Tag: University of Mumbai BMS Notes

The books of accounts showing true and fair financial statements and relevant papers shall be kept at the registered address of the company. The books shall be kept on accrual basis and according double entry system of accounting. The books of accounts and relevant papers may be kept at other place in India as BOD may decide. A seven days’ notice shall be given to ROC for communication of new address. The accounts can be kept in electronic mode.

The books of accounts related to branch office can be kept at the branch however proper summarised returns shall be sent to registered office periodically.

The books of accounts shall be open for director’s inspection at registered office or other place during business hours. The copies of financial information maintained outside India shall be produced for inspection. The inspection of subsidiary can be done only after authorization from BOD.

The books of accounts of the company shall be kept in good order for a period of 8 FYs and in case investigations ordered by CG it may direct a longer period.

MD, WTD in charge of finance, CFO and such other person charged by the BOD with compliance of this section, contravenes the provisions shall be punishable with imprisonment for maximum 1 year or with fine ( Rs. 50,000 to Rs. 5,00,000 ).

Financial Statements (Section 129)

• Shall be prepared in Schedule III format,
• Shall comply with the accounting standards specified in section 133 and
• Shall give a true and fair view of the state of affairs of the company
• Shall be laid before AGM by BOD along with the consolidated financials (prepared on the basis of same principles of standalone) in case of subsidiary, associate and JV.
• If do not comply with accounting standards, shall disclose the deviation, reasons and financial effect

Contravention of the provisions of this section; MD, WTD in charge of finance, CFO and such other person charged by the BOD with compliance of this section and in the absence of any such officers all the directors shall be punishable with imprisonment for maximum 1 year or with fine ( Rs. 50,000 to Rs. 5,00,000 ).

Reopening of accounts on court’s or Tribunal’s orders (Sec. 130)

Application made by CG, Income tax authority, SEBI, any other regulatory body, authority or any person concerned and an order made by a court or the tribunal stating that the accounts were prepared in fraudulent manner and the affairs of the company were mismanaged during the relevant period casting a doubt the doubt on reliability of financial statements., then a company can re-open and recast its financial statements. Court or Tribunal shall give the notice to the specified authorities and the representations made by the applicant shall be considered before passing the order. The accounts revised or recast shall be final.

Voluntary revision of financial statements or Board’s report (Section 131)

If it appears to the directors of a company that the financial statements of the company or the board’s report do not comply with the provisions of Section 129 or section 134, financial statements or the board reports for the 3 preceding financial years may be revised. For this purpose company shall make an application to Tribunal and Tribunal will pass an order. The order shall be filed with ROC by the company. Tribunal shall give notice to CG & Income Tax authorities and the representations shall be considered before passing an order by tribunal. Revised financials and report can be filed once in a financial year. Details of reasons for revision shall be stated. If the previous financial statement and board report copies are already sent to the members or ROC or laid in AGM the revision must be confined to the correction and consequential alterations.

Constitution of National Financial Reporting Authority (Section 132)

CG may constitute NFRA.

NFRA shall:

• Make recommendation to CG on formulation and laying down of accounting and auditing policies and standards for adoption by companies or class of companies or their auditors
• Monitor and enforce compliance with accounting and auditing standards
• Oversee the quality of service of the professionals associated with ensuring compliance with the standards

NFRA shall consist 1 chairperson having expertise in the field of accountancy, auditing, finance or law appointed by CG and other members maximum 15. Conflict of interest and lack of independence in respect of appointment shall be declared by the member. Chairperson and members in full time employment shall not be associated with any audit firm (including consultancy firms) during the course of their appointment after ceasing their appointment.

Powers of NFRA will be:

• To investigate professional or other misconduct done by member or firm of CAs. No other body or institute can investigate the same matter. NFRA shall have exclusive jurisdiction.
• Have the same powers as are vested in a civil court under the Code of Civil Procedures, 1908 while trying a suit
• To impose penalty ( Individual – Rs. 1 Lacs to 5 times of fees received Firms – Rs. 10 Lacs to 10 times of fees received ) or debar member or firm for a period of 6 months to 10 years, if professional or other misconduct is proved.

Any person aggrieved by any order of NFRA may prefer appeal before appellate authority as prescribed.

Central Government to prescribe accounting standards (Section 133)

AS shall be prescribed by CG, recommended by ICAI in consultation with and after examination of the recommendations made by NFRA.

