SECRETARY IN MODERN ERA
“A secretary is a mere servant his/her position is that he/she is to do he/she is told and no person can assume that he has any authority to present anything at all nor can anyone assume that statements by him/her are necessary to be accepted as trustworthy without further enquiry”
TO
WHAT EXTENT IS THIS STATEMENT CORRECT IN RECENT TIME?
A
company secretary is a senior position in a private sector company or
public sector Organization, normally in the form of a managerial position or
above. In large American and Canadian publicly listed corporations, a company
secretary is typically named a corporate secretary or secretary.
The company secretary is responsible for the efficient administration
of a company, particularly with regard to ensuring compliance with statutory
and regulatory requirements and for ensuring that decisions of the board of
directors are implemented.
Despite the name, the role is not clerical or secretarial. The company secretary ensures that an organisation complies with relevant legislation and regulation, and keeps board members informed of their legal responsibilities. Company secretaries are the company’s named representative on legal documents, and it is their responsibility to ensure that the company and its directors operate within the law. It is also their responsibility to register and communicate with shareholders, to ensure that dividends are paid and to maintain company records, such as lists of directors and shareholders, and annual accounts.
In many countries, private companies have traditionally been
required by law to appoint one person as a company secretary, and this person
will also usually be a senior board member
ROLE AND DUTIES OF A COMPANY SECRETARY:
Companies law requires only a listed company to have a whole
time secretary and a single member company (any company that is not a public
company) to have a secretary.
The secretary to be appointed by a listed company shall be a
member of a recognized body of professional accountants, or a member of a
recognized body of corporate / chartered secretaries or a person holding a
masters degree in Business Administration or Commerce or is a Law graduate from
a university recognized and having relevant experience. However, the company
secretary of a single member company shall be a person holding a bachelor
degree from a university recognized.
The duties of a company secretary are usually contained in
an “employment contract”. However, the company secretary generally performs the
following functions:-
1.
The company secretary performs basic
clerical, organizational and office responsibilities for an organization or
department.
2.
Company secretaries often manage
customer files and other records in an office. Example, in a doctor's office,
for instance, the secretary pulls each patient's file at the time of the
appointment for the nurse or doctor and she replaces it when the appointment is
over.
3.
Company secretaries in all sectors have
high level responsibilities including governance structures and mechanisms,
corporate conduct within an organization’s regulatory environment, board,
shareholder and trustee meetings, and compliance with legal, regulatory and
listing requirements.
4.
A company secretary organize conferences
and seminar, ordering office supplies, taking notes during meetings, and
getting drinks for the supervisor and guests.
5.
Managing and storing the
company's records, e.g. re investments, property, payroll, insurance,
accounting, taxation.
6.
They assist new employees and visitors
in finding their way around. This includes directing visitors to the people
they came to meet and showing new employees where to go on their first day. In
general, the secretary projects the image of the business by offering a
friendly and professional reception to people who come into the office.
7.
Company secretaries are the primary
source of advice on the conduct of business and this can span everything from
legal advice on conflicts of interest, through accounting advice on financial
reports, to the development of strategy and corporate planning.
FUNCTIONS OF A COMPANY SECRETARY:
(1) Secretarial
functions:
- To
ensure compliance of the provisions of Companies Law and rules made there-under
and other statutes and bye-laws of the company.
- To
ensure that business of the company is conducted in accordance with its
objects as contained in its memorandum of association.
- To
ensure that affairs of the company are managed in accordance with its
objects contained in the articles of association and the provisions of the
Companies Law.
- To
prepare the agenda in consultation with the Chairman and the other
documents for all the meetings of the board of directors.
- To
arrange with and to call and hold meetings of the board and to prepare a
correct record of proceedings.
- To
attend the broad meetings in order to ensure that the legal requirements
are fulfilled, and provide such information as are necessary.
- To
prepare, in consultation with the chairman, the agenda and other documents
for the general meetings.
- To
arrange with the consultation of chairman the annual and extraordinary
general meetings of the company and to attend such meetings in order to
ensure compliance with the legal requirements and to make correct record
thereof.
- To
carry out all matters concerned with the allotment of shares, and issuance
of share certificates including maintenance of statutory Share Register
and conducting the appropriate activities connected with share transfers.
- To
prepare, approve, sign and seal agreements leases, legal forms, and other
official documents on the company’s behalf, when authorised by the broad
of the directors or the executive responsible.
- To
advise, in conjunctions with the company’s solicitors, the chief executive
or other executive, in respect of the legal matters, as required.
- To
engage legal advisors and defend the rights of the company in Courts of
Law.
- To
have custody of the seal of the company.
(2) Legal obligations
of secretary:
- Filling
of various documents/returns as required under the provisions of the
Companies Law.
- Proper
maintenance of books and registers of the company as required under the
provisions of the Companies Law.
