 per day is levied for each day during which the default continues.
Key Takeaways:
Matters requiring immediate consideration by members, which cannot be deferred till next Annual General Meeting, to meet such emergencies, the companies can provide for holding of emergency meetings of the members which are known as Extra Ordinary General Meeting.
Regulation 42 of Table F provides that all general meetings, other than Annual General Meeting, shall be called as Extra Ordinary General Meetings.
All business which is transacted at Extra Ordinary General Meeting shall be deemed special.
Extra Ordinary General Meeting shall be held at a place within India except of the wholly owned subsidiary of a company incorporated outside India.
Calling of Extra Ordinary General Meeting
1. Section 100(1) of Companies Act 2013 and Regulation 43(i) of Table F
The Board of Directors may whenever it thinks fit call an Extra Ordinary general meeting. For this Board resolution is required. Thus General meeting need to be called only on the authority of board resolution.
If a managing director, manager, secretary or other officer calls a general meeting without prior approval of the Board of Directors, it will have no effect unless the Board ratifies the convening of general meeting before it is held.
2. Regulation 43(ii) of Table F, Calling of Extra Ordinary General Meeting by any director or any two members
If at any time directors capable of acting sufficient in number to form a quorum, any one director or any two members of the company may call an Extra Ordinary General meeting in the same manner, as nearly as possible as that in which such a meeting may be called by the board.
3. Section 100 of Companies Act, 2013 Calling of Extra Ordinary General Meeting on requisition
The demand of members to convene a meeting is called requisition. It shall set out the matters for consideration of which the meeting is to be called.
The number of members entitled to requisition a meeting in regard to any matter shall be
1. In case Company having a share capital, members holding at least one tenth of such paid up capital of the capital which carries a right voting in regard to that matter.
2. In case Company not having share capital, members holding at least one tenth of total voting power of all the members who have a right to vote to that matter.
On receipt of requisition the Board of Directors shall proceed to call Extra Ordinary General Meeting within 21 days from the date of the deposit of requisition, on a date, which shall not be later than 45 days of the date of deposit of requisition.
The Board of Directors shall be said to have failed in calling the meeting if:
Where the Board fails to call a meeting, the meeting may be called by the requisitionists themselves within a period of 3 months from the date of the deposit of requisition.
Any reasonable expenses incurred by the requisitionists in calling a meeting shall be reimbursed to the requisitionists by the Company and the same so paid shall be deducted from any fee or other remuneration payable to such of the directors who were in default in calling the meeting.
Notice of the meeting:
Notice shall be given in writing or through electronic mode at least before 21 clear days to the proposed date of extra ordinary general meeting.
The notice calling meeting shall specify the place, date, day and hour of the meeting and shall contain the business to be transacted at the meeting.- Requisitionists should convene meeting at Registered office or in the same city or town where Registered office is situated. Further such meeting should be convened on any day except national holiday.
No explanatory statement as required under section 102 need be annexed to the notice of an extraordinary general meeting convened by the requisitionists and the requisitionists may disclose the reasons for the resolutions which they propose to move at the meeting.
The notice of the meeting shall be given to those members whose names appear in the Register of members of the company within three days on which the requistionists deposit with the Company a valid requisition for calling an extraordinary general meeting.
The notice of the meeting shall be given by speed post or registered post or through electronic mode. Any accidental omission to give notice to or the non-receipt of such notice by, any member shall not invalidate the proceedings of the meeting.
4. Section 98 of Companies Act, 2013 Calling of Extra Ordinary General Meeting by Tribunal
If for any reason company could not call, hold or conduct meeting. The National Company Law Tribunal may order a meeting of the company to be called, held or conducted in such manner as it thinks fit.
The directions given under this section include that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
The tribunal may do so either on its own motion or on the application of any director of the company or on the application of any member of the company who would be entitled to vote at the meeting.
Key Takeaways:
Declaration and Payment of Dividend under Companies Act 2013, has been enacted for distribution of profit among shareholders of the company. It is defined under section 2(35) of the Companies Act 2013.