Financial Statements, board’s report etc.

FS including CFS (if any) shall be approved by BOD. FS shall be signed at least by the chairperson of the company or by two directors out of which one shall be MD and CEO if he is director, CFO and CS of the company. Auditors’ report shall be attached with FS.

FS and board’s report shall be laid before the company in AGM. Board’s report shall include:

• Extract of annual return
• Number of meetings of the board
• Directors responsibility statement
• Statement on declaration given by independent directors
• Company’s policy on directors’ remuneration
• Comment on qualifications raised in statutory audit report or secretarial report
• Particulars of loans, guarantees or investments under section 186
• Particulars of contracts or arrangement with related parties mentioned in sec. 188
• State of the company’s affairs
• Amounts proposed to be carried forward to reserves
• Recommended dividend
• Material changes and commitments affecting the financial position
• Conservation of energy, technology absorption, foreign exchange earnings and outgo
• Statement indicating development and implementation of a risk management policy
• Details of CSR policy developed & implemented
• Annual evaluation of the board

Board report shall be attached to FS. Board report shall be signed by Chairperson if authorised by board otherwise by at least two directors.

Corporate Social Responsibility (CSR) (Section 135)

Company having net worth Rs. 500 crores or more, turnover Rs. 1000 crores or more net profit of Rs. 5 crores or more during any financial year shall constitute a CSR Committee of the board consisting of 3 or more directors, one shall be independent director.

Right of the member to copies of audited financial statement (Section 136)

Financial Statements including Consolidated Financial Statements, auditors’ report and other documents which are to be laid down before AGM shall be sent to every member and trustee of debenture holder and all other required persons at least before 21 days of AGM. In case of listed company these documents can be kept for inspection at least before 21 days of AGM.

Copy of FS to be filed with Registrar (Section 137)

The financial statements including consolidated financial statements shall be filed with Registrar within 30 days from the date of AGM.

The accounting for depreciation requires an ongoing series of entries to charge a fixed asset to expense, and eventually to derecognize it. These entries are designed to reflect the ongoing usage of fixed assets over time.

Depreciation is the gradual charging to expense of an asset’s cost over its expected useful life. The reason for using depreciation to gradually reduce the recorded cost of a fixed asset is to recognize a portion of the asset’s expense at the same time that the company records the revenue that was generated by the fixed asset. Thus, if you charged the cost of an entire fixed asset to expense in a single accounting period, but it kept generating revenues for years into the future, this would be an improper accounting transaction under the matching principle, because revenues are not being matched with related expenses.

In reality, revenues cannot always be directly associated with a specific fixed asset. Instead, they can more easily be associated with an entire system of production or group of assets.

The journal entry for depreciation can be a simple entry designed to accommodate all types of fixed assets, or it may be subdivided into separate entries for each type of fixed asset.

The basic journal entry for depreciation is to debit the Depreciation Expense account (which appears in the income statement) and credit the Accumulated Depreciation account (which appears in the balance sheet as a contra account that reduces the amount of fixed assets). Over time, the accumulated depreciation balance will continue to increase as more depreciation is added to it, until such time as it equals the original cost of the asset. At that time, stop recording any depreciation expense, since the cost of the asset has now been reduced to zero.

For example, ABC Company calculates that it should have $25,000 of depreciation expense in the current month. The entry is:

In the following month, ABC’s controller decides to show a higher level of precision at the expense account level, and instead elects to apportion the $25,000 of depreciation among different expense accounts, so that each class of asset has a separate depreciation charge. The entry is:

Depreciation is considered an expense, but unlike most expenses, there is no related cash outflow. This is because a company has a net cash outflow in the entire amount of the asset when the asset was originally purchased, so there is no further cash-related activity. The one exception is a capital lease, where the company records it as an asset when acquired but pays for the asset over time, under the terms of the associated lease agreement.

Finally, depreciation is not intended to reduce the cost of a fixed asset to its market value. Market value may be substantially different, and may even increase over time. Instead, depreciation is merely intended to gradually charge the cost of a fixed asset to expense over its useful life.

