| Company Law is very very complicated and | | | | We can see the clear difference among the |
| interesting. If we look at all the corporate regulations or | | | | regulations governing Private Limited Companies, Public |
| law, it is very clear that it focuses mainly on the | | | | Limited Companies and Listed Public Companies. The |
| interests of the shareholders. The liability of the | | | | difference is due to their exposure to the market and |
| members is limited in limited companies and as such | | | | the interests of shareholders. While the Private Limited |
| the shareholders will be clueless often when their | | | | Companies are not allowed to solicit investment from |
| investment in the Company is not properly managed. | | | | the public by issuing prospectus or advertisement etc., |
| While the professionals use the term “Corporate | | | | the Public Limited Companies are allowed to issue a |
| Governance” with its relevance, many use the term | | | | prospectus or advertisement soliciting investment from |
| “Corporate Governance” generally and | | | | the public. The listed companies tend to attract more |
| emphasizing on good governance. While it is true that | | | | capital in view of the well regulated primary market |
| the “Corporate Governance” is meant to | | | | and the option of easy transfer of shares in the |
| provide “Good Governance” in the Company, | | | | secondary market. |
| there is a specific way to understand the term | | | | Now let us look at the issue of Corporate |
| “Corporate Governance”. | | | | Governance. Every Company which has opted to list |
| The term “Corporate Governance” is used in | | | | its shares in the recognized Stock Exchanges should |
| Listed Public Companies as they need to comply with | | | | enter into a listing agreement and non-compliance of |
| the “Corporate Governance” commitments | | | | the terms and conditions of the agreement can lead to |
| agreed with the Stock Exchanges. The term | | | | a stringent action by the Stock Exchanges like |
| “Corporate Governance” is specifically used | | | | de-listing of shares. |
| under clause 49 of the model listing agreement to be | | | | Clause 49 of the listing agreement to be entered into |
| entered into with the Stock Exchanges and the | | | | by the listed companies with the Stock Exchanges |
| violation of which may lead an action by the Stock | | | | refers to certain conditions under the heading |
| Exchange to de-list the company’s shares. | | | | “Corporate Governance”. The said clause 49 |
| While we look at the logical understanding and analysis | | | | mandates various conditions to be complied with by |
| of “Corporate Governance”, we need to look at | | | | the Companies under the head “Corporate |
| the corporate set-up in brief and have an | | | | Governance”. Thus, it is specific to the Listed Public |
| understanding of the law or the regulations governing | | | | Companies though the word “Corporate |
| different kinds of companies. While the provisions of | | | | Governance” is used in general and as a |
| Companies Act, 1956 provides certain kinds of | | | | synonymous to “Good Governance”. |
| companies like company limited by shares, company | | | | We know the authority of SEBI over listed public |
| limited by guarantee, an unlimited company, a company | | | | companies. In view of section 55A of Companies Act, |
| incorporated under section 25 and a producer | | | | 1956, SEBI governs certain issues like issuance of |
| company etc; the concept has become vague with | | | | shares etc. SEBI issues very very detailed regulations |
| describing companies based on certain elements like | | | | governing the Listed Public Companies with frequent |
| “Family Companies”. For the purpose of getting | | | | changes, amendments and introductions with the |
| a basic understanding as to the law or regulations | | | | ultimate object of regulating the capital market or |
| governing the Companies in India, we can consider | | | | protecting the interests of investors/shareholders. |
| following kind companies.a) A Private Company | | | | Though, the SEBI regulates the companies on certain |
| Limited by Guarantee.b) A Public Limited | | | | issues, the shares are listed actually with the Stock |
| Company.c) A Listed Public Company. | | | | Exchanges and trading takes place there as we know. |
| The basic set-up and the concept of company is as | | | | As an additional protection to the shareholders, Stock |
| follows: | | | | Exchanges are permitted to impose additional |
| 1) The term “Company” is defined under | | | | conditions to be complied with by the listed public |
| section 3 of the Companies Act, 1956 as “a | | | | companies and the listing agreement is one among |
| company which is registered under the provisions of | | | | them. |
| Companies Act, 1956”. | | | | The listing agreement to be complied with by all the |
| 2) Every Company should provide the basic | | | | listed companies, though lists out many conditions, |
| information as to its share capital, the name, the | | | | clause 49 occupies significance. Clause 49 of the listing |
| registered office, the objects, initial subscribers, the | | | | agreement emphasizes on executive directors, |
| authorized share capital, the directors and especially | | | | composition of directors, independent directors, |
| the chosen regulations. Every Company provides the | | | | disclosures by non-executive directors and their |
| basic information as referred to above by filing | | | | compensation, provisions as to committees like Audit |
| “Memorandum” and “Articles of | | | | Committee, Code of Conduct, some additional |
| Association”. Memorandum contains very basic and | | | | disclosures, CFO/CEO certification and a report on |
| important information about the Company as | | | | Corporate Governance etc. |
| everybody knows. | | | | The logic behind the further conditions on the listed |
| 3) The Company is managed by professionals | | | | companies under clause 49 of the listing agreement is |
