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Corporate Compliance Management

In the context of corporate governance, compliance means obeying the law. Ethics is the intent to observe the spirit of the law. It is the expressed intent to do what is right. Companies that follow both the letter and the spirit of the law by taking a value-based approach will have a distinct advantage in the marketplace.

Ethics & Corporate Governance
  • In the context of corporate governance, compliance means obeying the law.
  • Ethics is the intent to observe the spirit of the law.
  • It is the expressed intent to do what is right.
  • Companies that follow both the letter and the spirit of the law by taking a value-based approach will have a distinct advantage in the marketplace.
Directors Responsibilities
  • Value base approach requires Directors and Managers to understand clearly the culture and compliance controls that exist at all levels of their organizations.
  • In the new and quickly evolving environment, the board of directors must play an increasingly visible role in overseeing ethics and corporate compliance.
  • New regulations require the board to be more actively engaged in the compliance reporting process.
  • Boards needs to align between the company’s intent to comply with its code of ethics and applicable laws and the company’s practices.
  • Such awareness and understanding can significantly reduce the company’s and its board’s exposure to government actions and stockholder litigation.
Entry options to corporate world
  • Conversion/ takeover of partnership/ proprietary
  • Formation of limited company
  • Formation of non profitable company
  • Formation of producer company
  • Acquisition/ takeovers
  • Offices outside India
  • Joint ventures and WOS abroad
Fundamentals to become a director
  • Age above 18 years – New Form 32
  • MD/ WTD in Public Company- Age 25-70 years – schedule XIII
  • Not disqualified under section 274
  • Consented to act as a director
  • Acquired qualification shares- Articles – S 270
  • Obtained Director Identification Number (DIN)
  • Directorships of not exceeding 15 public co’s
Important laws of land
  • Corporate laws
  • Industrial laws
  • FEMA
  • Employee related laws
  • Stamp act
  • Direct tax laws
  • Indirect tax laws
Liability of Directors
  • Limited unless specified in MOA – S 322
  • Special resolution to make liability unlimited – S 323
  • Directors are agents
  • Directors are trustees
  • Directorship and ownership
  • Independent and professional directors
  • General powers of the board – S 291
Compliances after incorporation
By private limited company
  • Hold the Board Meeting within one month to
    • Appoint the Auditors of the Company
    • Appoint Secretarial Consultant of the Company
    • Allot the shares to the subscribers and make the paid up capital at a minimum level of Rs.1.00 Lacs
  • Obtain disclosures from the directors
  • Get approval of the Board for preliminary contracts and preliminary expenses.
  • Get the Memorandum and Articles print
  • Get the Share Certificates print
  • Purchase all the Statutory Registers and Minutes Books
  • Get the letter heads and other stationery print
  • Affix the name and address sign board of the Company at its Registered office/ place of business
  • Open Bank Account
  • Prepare the Common Seal
  • Prepare the rubber seal
  • Obtain the required permissions for running the business
    • Shop Act license, Sales tax number, Import Export Code, Service Tax number, Professional Tax number, PAN, TAN etc.
  • Appoint the Chairman/ Managing Director/ Executive Directors
Disclosure compliances
  • Yearly General Notices – S 299 - F24AA
  • Disclosure of names of relatives and their interests
  • Disclosure of interest at board meetings
  • Appointment/ Relinquishment in other Companies – S 305
  • No disqualification - yearly disclosure – S 274
  • Disclosure of shareholding – S 308
  • Declaration under Schedule XIII, Part I
  • Related party disclosures in balance sheet
  • Intimation of DIN number to company – S 266D
  • Communication of leave of absence for meeting
Filing compliances under MCA
  • Annual Filing
    • Annual Return - F 20B
    • Balance Sheet - F 23AC
    • P & L - F 23ACA
    • Compliance Certificate - F 66
  • Changes in Directors - F 32
  • Appointment of MD/ED – F 25C , F 23
  • Registered office changes - F 18
  • Capital related - F 5
  • Allotment - F 2/ F3
  • Resolutions and Agreements - F 23
Meeting compliances
  • Board meetings 1 in 3 months and 4 in a year
  • General Meetings
  • 6 months from closure of Financial Year. But First AGM of the company should be held within 9 months from the date closure of books of account or within 18 months from date of incorporation whichever is earlier. The gap between two AGM should not be more than 15 months and the at least one meeting should be held in each calendar year.
