Company Law-class-resolutions and Audit

7/30/2019 Company Law-class-resolutions and Audit

1/46

\Registration of prospectus

u/s 60: a prospectus has to be registered and acopy delivered to ROC and then it can beissued to the public

The prospectus must be issued to the publicwithin 90 days of date of registration

If any default is made in registration, issue ordocumentation of prospectus , a penalty of Rs. 50000 is to be payable

company law 1


2/46

Various types of prospectus SHELF PROSPECTUS: u/s 60 A a prospectus issued by

any financial institution or bank for one or more issuesof securities is called a shelf prospectus

Any PFI, PS bank or a scheduled bank whose mainobject is financing shall file a shelf prospectus

An information memorandum must also be issued withthe first issue to public giving all the details of thecompany

A public company making an issue of securities maycirculate information memorandum to public prior tofiling a prospectus

company law 2


3/46

RED HERRING PROSPECTUS: it is a prospectuswhich does not have details of either the prioceor number of shares being offered or the amount

of issue. The cash price is not disclosed but the number of

shares and upper and lower price bands aredisclosed

Only after the bidding process , the details of thefinal price are included and submitted to ROC,which rthen shall be called as prospectus

company law 3


4/46

Abridged prospectus: it is to mean amemorandum containing such salient featuresof prospectus as may be priscribed.

It accompanies the application form of publicissues

company law 4


5/46

RESOLUTIONS

The questions which come for consideration At ageneral meeting of a company are presented inthe form of motions. The motion is discussed and

closes for discussion by voting from the members If the motion receives majority the motion shall

be put to poll The motion is carried to become a resolution ACCORDING TO ICA 1956, there are three types

of resolutions

company law 5


6/46

u/s 189(1): ORDINARY RESOLUTION

An OR is a resolution which ois passed at a GM by a simplemajority of votes

The votes may be cast by members in person or by proxy, whereproxies are allowed

Matters discussed in OR:1. ISSUE OF SHARES AT A DISCOUNT

2. ALTERATION OF SHARE CAPITAL

3. RE-ISSUE OF REDEEMED DEBENTURES4. ADOPTION OF STATUTORY REPORT

5. APPOINTMENT OF AUDITOPRS AND THEIR REMUNERATION

company law 6


7/46

189(2) SPECIAL RESOLUTION

RULES OF SPECIAL RESOLUTION:- The intention to propose the resolution as a SR

has been duly specified in the notice calling thegeneral meeting

- The votes cast in favor of resolution shall nopt beless than 3 times the number of votes castagainst the resolution.

- Proxies are also counted for where ever allowed- a copy of the same after the resolutiontaken

shall be submitted to the ROC within 30 days of passing such resolution

company law 7


8/46

Matters to be discussed in SR:- Change of name of company- Alteration of articles of the company

- Variation of shareholders rights- Reduction in share capital conversion of uncalled

capital into reserve capital- Fixation of remuneration of directors- Applying to court for winding up of company- Removal of the registered office of the company

outside the local limits of , village, city, state

company law 8


9/46

u/s 190: Resolutions requiring a specialnotice

It is a different kind of ordinary resolutionIt is a notice of intention to move a resolution to be given

to the company by the proposerThe notice shall be given not less than 14 days prior to the

meeting at which the resolution is to be movedA special notice is required for a resolution in the following

cases:

1. Appointment of an auditor other than the retiring ones2. Removal of a director3. Appointment of a director who has been removed

company law 9


10/46

AUDIT OF BOOKS OF ACCOUNTS

Audit is examination of accounts to establishthe correctness

It is done with a two fold purpose:1. Detection and prevention of errors2. Detection and prevention of fraud

u/s 224: appointment of an auditor ismandatory and an ordinary resolution ispassed

company law 10


11/46

Accounts and audit of companies

Every company must maintain proper books of accountsof its affairs. The following transactions must beentered in the books of accounts of the company

which must be kept at its registered office : all sums of money received and expended by the

company and the matters in respect of which therespect of which the receipt and expenditure took

place; all sales and purchases of goods by the company; and

company law 11


12/46

the assets and liabilities of the company. in the case of a company engaged in

production, processing, manufacturing ormining activities, such particulars relating toutilization of material or other items of cost asmay be prescribed relating to certain class of companies as the Central Government mayrequire

company law 12


13/46

The books of accounts must comply with thefollowing conditions :-

The books must give a true and fair view of the state of affairs of the company or thebranch office, if any, and explain itstransaction.

The books must be kept on accrual basis andaccording to double entry system of accounting

company law 13


14/46

Place of keeping thew books

Every company must keep its books of accountat its registered office.

However, some of the books of account maybe kept at such other place in India as theBoard of Directors may decide, provided anotice in writing giving full address of thatother place along with requisite filing fee isfiled with the Registrar of Companies withinseven of such decision

company law 14


15/46

Branch accounts If the company has a branch office, the books of

account relating to transactions at the branchoffice may be kept at that branch office, but

proper summarized reports and statements mustbe sent to the registered office or such otherplace where the books are kept, at intervals of not more than three months.