Depreciation and a number of other accounting tasks make it inefficient for the accounting department to properly track and account for fixed assets. They reduce this labor by using a capitalization limit to restrict the number of expenditures that are classified as fixed assets. Any expenditure for which the cost is equal to or more than the capitalization limit, and which has a useful life spanning more than one accounting period (usually at least a year) is classified as a fixed asset, and is then depreciated.

Underwriting is an act of guarantee by an organization for the sale of certain minimum amount of shares and debentures issued by a Public Limited company.

According to the Companies Act, when a person agrees to take up shares specified in the underwriting agreement when the public or others failed to subscribe for them, it is called underwriting agreement. For this purpose, the underwriter who guarantees for the sale of shares, is given a commission.

When the public to whom the shares of issue fails to subscribe, it is the underwriter who has to subscribe up to the limit he has agreed. Later on, when the market improves he may off load the shares by selling them to the public. Thus, the underwriter makes a promise to get the underwritten issue subscribed either by him or by others.

According to Indian Companies Act every public limited company must raise minimum capital and if it fails to raise within 60 days from the date of issue of prospectus, the directors should return the money to the public. If the return is delayed by more than 78 days, the company has to pay interest on the refund amount.

Importance of Underwriting

The persons responsible for issuing shares in the company, known as issuers, have the option of deciding for the underwriting of shares. If the issue is not underwritten, there is a possibility of the issue eiting under subscribed and even if 90% of minimum subscription is not received, the money has to be refunded in full. Hence, there is an urgent need on the part of the issuer, to seek the assistance of underwriters for a successful completion of issue of shares.

SEBI’s Guidelines for Underwriting

According to SEBI, the number of underwriters should be decided well in advance by the issuer and he must obtain prior permission from SEBI. Permission will be granted by SEBI only after finding out the net worth of the underwriters and their outstanding commitments.

The Stock Exchange, where the security is going to be listed must also be informed about the arrangements made with the underwriters.

25% of each class of securities must be offered to the public and in the remaining 75%, the following method of firm allotment could be adopted.

SEBI has instructed companies to allot to three major categories of allotees, namely,

• QIB
• HNI
• Retailers

QIB refers to qualified institutional bidders (Mutual Funds, banks, etc.).

HNI refers to high net worth individuals, investing more than Rs. 1 lakh in a single company security.

Retailers are individuals who are investing less than Rs. one lakh.

Responsibilities of Underwriters

1. An underwriter, not only has to underwrite the securities but has to subscribe within 45 days that part of shares which remain unsubscribed by the public.
2. His underwriting obligations should not exceed, at any time, 20 times of his net worth.
3. The underwriter cannot derive any other benefit except the underwriting commission which is 5% for shares and 2½% for debentures.

Merits of Underwriting

1. Underwriting ensures success of the proposed issue of shares since it provides an insurance against the risk.
2. Underwriting enables a company to get the required minimum subscription. Even if the public fail to subscribe, the underwriters will fulfill their commitments.
3. The reputation of the underwriter acts as a confidence to investors. The underwriters who are called the lead managers provide financial recognition to the company, whose shares are issued to the public. Thus, the reputation of the issuing company also improves because of the reputation of underwriters.

Syndicate underwriting

Whenever an investment house in charge of the particular company’s issue, is unable to handle the issue of shares, it may enter into an agreement with other underwriting concerns or investment house. Such a kind of underwriting is known as Syndicate underwriting. By Syndicate underwriting, the risk involved in underwriting the shares is reduced and the collective reputation of underwriters is also capitalized.

Benefits due to professional underwriters

1. Large issues could be undertaken successfully.
2. Companies with a long gestation period cannot raise capital without support of professional underwriters.
3. Technocrats could promote companies with their poor financial knowledge.
4. New projects in the market could be taken boldly.
5. Companies could be promoted in backward areas.
6. Certain projects which are not financially viable in the initial stages, especially in priority sector (agriculture, small scale industry, export oriented units) could be promoted with the support of institutional underwriters.

There are some accountants who do not prefer to use Intrinsic Value or Yield Value for ascertaining the correct value of shares. They, however, prescribe the Fair Value Method which is the mean of Intrinsic Value Method end Yield Value Method. The same provides a better indication about the value of shares than the earlier two methods.

Fair value refers to the actual value of an asset a product, stock, or security that is agreed upon by both the seller and the buyer. Fair value is applicable to a product that is sold or traded in the market where it belongs or under normal conditions and not to one that is being liquidated. It is determined in order to come up with an amount or value that is fair to the buyer without putting the seller on the losing end.

