DEPARTMENT OF COMMERCE & MANAGEMENT, NIEFGC
UNIT 3:
COMPANY ADMINISTRATION
(v) such other Company administration, sometimes called ‘going into administration’, is a formal
insolvency process aimed at rescuing insolvent businesses as a going concern.
When a firm is going into administration, the procedure and the business are managed by an
administrator, (an insolvency practitioner), whose goal is to rescue the company and restore it to
profitability.
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
Independent director
Resident director
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).
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.
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.
INDEPENDENT DIRECTOR
An independent director is a director who is not an employee of the company and
doesn’t hold a personal stake in any of its business (e.g., stock ownership). Instead,
these directors serve on boards for many different reasons, often to provide leadership,
improve strategy and governance, help with succession planning, and serve as liaisons
between shareholders and management.
Independent directors don’t have a conflict of interest with the companies where they
serve. They bring unique expertise, perspective, and background to the boardroom
table. And most importantly, they help maintain an objective viewpoint during
decision-making.
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.
Resident director
A resident director is an knowledgeable professional and is familiar with Indian laws who
can provide or add value to the Indian company. In many other cases, the businesses just need
an entity in India to begin with, a kind of presence that doesn't require any long term binds
Managing Director of a Company
Managing directors play a significant role in the company’s management and are responsible
for its expansion, profitable growth and innovation. They are senior-level managers in a
company looking after its day-to-day operations. They oversee the functioning and
performance of different departments. They obtain reports from the department managers
and, in turn, report them to the Chief Executive Officer (CEO) and the board of directors.
Managing Director Under the Companies Act, 2013
The Companies Act, 2013 (‘Act’) defines a managing director as a director entrusted with
substantial powers of managing the company affairs by virtue of either an agreement with the
company, articles of association or a resolution passed in its general meeting or board of
directors. However, the managing director must exercise their powers subject to the board’s
control, superintendence and direction.
The Act also states that substantial powers of the managing director do not include the power
to do administrative acts that are of a routine nature authorised by the board, such as the
following:
Power to affix the company’s common seal on any document.
Draw and endorse cheque on the company’s account in any bank.
Draw and endorse a negotiable instrument.
Sign any share certificate.
Direct registration of transfer of a share.
Appointment of a Managing Director
The process of appointment of a managing director by passing a resolution is as follows:
The company should conduct a board meeting after giving notice to all the company directors
to transact the following business:
Decision on the person to be employed as a managing director based on the recommendations
of the Nomination and Remuneration Committee, if applicable, and ensuring that the person
is not disqualified for such appointment.
Approve the draft agreement to be executed and signed between the company and the
proposed managing director.
Fix the date, time and venue for conducting a general meeting.
Approve the notice of the general meeting and the explanatory statement.
Authorise the company secretary to issue the general meeting notice on behalf of the board.
The company should file the board resolution copy in Form MGT-14 with the Registrar of
Companies (ROC) within 30 days of passing such a resolution.
In the case of listed companies, it should submit the disclosure of such an appointment to the
stock exchange within 24 hours from the board meeting date and post it on its website within
two working days.
Disqualification of a Managing Director
The following persons are disqualified and cannot be appointed as managing directors of a
company:
When the person is an undischarged bankrupt or has been adjudged as an insolvent.
The person had been or is sentenced by a court and convicted for more than six months.
The person has suspended payments to his creditors or has made a composition with them at
any time.
Conditions for Appointment of a Managing Director
Maximum and Minimum Age Limit
The minimum age limit for the appointment of a managing director is above 21 years, and the
maximum age is 70 years. However, a person above 70 years can be appointed as a managing
director by passing a special resolution in the general meeting after obtaining the
shareholders’ approval. In such a case, the explanatory statement annexed to the notice for
passing such a resolution should state the justification for appointing such a person.
Tenure
The maximum tenure for the appointment of a managing director is five years at a time. The
managing director must submit the identity proof and address proof to the company for such
an appointment.
