Corporate governance

Indian Companies

WHAT IS CORPORATE GOVERNANCE

The system of rules, practices and processes by
which a company is directed and controlled.
It involves balancing the interests of the
stakeholdersin a company i.e. shareholders,
management, customers, suppliers, financiers,
government and community.
Corporate governance provides framework for
attaining company's objectives, it encompasses
all sphere of management, from action plans
andinternal
controlsto
performance
measurement and corporatedisclosure.

PRINCIPLES OF CORPORATE
GOVERNANCE
Shareholder
recognitionis
key
to
maintaining a companys stock price
Stakeholder interestsshould also be
recognized by corporate governance
Board responsibilities must be clearly
outlinedto majority shareholders
Ethical behaviour
Businesstransparencyis the key to
promoting shareholder trust

IMPORTANCE OF CORPORATE
GOVERNANCE

Changing Ownership Structure

Importance of Social Responsibility
Growing Number of Scams
Indifference on the part of
Shareholders
Globalisation
Takeovers and Mergers
SEBI

governance of corporations is now as important in

the world economy as the government of countries

James Wolfensohn,
former president of the
World Bank

BENEFITS OF CORPORATE
GOVERNANCE
Good corporate governance ensures corporate
success and economic growth.
Strong corporate governance maintains investors
confidence, as a result, company can raise capital
efficiently and effectively.
It lowers the capital cost.
There is a positive impact on the share price.
It provides proper inducement to owners and
managers to achieve objectives that are in interests
of shareholders and organization.
Good corporate governance also minimizes
wastages, corruption, risks and mismanagement.
It helps in brand formation and development.
It ensures organization in managed in a manner

HISTORY OF CORPORATE
GOVERNANCE
The term Corporate Governance derives from
analogy between the government of nations
and governance of corporations
Corporate governance in the academic
literature seems to have been first used by
Richard Eells (1960) to denote the structure
and functioning of the corporate policy.
But how to manage companies and the
question for the best structure to achieve an
optimal allocation of resources is as old as the
history of companies.

SARBANES OAXLEY ACT

An act passed by U.S.Congressin 2002 to protect
investors from the possibility of fraudulent
accounting activities by corporations.
The Sarbanes-Oxley Act (SOX) mandated strict
reforms
to
improve
financialdisclosuresfrom
corporations and prevent accounting fraud.
SOX was enacted in response to the accounting
scandals in the early 2000s.
Scandals such asEnron, Tyco, andWorldComshook
investor confidence infinancial statementsand
required an overhaul of regulatory standards.

BREAKING DOWN 'Sarbanes-Oxley

Act Of 2002 - SOX'
The rules and enforcement policies outlined by the
SOX Act amend or supplement existing legislation
dealing with security regulations.
1. Section 302: A mandate that requires senior
management to certify the accuracy of the
reportedfinancial statement
2. Section 404: A requirement that management
andauditorsestablishinternal controlsand reporting
methods on the adequacy of those controls.
Section 404 had very costly implications for publicly
traded companies as it is expensive to
establish and maintain the required internal controls

THE NEED ARISES

The
high
profile
corporate
governance failure scams like stock
market scam, the UTI scam, Ketan
Parikh scam, Satyam scam severely
criticized by shareholders, called for
a
need
to
make
corporate
governance in India transparent as it
greatly affects the development of
the country.

THE OBJECTIVES OF CORPORATE

GOVERNANCE
Transparency in corporate
governance is essential for the
growth, profitability and stability of
any business.
The need for good corporate
governance has intensified due to
growing competition amongst
businesses in all economic sectors at
the national, as well as international
level

Indian Companies Act of 2013

The Companies Act, 2013 passed by the Parliament
has received the assent of the President of India on
29th August, 2013.
The Act consolidates and amends the law relating to
companies.
The Companies Act, 2013 has been notified in the
Official Gazette on 30th August, 2013.
Some of the provisions of the Act have been
implemented by a notification published on 12th
September, 2013.
The provisions of Companies Act, 1956 is still in
force.

KEY HIGHLIGHTS OFINDIAN

COMPANIES ACT 2013
Maximum number of members
(share holders) permitted for a
Private Limited Company is increased
to 200 from 50.
One-Person company.
Section 135 of the Act which deals
with Corporate Social Responsibility.
Company Law Tribunal and Company
Law Appellate Tribunal.

SALIENT FEATURES OF THE

COMPANIES ACT2013
Class action suits for Shareholders:a view
of making shareholders and other stakeholders,
more informed and knowledgeable about their
rights.
More power for Shareholders:provides
forapprovals from shareholders on various
significant transactions.
Women empowerment in the corporate
sector:stipulates appointment of at least one
woman Director on the Board (for certain class
of companies).

CONT
Corporate Social Responsibility:stipulates
certain class of Companies to spend a certain
amount of money every year on activities
reflecting Corporate Social Responsibility.
National Company Law Tribunal:introduced
National Company Law Tribunal and National
Company Law Appellate Tribunal to replace the
Company Law Board and Board for Industrial
and Financial Reconstruction. They would
relieve the Courts of their burden while
simultaneously providing specialized justice.

CONT
Fast Track Mergers:proposes fast track
simplified procedure for mergers of certain class of
companies after obtaining approval of the Indian
government.
Cross Border Mergers:permitscross border
mergers, both ways; a foreign company merging
with an India Company and vice versa but with
prior permission ofRBI.
Prohibition on forward dealings and insider
trading:prohibits directors and key managerial
personnel from purchasing call and put options of
shares of the company.

CONT
Increase in number of Shareholders:increased
the number of maximum shareholders in a private
company from 50 to 200.
Limit on Maximum Partners:The maximum
number of persons/partners in any
association/partnership may be upto such number
as may be prescribed but not exceedingone
hundred.
One Person Company:provides new form of
private company, i.e., one person company. Itmay
have only one director and one shareholder.

CONT
Entrenchment in Articles of
Association:provides for entrenchment of articles
of association have been introduced.
Electronic Mode:proposed E-Governance for
various company processes like maintenance and
inspection of documents in electronic form, option
of keeping of books of accounts in electronic form
etc.
Indian Resident as Director:Every company
shall have at least one director who has stayed in
India for a total period of not less than 182 days in
the previous calendar year.

CONT
Independent Directors:provides that all listed
companies should have at least one-third of the
Board as independent directors. No independent
director shall hold office for more than two
consecutive terms of five years.
Serving Notice of Board Meeting: requires at
least seven days notice to call a board meeting.
The notice may be sent by electronic means to
every director at his address registered with the
company.
Duties of Director defined:the Companies Act
2013has defined the duties of a director.

CONT
Liability on Directors and Officers:The Companies Act
2013 does not restrict an Indian company from indemnifying
(compensate for harm or loss)its directors and officers
Rotation of Auditors:The Companies Act 2013provides
for rotation of auditors and audit firms in case of publicly
traded companies.
Prohibits Auditors from performing Non-Audit
Services: prohibits Auditors from performing non-audit
services to company where they are auditor to ensure
independence, accountability of auditor.
Rehabilitation and Liquidation Process:The entire
rehabilitation and liquidation process of the companies in
financial crisis has been made time bound underCompanies
Act 2013.