Fair Value = (Intrinsic + Yield Value) / 2

Advantages of Fair Value Accounting

Fair value accounting measures the actual or estimated value of an asset. It is one of the most commonly used financial accounting methods because of its advantages, which include:

1. Accuracy of valuation

With fair value accounting, valuations are more accurate, such that the valuations can follow when prices go up or down.

2. True measure of income

With fair value accounting, it is total asset value that reflects the actual income of a company. It doesn’t rely on a report of profits and losses but instead just looks at actual value.

3. Adaptable to different types of assets

Such a method is able to make valuations across all types of assets, which is better than using historical cost value which may change through time.

4. Helps businesses survive

Fair value accounting helps businesses survive during a financially difficult time because it allows asset reduction (or the act of declaring that the value of an asset that is included in a sale was overestimated).

Key Managerial Personnel refers to a group of people who are in charge of maintaining the operations of the company. Accounting Standard 18(AS-18) states that Key Managerial Personnel (KMP) are people who have authority and responsibility for planning, directing and controlling the activities of the reporting enterprise. Chief Executive Office, Cheif Financial Officer, Company Secretary, Whole Time Director are the Key Managerial Personnel.

Key Managerial Personnel

The term ‘personnel’ refers to a group of people working together, instead of one person. The Key Managerial Personnel are the decision makers. They are accountable for the smooth functioning of company operations.

The members of the Board of Directors do not necessarily get involved in the day to day operations of the company. Their job is to supervise the company as a whole, not micromanage. The Board of Directors sets goals and objectives for the company. The key managerial personnel is the one who actually works on these goals and objectives to be achieved.

Key Managerial Personnel under Companies Act, 2013

Under Section 2 of the Companies Act 2013, Key Managerial Personnel in reference to a company are as follows:

• Chief Executive Officer/Managing Director
• Company Secretary
• Whole Time Director
• Chief Financial Officer

(i) Chief Executive Officer/Managing Director

The managing director or chief executive officer is responsible for running the whole company. Also, the managing director has authority over all operations and has the most power in a managerial hierarchy.

He is also responsible for innovating and growing the company to a larger scale. In many countries, a managing director is also called a Chief Executive Officer (CEO).

(ii) Company Secretary

A company secretary is a senior level employee in a company who is responsible for the looking after the efficient administration of the company. The company secretary takes care of all the compliances with statutory and regulatory requirements.

He also ensures that the targets and instructions of the board are successfully implemented. However, in some countries, a company secretary is also called a corporate secretary.

(iii) Whole Time Director

A Whole Time Director is simply a director who devotes the whole of his working hours to the company. He is different from independent directors in the sense that he has a significant stake in the company and is part of the daily operation. A managing director may also be a whole time director.

(iv) Chief Financial Officer

Chief Financial Officer (CFO) is a senior level executive responsible for handling the financial status of the company. The CFO keeps tabs on cash flow operations, does financial planning, and creates contingency plans for possible financial crises.

Appointment of Key Managerial Personnel

Section 203 of the Companies Act 2013 has the provisions for the appointment of key managerial personnel. The Board appoints them. Also, the Board of Directors is responsible to fill any vacancies in the KMP within a period of six months.

It is mandatory for any listed company and any company with a paid up capital of more than or equal to 10 lakhs to appoint a whole time KMP. Further, a company with at least 5 lakhs paid-up capital is required to employ a full-time company secretary(who is also a KMP).

Roles and Responsibilities of Key Management Personnel

The KMPs are basically are basically responsible for taking the most important decisions and managing all the employees. They are also liable if they do not follow compliances laid down by the Companies Act 2013.

The growth and development of the company depend on the effectiveness of the KMPs at their jobs. The main responsibilities and functions of the KMP are:

• As per Section 170 of the Companies Act, the details about the securities held by the KMPs in the company or its holdings and subsidiaries must be disclosed and thus recorded in the Registrar.
• KMPs have a right to voice their opinion especially in meetings of the Audit Committee. However, they don’t have a voting right.
• According to Section 189, Companies Act, KMPs should disclose their interests in other companies and associations, at least within 30 days of the start of the employment period.