Re-appointment
Re-appointment of a managing director can be done for another term. However, such re-
appointment cannot be done earlier than one year before the expiry of the current term. Thus,
a company can re-appoint the managing director for another term in the last year of his/her
current term. The managing director can be re-appointed for an additional term of five years.
Number of directorships
A company cannot appoint or employ a managing director and a manager simultaneously. A
managing director cannot hold the office of a director in more than 20 companies, including
alternate directorship. The appointed managing director and the company in which he/she is
appointed should confirm the same with the ROC.
Role and Responsibilities of a Managing Director
A company’s managing director does the following work:
Manages the company’s budget and allocates its resources.
Create strategic business plans for meeting the company’s goals.
Promote development and research for boosting business growth.
Track technology advancements and trends to stay competitive.
Interact with clients and company shareholders.
Meeting the public and engaging in promotional activities.
Ensuring that the company’s policies comply with industry and legal regulations.
Take up directing, planning, controlling and overseeing the business operations of the
company’s departments.
Ensure smooth functioning and supervise department managers and heads.
Update and inform the board and CEO about business strategies, budget targets and industry
developments.
Develop public relations strategies, research programmes and marketing initiatives to
promote the company.
Represent the company in business negotiations with other suppliers, companies, customers,
vendors and government officials.
What is an Audit Committee?
An audit committee is a subcommittee of a company’s board members that oversees
financial reporting, risk management, and compliance processes. Composed of
independent directors with relevant expertise, the audit committee acts as a key
safeguard to ensure transparency, integrity, and accountability in a company’s financial
operations.
The executive board , consisting of CEOs, COOs, and CFOs, appoints the audit
committee to protect the shareholders’ and stakeholders’ interests. The executive
committee and the audit committee work closely together to enhance the overall
governance of the company structure, contributing to its long-term sustainability and
success.
Audit committees are vital in a company as they ensure good corporate governance and
maintain the trust of stakeholders.
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AUDITOR: An auditor is person who review and verify all the financial documents of a
company. Every company shall require appointing an individual auditor or auditing firm as
first auditor and subsequent auditor. The auditor of a company protects the interest of
shareholders. Every company needs to appoint an auditor as per the provisions of Companies
Act, 2013.
Appointment of Auditor: All companies registered in India are required to appoint an
auditor who audited all the books of accounts of a company each year.
Appointment of first auditor: Every company shall appoint first auditor who hold the office
till the conclusion of first annual general meeting. This appointment is classified below for
Government or Non-Government Company:
In Government company: The first auditor is appointed by Comptroller and Auditor
General of India (C&AG) in case of Government Company. The time-period for the
appointment of first auditor is 180 days from the commencement of every financial year.
In Non-Government Company: The first auditor is appointed by Board of Directors (BOD)
within 30 days of incorporation of a company. If Board of Directors is not liable in
appointment then they informs the members about their failure and after that members shall
appoint first director within 90 days from the date when BOD informs the members about
their failure.
Appointment of Subsequent Auditor: Every company shall appoint subsequent auditor who
hold the office from the date of first annual general meeting till the conclusion of sixth annual
general meeting. This appointment is classified below for Government or Non- Government
Company:
In Government Company: The subsequent auditor is appointed by C&AG within 180 days
from the commencement of every financial year who shall hold the office till the conclusion
of sixth annual general meeting.
In Non- Government Company: The appointment of subsequent auditor is done by the
members of a company who shall hold office till the conclusion of sixth annual general
meeting. He shall be appointed in first annual general meeting.
Before the appointment of subsequent auditor, company shall take written consent from the
auditor and containing a certificate.
Casual Vacancy:
In Government Company: All casual vacancies shall be filled by the Comptroller and Auditor
General of India (C&AG) within 30 days of such casual vacancy. However, in case C&AG
not fill the vacancy within such time period, then BOD shall fill the vacancy within next 30
days.