The books of account of the branch must give atrue and fair view of the affairs of the branch andclearly explain its transactions.

company law 15


16/46

Persons responsible for accounts

The following persons are responsible for maintaining thebooks of accounts of a company :-

The managing director or manager; If the company has neither a managing director nor

manager, then every director of the company; Every officer and other employee who has been

authorized and to whom responsibility to maintain thebooks has been allotted by the Board of Directors.

company law 16


17/46

Preparation of Balance Sheet andProfit and Loss Account

The company has to prepare its balance sheetand profit & loss account from the books of account maintained by it.

Every Balance Sheet of a company must give atrue and fair view of the state of affairs of thecompany as at the end of the financial yearand must be in the prescribed format.

company law 17


18/46

Form of Balance Sheet Part 1 to Schedule VI of the Companies Act, 1956

gives the format in which the balance sheet is tobe prepared.

The schedule specifies 2 types of formats, thehorizontal format and the vertical format. A company can prepare its balance sheet in

either of the 2 formats. In the horizontal format, the liabilities including

the share capital are placed on the left side andassets of all types on the right

company law 18


19/46

The balance sheet and profit & loss account of acompany must be signed on behalf of the Boardof directors by two directors out of whom onemust be the managing director, where there isone and the manager, or secretary, if any.

The balance sheet and profit and loss accountmust be approved by the Board of directorsbefore they are submitted to the auditors for the

purpose of audit. The report of the auditors must be attached to

the balance sheet and profit & loss account.

company law 19


20/46

Filing of Annual Accounts with theRegistrar

Every company must file with the Registrar : within 30 days from the day on which the

annual accounts, auditors report and the

directors report were presented at theannual general meeting,

three certified copies of these documents

signed by the managing director, manager orsecretary of the company or if there be noneof these by a director of the company

company law 20


21/46


These accounts may be inspected and copies thereof may be obtained by any member of the public at theRegistrar of Companies on payment of the requisite fee.

However, no person other than a member of thecompany is entitled to inspect, or obtain copies, of theprofit and loss account in the case of the following typesof companies :-

- a private company which is not a subsidiary of publiccompany;

- a private company whose entire paid-up capital is heldonly by one or more bodies corporate incorporatedoutside India; or

company law 21


22/46


- a private company which is deemed to be apublic company by virtue of Section 43A, if theCentral Government directs that it is not inthe public interest that any person other thana member of the company should be entitledto inspect or obtain copies of the profit and

loss account of the company

company law 22


23/46

Directors' Report

The report of the Board of Directors must beattached to every balance sheet presented atthe annual general meeting.

The report must contain information regardingthe following matters :-

The state of affairs of the company The amount, if any, which it proposes to carry to

any reserves in such balance sheet The amount of dividend recommended

company law 23


24/46

Conservation of energy, technology absorption,foreign exchange earnings and outgo.

Names, designations and other particulars of allemployees drawing more than Rs. 50000/- p.m.in the company

Details of any material changes andcommitments, if any, affecting the financialposition of the company which have occurredbetween the end of the financial year of thecompany to which the balance sheet relates andthe date of the report

company law 24


25/46

Details necessary for a proper understanding of thestate of the company's affairs and which are not, inthe Board's opinion, harmful to the business of thecompany or of any of its subsidiaries, in respect of changes which have occurred during the financialyear :-

in the nature of company's business;

in the company's subsidiaries or in the nature of the business carried on by them; and

generally in the classes of business in which thecompany has an interest

company law 25


26/46

Auditors of Other Companies

It is the duty of the auditor conduct the audit of thebooks of accounts of the company and to make hisreport to the members of the company on the

accounts examined by him, and on every balancesheet, every profit and loss account and on everyother document declared by the Act to be part of orannexed to the balance-sheet or profit and loss

account and laid before the company in generalmeeting during his tenure of office.

company law 26


27/46

The auditors report, besides other things necessary inany particular case, must expressly state-

whether, in his opinion and to the best of hisinformation and according to explanation given to him,the accounts give the information required by the Actand in the manner

whether the balance-sheet gives a true and fair

view of the company's affairs as at the end of the financial year and the profit and lossaccount gives a true and fair view of the profitor loss for the financial year;

company law 27


28/46

whether he has obtained all the informationand explanations required by him for thepurposes of his audit;

whether in his opinion, the profit & lossaccount and balance sheet referred to in hisreport comply with the accounting standards

recommended by the Institute of CharteredAccountants of India;

company law 28


29/46

whether, in his opinion, proper books of account as required by law have been kept bythe company, and proper returns for the

purposes of his audit have been received fromthe branches not visited by him; whether the company's balance sheet and

profit and loss account dealt with by thereport are in agreement with the books of account and returns

company law 29


30/46

The auditor must submit a copy of his auditreport to the Comptroller and Auditor-Generalof India who shall have the right to commentupon or supplement, the audit report in suchmanner as he may think fit.

company law 30


31/46

u/s 227-231

Powers/Rights of an Auditor Right of access to books of account and vouchers Right to receive information and explanations. Right of access to books and papers of branches Right to receive notices of general meetings and to

attend those meetings.