Powers of Auditors

1. Right to access

Every auditor of a company shall have right to access at all time to book of accounts and vouchers of the company. The Auditor shall be entitled to require from officers of the company such information and explanation as he may consider necessary for performance of his duties. There is an inclusive list of matter for which auditor shall seek information and explanation.

The list includes issues related to:

(a) Proper security for Loan and advances

(b) Transaction by book entries

(c) Sale of assets in securities in loss

(d) Loan and advances made shown as deposits

(e) Personal expenses charged to revenue account

(f) Case received for share allotted for cash. The auditor of holding company also has same rights.

2. Auditor to sign audit reports

The auditor of the company shall sign the auditor’s report or sign or certify any other document of the company and financial transactions or matters, which have any adverse effect on the functioning of the company mentioned in the auditor’s report shall be read before the company in general meeting and shall be open to inspection by any member of the company.

3. Auditor in general meeting

It is a prime requirement under section 146, that the company must send all notices and communication to the auditor, relating to any general meeting, and he shall attend the meeting either through himself or through his representative, who shall also be an auditor. Such auditor must be given reasonable opportunity to speak at the meeting on any part of the business which concerns him as the auditor.

4. Right to remuneration

The remuneration of the auditor of a company shall be fixed in its general meeting or in such manner as may be determined therein. It must include the expenses, if any, incurred by the auditor in connection with the audit of the company and any facility extended to him but does not include any remuneration paid to him for any other service rendered by him at the request of the company.

5. Consent of auditor

As per section 26, the company must mention in their prospectus the name, address and consent of the auditors of the company.

Duties of Auditors

1. Make report

The auditor shall make a report to the members of the company on accounts examined by him on every financial statement and shall state:(a)   Whether he has sought and obtained all the necessary information and explanations,(b)  Whether proper books of account have been kept,(c)  Whether company’s balance sheet and profit and loss account are in agreement with books of accounts and returns.

2. Audit report of Government Company

The auditor of the government company will be appointed by the Comptroller and Auditor-General of India and such auditor shall act according to the directions given by them. He must submit a report to them which should include the action taken by him and impact on accounts and financial statement of the company. The Comptroller and Audit – General of India shall within 60 days of receipt of the report have right to (a) conduct a supplementary audit and (b) comment upon or supplement such audit report. The Comptroller and Audit – General of India may cause test audit to be conducted of the accounts of such company.

3. Liable to pay damages

As per section 245, the depository and members of the company have right to file an application before the tribunal if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company. They also have right to claim damages or compensation from the auditor for any improper or misleading statement made in his audit report or for any fraudulent or unlawful conduct.

4. Branch Audit

Where a company has a branch office, the accounts of that office shall be audited either by the auditor appointed for the company, or by any other person qualified for appointment as an auditor of the company. The branch auditor shall prepare a report on the accounts of the branch examined by him and send it to the auditor of the company who shall deal with it in his report in such manner as he considers necessary.

5. Auditing Standards

Every auditor shall comply with the auditing standards. The Central Government shall notify these standards in consultation with National Financial reporting Authority. The government may also notify that auditors’ report shall include a statement on such matters as notified.

6. Fraud Reporting

If an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed.

7. Winding up

As per section 305, at the time of voluntary winding up of a company it is a mandatory requirement that auditor should attach the copy of the audits of the company prepared by him.

Types of Auditors

Auditors carefully examine financial records so they can evaluate an entity’s financial position and the authenticity of its data.

This requires experience not only in all types of accounting practices but also in various tax, laws and financial regulations governing the use of certain documents.

While it takes a highly trained accountant to work as an auditor, there are different types of auditors with different audit aims.

Several types of auditors conduct these procedures.

Types of Auditors are:

• Independent/External Auditors: Profesional Audit services providors.
• Internal Auditors: Company’s own in-house expert auditors to maintain internal control and audit the company’s internal activities.
• Government Auditors: Auditors that are working with various government agencies; where why audit internal agency audit and/or audit the corporations by court order or government law.
• Forensic Auditors: They are hired to play Sherlock. Auditors that specialize in crimes and are used by law enforcement organizations.

1. Independent/External Auditors

Independent auditors are usually Chartered Accountants (CAs) who are either individual practitioners or members of public accounting firms who render professional auditing services to clients.

In general, licensing involves passing the uniform CA examination and obtaining practical experience in auditing.