In Non- Government Company: All casual vacancy shall be filled by the Board of Directors
within 30 days of such casual vacancy. If such casual vacancy is due to resignation, then
BOD will recommend and final appointment will be made by the members within 3 months
of such recommendation.
Qualifications of an Auditor:
A person shall be eligible for appointment as an auditor of a company only if he is a chartered
accountant.
Where a firm including a limited liability partnership is appointed as an auditor of a company,
only the partners who are chartered accountants shall be authorised to act and sign on behalf
of the firm.
Disqualifications:
Body corporate other than a limited liability partnership registered under the Limited
Liability Partnership Act.
an officer or employee of the company
a person who is a partner, or who is in the employment, of an officer or employee of the
company.
a person or a firm who, whether directly or indirectly, has business relationship with the
company, or its subsidiary, or its holding or associate company
a person whose relative is a director or is in the employment of the company as a director or
key managerial personnel.
a person who is in full time employment elsewhere or a person or a partner of a firm holding
appointment as its auditor, if such persons or partner is at the date of such appointment or
reappointment holding appointment as auditor of more than twenty companies.
a person who has been convicted by a court of an offence involving fraud and a period of ten
years has not elapsed from the date of such conviction.
Rights & Powers of Auditor
Right of access to Books of account & Vouchers [Sec. 143(1)]
Right to obtain information & explanation [Sec. 143(1)]
Right to visit branch offices & access to branch account
Right to receive notice & attend general meeting
Right to make representation
Right to report to members
Right to sign audit report
Right of seeking opinion of an expert
Right to receive remuneration
Right of access to Books of account & Vouchers
Right of access to Books of account & Vouchers [Sec. 143(1)]
The auditor has a right to access, at all times the books of accounts & vouchers of the
company, whether kept at head office or elsewhere. It is an absolute right & is not subject to
any restriction, exception or qualification.
The term book includes all types of books such as financial statutory or statistical books. The
right of access at all times implies that an auditor can inspect the books, accounts & vouchers
of the company during the normal business hours of the audit.
Right to obtain information & explanation
An auditor of the company is entitled to required from the officers, of the company such
information & explanation as he may think necessary for the performance of his duties as an
auditor. The auditor is bound to state in his report whether he has obtained all the information
& explanations which to the best of his knowledge & belief were necessary for the purpose of
the audit.
Right to visit branch offices & access to branch account
Where the accounts of any branch office are audited by a person other than the company’s
auditor, the company’s auditor is entitled to visit the branches, if he deemed it necessary to do
so for the performance of his duties as an auditor.
However, the auditor does not have right to visit foreign branches of a banking company & it
will be adequate if he is allowed access to such copies of extracts from the books or accounts
of the branch as have been sent to the principal office in India.
Right to receive notice & attend general meeting
The auditor has the right of receiving all the notices & other communications relating to any
general meeting of a company which any member of the company is entitled to have. He is
entitled to attend any general meeting & to be heard at any general meeting which he attend
on any part of the business which concerns him as an auditor.
However, the auditor has no obligation to attend such meetings. Also, this right does not
extend to board meeting.
Right to make representation
The retiring auditor is entitled to receive a copy of the special notice intending to remove him
or proposing to appoint any other person as auditor. The retiring auditor has a right to make
his representation in writing & request that the same is circulated among the members. In
case the same could not be circulated, the auditor may require that the representation shall be
read out at the general meeting.
Right to report to members
The auditor has right as well as duty to make a report to the members on the accounts
examined by him & to state whether in his opinion & to the best of his information &
explanation given to him. Auditor has to state whether the financial statements give a true &
fair view of the state of affairs of the business of the company.
Right to sign audit report
The auditor has right as well as duty to sign the audit report & the balance sheet & the profit
& loss account including all the documents attached or annexed therewith.
Right of seeking opinion of an expert
In respect of any special technical matters, the auditor is entitled to consult & take the
opinion of an expert. He is also entitled to take legal advice so as to discharge his duties
efficiently.
Right to receive remuneration
The auditor has an inherent right to receive remunerations for auditing the accounts of the
company, though such rights accrue only after he has completed the work.