It is related to the return on investment, made in equity shares or preference shares. It includes interim dividend. It is paid out of the profits which are not retained by the business. The dividend is distributed among the shareholders in proportion to the shares held by them. Shareholders are entitled to get a dividend as they are the owners of the company.
Regulations for the Declaration and Payment of Dividend
Under Section 205 of the Companies Act, 2013[1] contains the regulations for the declaration and distribution of dividend. According to law, it is mandatory for every company having share capital that makes a profit to declare and distribute a dividend to its shareholders. The dividend which includes interim dividend can be paid out of the current profits or from accumulated profits. Before the declaration of the dividend, it must be assured that depreciation for the whole year has to be provided and for this purpose, it is required for the board to approve unaudited financial statements and the amount is needed to be transferred to reserves.
To declare a dividend, a separate bank account is required to be opened where the amount of the dividend is to be transferred within 30 days of the declaration.
Procedure for the Declaration and Payment of Dividend
Following are the steps involved in the payment of dividend:
Firstly depreciation shall be computed according to the rate specified in Schedule XIV or on any other basis decided by the Central Government.
2. Transfer of profits to reserves:
Before the declaration of the dividend, part of the profits has to be transferred to the reserves of the company. The Higher amount of earnings can be transferred to reserves voluntarily subject to the conditions.
3. Board Meeting:
Another important step is to pass board resolution in the board meeting of the directors of the company otherwise it cannot be declared at the annual general meeting.
4. Annual General Meeting:
An ordinary resolution is required to be passed at the general meeting of the members. The notice of the meeting will mention the declaration of the dividend which will be sent to both members as well as creditors of the company.
5. Time limit:
For declaration of the dividend, it is required to open a separate bank account. The declared amount of dividend shall be transferred to the account. Within 30 days of the annual general meeting, a dividend warrant is required to be sent to the shareholders.
6. Transfer to unpaid dividend account:
Amount remaining unclaimed is required to be transferred to unpaid dividend account within 7 days from the expiry of 30 days of dividend declaration. The unpaid or unclaimed dividend for 7 years is transferred to Investor Education Protection Fund within 30 days.
7. Circumstances under which dividend is not required to be paid
a) In case dividend cannot be paid due to operation of law;
b) In case members have given directions to the company which cannot be complied with;
c) In the event of dispute regarding the payment of dividend;
d) In case company has adjusted dividend against amount due from the shareholders;
e) In case the company has made any default in compliance with the provisions of section 73 and section 74, dividend cannot be paid.
8. Tax limit:
The dividend declared by the company out of current or accumulated profits is charged with an additional tax rate of 15%. This tax is required to be paid within 14 days of the declaration of the dividend.
9. Provisions related to Listed Company:
All listed companies have to give prior information regarding the board meeting of the company to the stock exchange where the securities of the company are listed.
10. Penalty in case of non-distribution of dividends:
In case where a company fails to pay dividend within 30 days period from the date of its declaration to the shareholders then the company shall be penalized with interest at 18% per annum for the period of default and every director shall be imprisoned for a term which may extend to two years maximum and fine may also be levied of 1000 rupees for the day during which the default continues.
It may be noted that there are some exceptions to this law and no offence shall be deemed to have committed on occurrence of such exception. You may refer to the above mentioned heading “Circumstances under which dividend is not required to be paid” for exceptions.
Conclusion:
It is noteworthy to mention here that no dividend shall be paid except through cash, where payment of dividend payable through cash can also be paid by way of cheque, warrant or electronic mode, to the shareholder who is entitled to dividend.
Key Takeaways:
a) Declaration and Payment of Dividend under Companies Act 2013, has been enacted for distribution of profit among shareholders of the company.
b) To declare a dividend, a separate bank account is required to be opened where the amount of the dividend is to be transferred within 30 days of the declaration.
We have talked about the dividends of a company, at length. We shall now talk about the accounts of the company. When we want to know more about the legal aspect of Accounts of a company, we have to refer to the Act. Section 128 of the Act states that “every company must maintain true, and fair financial statements”. The accounts must be at a place in India that can be easily accessed within seven days if there was a notice provided. The accounts may as well be placed in an electronic mode. If there is a branch outside India, the company shall keep the records in the registered office and a summarized copy of all returns must be sent periodically to the registered office if the company is registered under the Act.