2. Internal Auditors

Internal auditors are employees of the organization they audit. This type of auditors is involved in an independent evaluation of evidence, called internal auditing, within an organization as a service to the organization.

The objective of internal auditing is to assist the management of the organization in the effective discharge of its responsibilities.

3. Government Auditors

Government auditors are employed by various local, state, and federal governmental agencies.

At the federal level, the three primary agencies are the General Accounting Offices (GAO), the Internal Revenue Services (IRS), and the Defense Contract Audit Agency.

4. Forensic Auditors

Forensic auditors specialize in crimes and are used by law enforcement organizations when financial documents are involved in a crime.

This does not necessarily mean the crime was financial (although this can be the case) but rather that the law enforcement organization needs to track money used to find out where it began or ended up.

The roles of auditors are intertwined with the evolution of the auditing theory itself, as auditing evolved based on circumstances the evolution directly influence the functions and the entire practice of auditors.

Qualification of Company Secretary

A company secretary needs to be multi-skilled as he has to perform duties that are, complex in nature and wide in scope. He should have the qualification and qualities to act efficiently presented below:

• Educational Qualifications
• Professional Qualifications
• Personal Qualities

1. Educational qualifications of company secretary

• A company secretary has to deal with many people of name and fame. So he must have higher education for better understanding.
• He represents the company to the outside world and therefore he should have language proficiency to be well conversant.
• He should be updated with wide general knowledge relevant to run the company activities.

2. Professional qualifications of company secretary

• A company secretary requires specialized knowledge of secretarial practice to deal with notice, agenda, resolution, minutes of a meeting. He must know about office correspondence for communication.
• A company secretary must have sufficient knowledge of companies Act, Industrial & Commercial law, and the law of income tax, stamp Act, Accounting principles, and rules of Securities and Exchange Commission (SEC) to deal with legal and statutory affairs.
• A company secretary should have a better understanding of money and capital market, foreign exchange and socio-economic conditions to deal with trading and financing.
• He requires proper knowledge to work with a computer for document preservation and future use of data or information.
• To maintain a good relationship with all stakeholders a company secretary should have knowledge of human relations.

3. Personal qualities of company secretary

A company secretary is a high profile officer and therefore he should be a person to have below qualities:

• Honesty & Integrity
• Loyalty and courtesy
• Punctuality
• Tactfulness and cautiousness
• Sense of discipline and responsibility
• Professional minded

Process of Appointment of Company Secretary under the Companies Act 2013

1. Call for a Board meeting. The notice for this meeting must include that appointment of Company Secretary is to be discussed, as per the Companies Act 2013. The Terms and Conditions of such an appointment. Along with the other matters that are to be discussed during that meeting.
2. The person proposed to be appointed as the Company Secretary is required to give his consent in writing.
3. Once the Board Resolution is cleared, a Form MGT-14 is to be filed within 30 days of the passing of Board Resolution along with the CTC and Consent Letter.
4. In the case of listed companies, inform the Stock Exchange, where the shares of the company are listed, that such a board meeting is going to take place. This must be done prior to the date when this meeting is to be held.
5. Update this Stock Exchange, within 15 minutes of the board meeting closure, about the result. This is to be done by mail or fax.
6. The details about the appointed Company Secretary must be filed with the relevant Registrar of Companies (ROC) within 30 days of the appointment. Form DIR-12 is the appropriate form to File ROC Compliance in this regard.
7. Pay the fees as applicable with the Form DIR-12.
8. Enter the requisite details in the Register of Directors or Secretaries.

Mandatory Appointment

The Companies Act makes it compulsory for all listed companies and other companies with a paid-up share capital of Rs. 5 crores or more to appoint a specified list of full-time Key Managerial Personnel (KMP), which includes a Company Secretary. The following KMPs should be a part of its ranks:

• Managing Director/Chief Executive Officer/Manager (and in their absence, a whole-time director).
• Company Secretary
• Chief Financial Officer (CFO)

Position of Company Secretary

Our company Act 1994 does not define the legal status or position of the company secretary. However various decisions of the court and role-play of the company secretary provide the below matters as the legal status of the company secretary:

1. Secretary is an officer

According to section 2(ii) of the company Act 1994, a Company secretary is an officer of the company. He supervises all ministerial and administrative activities. He performs every correspondence on behalf of a company. So, he is a responsible officer of the company.