Duties of an auditor :
The Companies Act of 2013, Section 143, defines the duties of an auditor
Prepare an Audit Report: an audit report is an assessment of a company’s financial status.
The auditor is in charge of creating an audit report based on the company’s financial
accounts. he must verify that the entity’s financial statements present a true and fair picture of
the company’s financial situation. If necessary, form a negative opinion.
Make inquiries: One of the auditor’s most significant responsibilities is to make questions
when and when he sees fit.
In the event of a branch audit, offer support: If the auditor is a branch auditor rather than
the company’s auditor, he will assist in the completion of the branch audit. He’ll write a
report based on the branch’s accounts, which he’ll examine, and send it to the company’s
auditor.
Observe Auditing Standards: It is the auditor’s responsibility to adhere to the standards
while executing his tasks, as this boosts his efficiency.
Fraud detection and reporting.
COMPANY SECRETARY
Section 2(1)(c), Company Secretary is a person who is a member of Institute of Company
Secretaries of India. Company Secretary is covered in the definition of Key Managerial
Personnel as per Section 2(51) of CA, 2013.
Appointment of Company Secretary: A Company Secretary is appointed by the Company
in accordance with Section 203 of CA,2013 and Rule8/8A of Companies Rules, 2014:
As per Rule 8: Appointment of a company secretary is made by every listed company and
public company having paid up share capital of 10 Crore or more
As per Rule 8A: appointment of a company secretary is made by every company other than a
company covered under Rule 8 having paid up share capital of % Crore or more is required to
appoint a whole-time company secretary.
Every Company (Public or Private) Having Paid Up Share Capital of 5 Crore or More Is
Required To Appoint A Whole Time Company Secretary.
PROCEDURE FOR APPOINTMENT OF COMPANY SECRETARY
1. Appointment of a company secretary is made by convening a Board Meeting after
giving notice to all the directors of the Company as per Section 173 of Companies
Act, 2013.
2.At the board meeting, place the proposal of appointment of company secretary with the
details of the person finalized. Pass a resolution of appointment of company secretary thereby
approving the terms and conditions of his appointment.
3. Once the Company Secretary is appointed, the company must file a return of ‘Appointment
of Company Secretary’ with the Registrar of Companies (ROC) in FORM DIR-12 within 30
days from the date on which company secretary is appointed by the company.
4. FORM MGT-14 is also required to be filed along with such fees as is specified under
Companies (Registration of Offices and Fees) Rules, 2014.
5. Once a particular whole-time company secretary is appointed by the company, such
Company Secretary shall be barred from holding the office of ‘Whole Time CS’ in any other
company.
6. Make entries in the register of directors and key managerial personnel under section 170 of
Companies Act,2013
7. Inform the stock exchange where the company is listed.
PROCEDURE FOR REMOVAL OF COMPANY SECRETARY/RESIGNATION BY
COMPANY SECRETARY
1. Convene a board meeting after giving notice to all the directors of the company as per
section 173 of Companies Act, 2013. Place the matter of removal/resignation of the Company
Secretary and pass a resolution to the effect.
2. File form DIR-12 in electronic mode within 30 days with the registrar of companies
together with the requisite filing fees. Evidence of cessation (for example resignation letter) is
an optional attachment.
3. Inform the stock exchange where the company is listed.
4. Make entries in the register maintained for recording the particulars of Company
Secretaries under Section 170.
5. Issue a general public notice, if it is so warranted, according to size and nature of the
Company.
6. The resulting vacancy shall be filled up by the board at a meeting of the board of directors
of the company within a period of six months from the date of such vacancy.
Qualifications of Company secretary:
The Person should be a member of the Institute of Company Secretaries of India and should
have passed the necessary examinations of the institute like CSEET, CS Executive and CS
professional according to the passing criteria prescribed by the institute.
The Person has a suitable law degree from an esteemed and reputed university in the country.