Right to make representation where another personis being appointed as auditor.

company law 31


32/46

DUTIES OF AN AUDITOR

To give a report to the members on the accounts,books of account, balance sheet and profit and lossaccount examined by him.

Where any matter reported upon is answered in thenegative or with a qualification the report shall includereasons for such qualification with factual position.

To attend those general meetings of a listed company,

either himself or through authorized person, in whichthe balance sheet, profit and loss account and theauditors' report are to be considered.

company law 32


33/46

Rights of an auditor

To make report for inclusion in prospectus. To certify receipts and payments account in

the statutory report To make report on declaration of solvency in

case of voluntary winding up. To exercise reasonable care and skill in

carrying out his duties and make suchinquiries as considered necessary.

company law 33


34/46

u/s 233-A: Special audit

233A: Power of Central Government to direct specialaudit in certain cases:

(1) Where the Central Government is of the opinion

(a) that the affairs of any company are not beingmanaged in accordance with sound business principlesor prudent commercial practices; or

(b) that any company is being managed in a manner likelyto cause serious injury or damage to the interests of the trade, industry or business to which it pertains; or

company law 34


35/46

SPECIAL AUDITOR

(c) that the financial position of any company issuch as to endanger its solvency;

the Central Government may at any

time by order direct that a special audit of thecompany' s accounts

The chartered accountant or the company' sauditor appointed to conduct a special auditas aforesaid is referred to as the special auditor

company law 35


36/46

S E B I

SECURITIES EXCHANGE BOARD OF INDIAIt was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed

by the Indian Parliament.SEBI is headquartered in the business districtof Bandra Kurla Complex in Mumbai,

and has Northern, Eastern, Southern andWestern regional offices in New Delhi, Kolkata,Chennai and Ahmedabad

36


37/46

Controller of Capital Issues-CCI

Controller of Capital Issues was the regulatoryauthority before SEBI came into existence; itderived authority from the Capital Issues(Control) Act, 1947.

37


38/46

Initially SEBI was a non-statutory body

without any statutory power. However in 1995, the SEBI was given

additional statutory power by the

Government of India through anamendment to the securities andExchange Board of India Act 1992.

In April, 1998 the SEBI was constituted asthe regulator of capital market in Indiaunder a resolution of the Government of India.

38


39/46

Functions and responsibilities

SEBI has to be responsive to the needsof three groups, which constitute themarket:

the issuers of securities the investors the market intermediaries.

39


40/46

SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial quasi-executive.

It drafts regulations in its legislative capacity ,It conducts investigation and enforcement actionin its executive functionIt passes rulings and orders in its judicial capacity .

Though this makes it very powerful, there is anappeals process to create accountability. There isa Securities Appellate Tribunal which is a three-member tribunal

40


41/46

Powers of SEBI

For the discharge of its functions efficiently,SEBI has been invested with the necessarypowers which are:

to approve bylaws of stock exchanges. to require the stock exchange to amend their

bylaws. inspect the books of accounts and call for

periodical returns from recognised stockexchanges. inspect the books of accounts of a financial

intermediaries.41


42/46

compel certain companies to list their

shares in one or more stock exchanges. levy fees and other charges on the

intermediaries for performing its

functions. Grant licence to any person for the

purpose of dealing in certain areas.

delegate powers exercisable by it. prosecute and judge directly the violation

of certain provisions of the companies

42


43/46

SEBI Committees Technical Advisory Committee Committee for review of structure of

market infrastructure institutions Members of the Advisory Committee for

the SEBI Investor Protection andEducation Fund

Takeover Regulations Advisory Committee Primary Market Advisory Committee

(PMAC) Secondary Market Advisory Committee

(SMAC) 43


44/46

Mutual Fund Advisory Committee Corporate Bonds & Securitization

Advisory Committee Takeover Panel SEBI Committee on Disclosures and

Accounting Standards (SCODA)

44


45/46

High Powered Advisory Committee onconsent orders and compounding of offences

Derivatives Market Review Committee Committee on Infrastructure Funds

45


46/46

VARIOUS REGULATIONS SEBI (insider trading) Regulations, 1992 SEBI(underwriters) Regulations, 1993 SEBI (debenture trustee) Regulations,

1993 SEBI(portfolio managers) Regulations,

1993

SEBI( FII) Regulations, 1995 SEBI(mutual fund), 1996 SEBI(Issue of sweat equity) Regulations,

2002

Documents

Company Law-class-resolutions and Audit