2. Secretary is a servant

A company secretary performs all duties as per authority given by the board. He can exercise such power only which is delegated to him. Therefore he is a servant of the company.

3. Secretary is an advisor

The company secretary gives important advice to the board of directors and supplies relevant information or data required to make a policy of the company. Also, he advises on time-bound changes to cope with current socio-economic challenges. 

4. Secretary is co-ordination

He coordinates the activities of various departments and units and keeps liaison with the directors, staff and other stockholders of the company.

5. Secretary is an administrator

A company secretary is considered as the chief administrative officer, of the company. He regularly makes representation and enters into” contracts on behalf of the company. He is solely responsible for the board of directors for the smooth running of the office work.

6. Secretary is an agent

A company secretary is also regarded as an agent of the company as he signs a contract on behalf of the company.

Rights of Company Secretary

1. Firstly, he can supervise, control and he can direct subordinate officers and employee.
2. Secondly, he can sign and authenticate the proceeding of meetings.
3. He has a right to blow the whistle whenever he finds necessary.
4. He can attend the meetings of the shareholders and the Board of Directors.
5. He can sign any contract/agreement on behalf of the company.
6. Lastly, at the time of liquidation, he can claim his dues like a creditor.

Liabilities of Company Secretary

Liabilities of Company Secretary differentiate into two categories

1. Statutory liabilities

A company secretary is legally bound to the following liabilities:

• Register all files and documents of the company.
• Arrange a statutory meeting and preparing the statutory report and submit it to the Registrar of the joint-stock company in due time.
• Arrange an annual general meeting in due time.
• Sending notice of the meeting to the participant.
• Writing minutes of various meetings and maintaining minute books.
• Supplying a relevant copy of minutes to the shareholders.
• Directors, shareholders, and debenture holder’s registrar maintaining.
• Submitting/financial statements of the Company to the Registrar of Joint Stock Company.
• Issuing share certificates, dividend warrant, and bonus share certificates to the shareholders.
• Deducting income tax from the employee salary and pay a dividend to the shareholders.
• Appointing company auditor and arranging an audit of books of account of the company.
• Never enter into any contract or distribute any share and debenture until the board of directors authorizes it. Also never take any loan in the name of the company.
• Submitting income tax returns and ensures the use of required company seal and stamp.

2. Contractual liabilities

Such liabilities arise from his service contract made with the company. Which are given below:-

• Abide by all terms and conditions of the service contract.
• Follow the order instructions and act as per the authorization of the board of directors.
• Maintain secrecy of the company affairs.
• Perform duties with due care and skills.
• Never act beyond his authority and not to make any secret profit through any illegal activity.

Removal or Dismissal of Company Secretary

A company secretary has a great role in every stage of company formation. But a company need to dismissal a secretary some time. They are mainly accountable for the professional management of a company, in relation to ensuring observance with constitutional and authoritarian requirements and ensuring that the Board decisions are efficiently implemented. We are going to describe those reasons for dismissal of a company secretary. He can be removed by giving the due notice in writing or compensation in lieu thereof.

A company secretary can be dismissed or removed by the board of directors in the following circumstances:

1. On the ground of disqualification

A company secretary is an employee of the company. He is generally appointed for a certain period. Employee-Employer affiliation exists between a company secretary and the company. Whenever a person is appointed as company secretary, an employer-employee relationship exists between him and the company. If the board of directors is not satisfied with the work of the secretary, they can terminate him subject to serving a written notice to the secretary as is mentioned in the contract of service. If the board of directors is not pleased with the performance of the company secretary, they can eliminate him giving prior written notice.

2. On the charge with irregularities

A company secretary may be dismissed without notice if he is charged with willful disobedience, misconduct, moral turpitude, negligence of duties, permanent disabilities, etc. A company secretary can be fired at any time without any prior written notice if he has been proved:

• As a fraud
• To break the code of conduct
• To have moral erosion
• To neglect duties intentionally
• To have permanent inability
• Lack of confidence and interpersonal skill

3. On the ground of winding up of the company

At the time of winding up of the company, the company secretary will be discharged as like as other employees of the company. During winding up of a company, the company secretary is discharged like other employees. An employee-employer relationship exists between a company secretary and the company. If the board of directors is not satisfied with the performance of the company secretary, they can remove him from giving prior written notice. If winding up takes place before the termination of the fixed term, he can argue compensation for the break of contract.