The Person has a membership in the Institute of Cost and Management Accountants of India
as well, after clearing all the relevant examinations of the institute like CMA Foundation,
CMA Intermediate and CMA Final according to the passing criteria prescribed by the
institute.
The Person has attained a Postgraduate Degree in Commerce granted by a Reputed college or
the University of the Country.
The Person has a relevant Diploma in Company law from any particular Indian law institute.
Rights & Powers of Company Secretary:
He has the right to supervise and control the secretarial department of the company.
He has the right to issue share certificate of the company.
He has the right to sign official documents of the company.
He is empowered to perform all activities under various activities.
He has the right to be indemnified for any loss suffered by him in discharging his duties.
Liabilities of a Company Secretary: Liabilities of a Company Secretary is divided into two
types Statutory Liability and Contractual liability.
Statutory liabilities of a Company Secretary
Default in Complying with name requirements – Fine of Rs. 1000 every day during which the
default continues that cannot exceed Rs. 1 Lakh.
Default is filing the return on the allotment – Fine Rs. 1000 every day during which the
default continues or Rs. 1 lakh whichever is less
Default in delivering Share Certificates /Debenture Certificates on time – Fine up to Rs. 5
lakh
Default in filing annual return – Fine ranging from Rs. 50,000 to Rs. 5 lakh
Default in holding Annual General Meeting – Fine up to Rs. 5000/- during which the default
continues extending to Rs. 1 lakh
Failure to record minutes of the meeting – Fine upto Rs. 500/-
Default in providing the P/L and B/S at AGM – Fine of Rs. 25,00 extending up to Rs. 1 lakh
or imprisonment up to 6 months or both
Failure to provide notice about Board meeting – Fine upto Rs. 1000
Failure to maintain the register of members – Fine Ranging from Rs. 50,000 to Rs. 3 Lakh
Contractual Liabilities of Company Secretary
He is liable for any negligence on part of his duty. He may be dismissed.
He must not do anything beyond his authority, if he does he will be personally liable for the
loss
He is under the obligation to not disclose any secret information about the company to
outsiders
He is liable for any secret profits made by him on account of his position
If the Company Secretary commits any fraud, he must indemnify to the company for any loss
that occurred.
He derives his power from BoD therefore he should carry orders from BoD.
Duties of company secretary :
The duties of a company secretary can be divided into sections. They are mentioned below.
Statutory Duties
The statutory duties of a company secretary include the duties imposed on him via the
Companies Act. Only a few are carried out by him, the rest are an amalgamation of tasks
carried out between the director and the company secretary. These include the following
Signing the annual return
Ensuring that the requirements of the Companies Act are complied with
Signing and completing a form of application to register a business name of the company
Writing down the statement of affairs
Duty of Disclosure
The company secretary is under the obligation to disclose certain information for the purpose
of inclusion in the register of the director and secretaries’ interests.
Duty to exercise skill, care and diligence
One of the most important duties of the company secretary includes practising extreme care,
skill and diligence in the performance of his duties. If there is any negligence on his part, he
will be held liable for any loss incurred.
Administrative Duties
The company secretary has several administrative duties to perform. They are listed below.
Communicating with the company shareholders
Maintaining the statutory registers
Preparing and issuing the notice board and general meetings
Making sure that the decisions taken by the board are communicated properly and complied
with
Keeping safe custody of the company seal.
Legal responsibilities of the Company Secretary
As a company secretary, it is his responsibility to maintain the existence of the company.
He /she is responsible for both establishment and maintenance of company’s registered
office.
As a company secretary, need to take care of the following –
Registered office of the company must be a physical location.
There should be company’s address for formal communication with other parties.
It must not be located at the place where normal activities of company’s business are
conducted.
Ensure that any of the documents sent to you by any party must be received by you.
The company’s name must be displayed outside your registered office and other branches
wherever located.
It is the right of the shareholders to inspect company’s registers at the company’s
registered office or other branches as per their convenience.
Any change in the registered office address must be notified to the Companies house by
filing the appropriate form.