When it comes to conducting any investigation, all the employees must cooperate in providing any required part of the accounts. It is specified that accounts of at least preceding eight years must be preserved in good order.
There are several important sections from the Companies Act that must be taken into account when we talk about the accounts of any company. The following will represent all the other relevant provisions:
Section of the Companies Act, 2013 and Matters dealt with under that section
a) Section 129
Financial Statements of the Company
It should follow Schedule III of the Act.
It must comply with the norms in Section 133.
It must not display any deviation.
b) Section 130
Presenting the accounts on a court or a tribunal’s order.
c) Section 131
Revising the financial statements in case of discrepancy.
d) Section 132
Constitution of a National Financial Regulating Authority.
e) Section 133
The Central Government shall be making standards for the Company’s accounting standards.
f) Section 135
The company’s Corporate Social Responsibility is contained in the section.
Accounts to comply with accounting standards
The accounting standards are written policies and documents that provide standards for the recognition, measurement, treatment, presentation, and disclosures of accounting transactions in the financial statements. These help with comparing the financial accounts of this year with the previous years. The comparison helps in tracking the growth of the company.
The accounts of a company must comply with accounting standards once set because separate accounting standards have different norms, which are difficult to track. So, the companies are required to follow one set of accounting standards which will be easier for the law to authenticate and verify.
Financial Statements
Section 129 of the Act provides for the maintenance of the financial statements. Section 2(40) must include a balance sheet, profit and loss account/income and expenditure account, cash flow statement, statement of changes in equity. Schedule III includes detailed requirements of the financial statements.
Audit
Audit is an examination of the books and accounts of the company. The examination also includes statutory records, and vouchers of an organization to ascertain the fairness of the financial statements, as well as non-financial disclosures, in order to present a true and fair view of the concern. There are two main types of audits: external audits, internal audits.
External Audits: External Audits are performed by Certified Public Accounting firms, in order to perform an external check.
Internal Audit: This is to make improvements in the company.
Let us now have a look at the auditor, who performs these audits.
Appointment of auditors
Section 139 of the Companies Act, 2013 states the appointment of an Auditor. In the first annual general meeting, the company shall appoint a person as to its auditor. In each annual general meeting, there must be ratification by the members. Written consent of the auditor to such appointment certificate that
(a) The auditor is eligible for appointment and is not disqualified for appointment under the Act, the Chartered Accountants Act, 1949 and the rules or regulations made there under;
(b) The proposed appointment is as per the term provided under the Act;
(c) The proposed appointment is within the limits laid down by or under the authority of the Act;
(d) The list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct
After the appointment, the auditor must have a meeting with the ROC within 15 days of appointment. These rules must comply with ADT-1.
Remuneration of auditor
Section 142 of the Act states that the remuneration of the auditor will be decided in the same way that the auditor was appointed. Remuneration includes expenses incurred in the process connected with the audit or any expenses that the company had facilitated with. It does not include any remuneration related to any service other than related to the audit itself. Schedule III of the Act also mentioned that the payment made to the auditors must be disclosed.
Removal
The auditor appointed may be removed from his office before the expiry of his term only by way previous approval of CG and a special resolution of the company to be passed in a general meeting within 60 days of receipt of approval of CG. However, it must be noted that the auditor is given a fair chance to represent himself or herself. The auditor must provide a statement to the ROC within a period of thirty days from the date of removal. The auditor may be punished with a fine between 50,000-5,00,000 in case of non-compliance.
Qualifications
An auditor must comply with the norms of the Companies Act, 2013.
Individual: Only if is a CA holding certificate of Practice as per Section 2(17) of the Companies Act, 2013.
Audit Firm/LLP: Majority of partners who are CA are practicing in India, appointed in Firm name. Only the partners who are CA’s are authorized to act as auditors and sign.
Key Takeaways:
a) The accounts of a company must comply with accounting standards once set because separate accounting standards have different norms, which are difficult to track.
b) Audit is an examination of the books and accounts of the company.
References:
a) ‘Company Law’ by Brenda Hannigan.
b) ‘Elements of Company’ Law by N. D. Kapoor.