4. Convene Board Meeting

After giving become aware of to all directors, a Board Meeting should be convened in order to take decisions of removing the accessible Company Secretary. If company secretaries are named in the Articles of Association it also needs to be altered.

5. Intimate the Secretary

The Secretary to be removed shall be intimated concerning Board decisions & should be asked to give a demonstration to the Board within 15 days of intimation Convene Board Meeting 2nd Time.

6. End of the contract of the company secretary

A company secretary is selected for a permanent term. If the board of directors does not renovate the agreement then his agreement ends up routinely.

Types of Global Company

1. Exporting

Exporting is often the first choice when manufacturers decide to expand abroad. Simply stating, exporting means selling abroad, either directly to target customers or indirectly by retaining foreign sales agents or/and distributors. Either case, going abroad through exporting has minimal impact on the firm’s human resource management because only a few, if at all, of its employees are expected to be posted abroad.

2. Licensing

Licensing is another way to expand one’s operations internationally. In case of international licensing, there is an agreement whereby a firm, called licensor, grants a foreign firm the right to use intangible (intellectual) property for a specific period of time, usually in return for a royalty. Licensing of intellectual property such as patents, copyrights, manufacturing processes, or trade names abound across the nations. The Indian basmati (rice) is one such example.

3. Franchising

Closely related to licensing is franchising. Franchising is an option in which a parent company grants another company/firm the right to do business in a prescribed manner. Franchising differs from licensing in the sense that it usually requires the franchisee to follow much stricter guidelines in running the business than does licensing. Further, licensing tends to be confined to manufacturers, whereas franchising is more popular with service firms such as restaurants, hotels, and rental services.

One does not have to look very far to see how important franchising business is to companies here and abroad. At present, the prominent examples of the franchise agreements in India are Pepsi Food Ltd., Coca-Cola, Wimpy’s Damino, McDonald, and Nirula. In USA, one in 12 business establishments is a franchise.

However, exporting, licensing and franchising make companies get them only so far in international business. Companies aspiring to take full advantage of opportunities offered by foreign markets decide to make a substantial direct investment of their own funds in another country. This is popularly known as Foreign Direct Investment (FDI). Here, by international business means foreign direct investment mainly.

4. Foreign Direct Investment (FDI)

Foreign direct investment refers to operations in one country that ire controlled by entities in a foreign country. In a sense, this FDI means building new facilities in other country. In India, a foreign direct investment means acquiring control by more than 74% of the operation. This limit was 50% till the financial year 2001-2002.

There are two forms of direct foreign investment: joint ventures and wholly-owned subsidiaries. A joint venture is defined as “the participation of two or more companies jointly in an enterprise in which each party contributes assets, owns the entity to some degree, and shares risk”. In contrast, a wholly-owned subsidiary is owned 100% by the foreign firm.

An international business is any firm that engages in international trade or investment. International trade refers to export or import of goods or services to customers/consumers in another country. On the other hand, international investment refers to the investment of resources in business activities outside a firm’s home country.

Features of Global Company

1. Huge Capital Resources

These enterprises have huge financial resources. They have the ability to raise funds from different sources. Funds are raised by the issue of issuing equity shares, debentures, etc. to the public. The investors of the host countries are always willing to invest in them because of their high credibility in the market.

2. Foreign Collaborations

With companies of the host countries, these enterprises enter into agreements. These agreements are made in respect of the sale of technology, production of goods, patents, resources, etc.

3. Advanced Technologies

These enterprises use advanced technology for production, hence goods/services provided by the MNCs conform the international standard and quality specifications.

4. Product Innovations

These enterprises have efficient teams doing research and development at their own R &D centres. The main task is to develop new products and design existing products into new shapes in such a manner as to make them looks and new and attractive and also creates satisfies the demands of the customers.

5. Expansion of Market Territory

They expand their market territory when the network of operations of these enterprises extends beyond their existing physical boundaries. They occupy dominant positions in various markets by operating through their branches, subsidiaries in host countries.

6. Centralized Control

Despite the fact the branches of these branches of these enterprises are spread over in many countries, they are managed and controlled by their Head Office (HO) in their home country only. All these branches have to work within the broad policy framework of their parent company.