| called directors and they are entrusted with certain | | | | just a further effort to eliminate the loopholes and for |
| powers to conduct the day-to-day affairs of the | | | | the protection of investors/shareholders. |
| Company. | | | | The provisions of Companies Act, 1956 itself deal with |
| 4) Every Company is supposed to conduct a | | | | the rights of the shareholders, the responsibilities of |
| meeting of all its shareholders and it is called | | | | Board, the books to be maintained by the Company, |
| “Annual General Body Meeting”. | | | | the reports to be filed with the statutory authorities like |
| 5) The shareholders are conferred with certain | | | | Registrar of Companies, the financial statements, the |
| vital powers in the Company and even the Board can | | | | clear bifurcation of powers with sound logic and a |
| not usurp the powers of Shareholders at times. | | | | mechanism for the protection of the interests of the |
| 6) Thus, certain decisions in the Company are | | | | shareholders and frauds inside. We have a |
| taken by the Board and certain decisions are taken by | | | | mechanism for the enforcement of the provisions of |
| shareholders in the Annual General Body Meetings. | | | | Companies Act, 1956, but, a need was felt for further |
| 7) Every Company is supposed to provide | | | | stringent regulations and specialist enforcement |
| certain vital information about the company in the form | | | | agencies in view of the market participations and the |
| of final reports to the shareholders like Annual Report | | | | stakes involved. This is the logic behind establishment |
| and Financial Statements like Balance Sheet and Profit | | | | of SEBI and various connected regulations governing |
| & Loss Account. | | | | listed companies including listing agreements to be |
| 8) The Registrar of Companies, the Central | | | | entered into with the Stock Exchanges. |
| Government, the Company Law Board and the | | | | The SEBI or Stock Exchanges may not have the |
| Company Court discharges various responsibilities in | | | | power to enforce the provisions of Companies Act, |
| regulating the Companies. | | | | 1956, but, it is not right to say that the Company Law |
| 9) Important changes, events and data are filed | | | | Board or the Company Court can not enforce SEBI |
| by every company with the Registrar of Companies | | | | regulations etc. though it is followed as a practice. |
| and those are accessible by the shareholders. | | | | After Saytam Episode, everybody focused and |
| 10) Other professionals like | | | | criticized at “Corporate Governance” regulations. |
| Chartered Accountants and Company Secretary | | | | But, there always exist a limitation. The listed |
| discharge their responsibilities in the Company for the | | | | agreement refers to the appointment of independent |
| protection of the shareholders and compliance of | | | | directors, but, how can we expect that an independent |
| corporate regulations. | | | | director, being a human being, is impartial always. |
| Thus, basically, a company is a complicated and well | | | | These are all the limitations and upon which nobody |
| regulated set-up with ultimate motive of business | | | | can have any control. When the auditors of Satyam |
| expansions and the interests of shareholders. | | | | were attacked, the ICAI has rightly focused on the |
| Now, let us look at the regulations governing various | | | | limitations on auditing as I feel. There are standards and |
| kinds of companies in brief. | | | | law as to how the auditors should audit the accounts |
| Private Limited Companies: | | | | of the Company. It may be standard governing |
| Regulated by the provisions of Companies Act, 1956, | | | | Chartered Accountants that they should find the truth |
| the regulations of the Company in the form of Articles | | | | in the averments in a document or a particular |
| of Association and the Central Government rules as | | | | transaction. The standard may be ideal, but, it is not |
| applicable. | | | | possible practically. This can be a limitation on auditing. |
| Public Limited Companies: | | | | Likewise, there tend to be limitations on “Corporate |
| Regulated by the provisions of the Companies Act, | | | | Governance” too. |
| 1956, regulated by the Articles of Association, | | | | We have been working so hard to strengthen our |
| regulated by the Central Government Rules, regulated | | | | regulations further and ensure the safety of the |
| by the Accounting Standards issued by ICAI etc. | | | | investment of shareholders/investors. It will be a |
| While both the Private Limited Companies and Public | | | | continuing process as ICAI and ICSI always focuses |
| Limited Companies are governed by the provisions of | | | | on the new areas upon which they can prescribe |
| Companies Act, 1956, Private Limited Companies are | | | | standards. Some obsolete regulations will go, some |
| relaxed from many provisions and Private Limited | | | | regulations may get amended and new regulations |
| Companies are given liberty to modify certain | | | | may come in the course. |
| provisions by having a regulation in the Articles. The | | | | I am of the strong opinion that our listed companies are |
| difference is from application point of view. | | | | well regulated though the issues of insider trading, |
| Listed Public Companies: | | | | inter-company transactions in violation of regulations, |
| Regulated by the provisions of Companies Act, 1956, | | | | non-disclosures, oppression and mismanagement will |
| Articles of Association, the SEBI regulations, Central | | | | remain always and to be tackled carefully. |
| Government rules, regulations of Stock Exchanges to | | | | Note: My intention to provide a basic understanding of |
| some extent like complying with the listing agreements, | | | | “Corporate Governance” and I am aware of the |
| Accounting Standards issued by ICAI etc. | | | | complicated issues and the vastness of the subject. |