  • Quorum
    • Board 2 or 1/3 or Articles
    • GM 2 or 5 or Articles
    • Disinterested nature
  • Place of meeting
  • Maintenance of Minutes, attendance register
  • Certain powers to be exercised only at Board meeting – S 292
  • Meeting through Video conferencing still an issue
Maintenance of registers
  • Statutory & non statutory registers
  • Books of accounts
  • Period of maintenance
  • Place of keeping
  • Entries and authentication
  • Inspection, extracts and copies
  • Placing before the meeting
  • Closure of registers – S 154
  • Electronic registers
Procedural compliances
  • Business not ultra virus to MOA
  • Compliance of section 3 (1) (iii) provisions by private company
  • Maintenance of registered office
  • Directors remunerations
  • Office of profit – remuneration/ professional fees
  • Loans to Directors
  • Related party contracts
  • Investments/ guarantees/ securities
  • Appointment of Auditors/ Secretaries
  • Constitution of Audit Committee – S 292A
  • Obtain compliance certificate/ Auditors report
  • Calling of Meetings, Sending of notices
  • Delivery of documents
  • Payment of dividend, capitalization of profits
  • Allotment of shares
  • Issue of share certificates
  • Buy back of shares
  • Preparation of financial statements
  • Payment of duties and taxes
  • Managing Security deposits and deposit of provident fund money
  • Use and custody of common seal
Charge management
  • Authority to borrow money
  • Execution of loan documents and affixing of common seal
  • Creation of charge on assets of the Company
  • Third party security
  • Personals loans used in the Company
  • "Pari passu" charge
  • Second charge
  • Debenture charge
  • Satisfaction of charge
  • Filing of forms and registration
  • Delay in filing
  • Declaration in balance sheets – secured loans
  • Register of charges
  • Index of charge
MIS through MCA
  • Effective for corporate governance and enrichment of business
  • Various tools available – search, certified copies
  • Competitors data
  • Master Data
  • Name search
  • Alerts
  • Tracking of forms and payments
Officer in default
  • Section 5
    • MD
    • WTD/ ED
    • Manager
    • Secretary
    • Any person directing and instructing Board (excludes professional directors – S 7)
    • Any person changed by the Board with the responsibility – F 1AA
  • If company does not have MD/WTD/MGR/ Specified director, then entire Board is in default.
  • Officer in default shall be liable to any punishment, penalty, imprisonment/ fine etc.
Offences, penalties, prosecution
  • Company and officer in default liable
  • Various penalties (fine / imprisonment) specified in sections
  • Cognizance of offence only on complaint in writing made by ROC, SEBI, shareholder or authorized person of CG
  • Offences are of criminal nature
  • Jurisdiction – Magistrate
  • Non cognizable offence as per CRPC
  • Appeal lies to High Court
Major Offences
  • Non filing of Annual returns/ Balance Sheet – S 162/ 220 (3) – fine Rs 500/- per day
  • Production & inspection of books on application made by prosecutor to HC. – S 627
  • Penalty for false statement – S 628 – 2 years imprisonment and fine
  • Penalty for false evidence – S 629 - 7 years imprisonment and fine
  • Penalty where no specific penalty is provided – S 629A – fine Rs. 5000/- and for continuing default Rs. 500/- per day
  • Penalty for wrongful withholding of property – S 630 – fine Rs. 10000/-
  • Penalty for improper use of Ltd/ Pvt Ltd – S 631 – fine Rs. 500/- per day
Compounding of offence
  • Section 621A
    • Any offence punishable under the act without imprisonment
    • Company and officer in default
    • Application can be made anytime before or after launching of prosecution
    • Application to ROC
    • RD for maximum fine upto Rs. 5000/-
    • CLB for fine above Rs. 5000/-
    • Compounding with payment of fees
    • Similar offence committed within 3 years of compounding of first, can not be compounded
    • After 3 years similar offence committed will be treated as first offence
    • Compounding authority may instruct Company to file returns
Exit route
  • Closure under S 560 – defunct company
  • Winding up: voluntary / creditors S 421 to 439A
  • Appointment of official Liquidator – S 448
  • Merging/ takeover/ compromise/ arrangements – S 391 to 396
  • Sale of stake
Role of CS in CCM
  • Friend, philosopher and guide
  • Catalyst
  • Management advisor
  • Auditor
  • E consultant
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