- To
see whether legal requirements of the allotment, issuance and transfer of
share certificates, mortgages and charges, have been complied with.
- To
convene/arrange the meetings of directors, on their advise.
- To
issue notice and agenda of board meetings to every director of the
company.
- To
carry on correspondence with the directors of the company on various
matters.
- To
record the minutes of the proceedings of the meetings of the directors.
- To
implement the policies formulated by the directors.
- To
deal with all correspondence between the company and the shareholders.
- To
issues notice and agenda of the general meetings to the shareholders.
- To
keep the record of the proceedings of all general meetings.
- To
make arrangement for the payment of the dividend within prescribed period
as provided under the provisions of the Companies Law.
(3) To maintain the
following statutory books:
- The
register of transfer of shares;
- The
register of buy-backed shares by a company;
- The
register of mortgages, charges etc.;
- The
register of members and index thereof;
- The
register of debenture-holders;
- The
register of directors and other officers;
- The
register of contracts;
- The
register of directors' shareholdings and debentures;
- The
register of local members, directors and officers, in case of a foreign
company;
- Minute
books;
- Proxy
register;
- Register
of beneficial ownership;
- Register
of deposits;
- Register
of director’s share holding; and
- Register
of contracts, arrangements and appointments in which directors etc are
interested.
(4)
Statutory Responsibility of the Company Secretary under the Companies Act, 2013
The
Companies Act, 2013 prescribed some responsibilities which are as follows:-
Signing share certificate
Share
certificate of the company should be sign by the two director out of which one
should be managing director or whole time director and Secretary of the company
or any other person duly authorized by the board.
Signing annual return
As
per Section 92 (1) of the companies act 2013 annual return to be filed with
Registrar of companies has to be signed by a director and Company Secretary if
company does not have a Company Secretary then the return can be signed by the
Practicing Company Secretary.
(5) Other duties:
As
Per Section 205 of Companies Act, 2013 the functions of company secretary
include:-
Report
to the board about the compliance with the provision of Companies Act and all
other applicable laws to the company and the rules made under the respective
laws.
And
make sure that the company complies with the applicable Secretarial Standards
issued by ICSI.
And
perform all other duties as may be prescribed such as:
(a) Ensuring that statutory forms
are filed promptly.
(b) Providing
members and auditors with notice of meeting.
(c) Filing
of copy of special resolutions on prescribed form within the specified time
period.
(6). Supplying
a copy of the accounts to every member of the company, every debenture holder
and every person who is entitled to receive notice of general meetings. You
must send annual audited accounts.
(7). Keeping
or arranging for the having of minutes of directors' meetings and general
meetings. Apart from monitoring the Directors and Members minutes books, copies
of the minutes of board meetings should also be provided to every director.
(8). Ensuring
that people entitled to do so, can inspect company records. For example,
members of the company are entitled to a copy of the company's register of
members, and to inspect the minutes of its general meetings and to have copies
of these minutes.
(9). Custody
and use of the common seal. Companies are required to have a common seal and
the secretary is usually responsible for its custody and use. (Common seals can
be bought from seal makers)
HOW DO WE ATTAIN MEMBERSHIP OF A
COMPANY?
MEANING OF MEMBER
A
member is one of the company’s owners whose name has been entered on the
register of members. Members delegate certain powers to the company’s directors
to run the company on their behalf.
A person whose name is
entered in the register of members of a company becomes a member of that
company. The register includes every single detail about the member like name,
address, occupation, date of becoming a member, etc. It also includes every
person who holds company’s shares and whose name is entered as the beneficial
owners in depository records.
The liabilities of members
are limited to the amount of shares held by them in the case of a company
having share capital while in the case of a company limited by guarantee the
liability of members is limited to the amount of guarantee given by them. But,
in the case of an unlimited company the members have to contribute from his
personal assets to pay the debts.
The members cannot take part
in the management of the company, i.e. the management of the company is looked
after by the Board of Directors. Although, the right to appoint and remove the
directors is in the hands of members
MEMBER OF LIMITED LIABILITY COMPANY
By
virtue of section 41 of the Companies Act 1956, shareholders are either
1.
Subscribers of the
memorandum of association, or
2. Persons
who have agreed in writing to
become members and whose names have been entered in the register of members.
The
effect of the provisions of section 41 is that, apart from the subscribers of
the memorandum, no one can become a shareholder in a company unless he agrees in writing to become a member
and he is registered as such. The words 'member', 'shareholder' 'holder of a
share' are used in the Companies Act interchangeably to mean the same
person,"
Thus,
in a company limited by shares, all members are shareholders, and all
shareholders are members. This rule, however, is subject to an exception. The
bearer of a share warrant is always a shareholder but may not be a member. Aim,
the name of the bearer of the share warrant will not be on the register of
members, but be will nevertheless be a shareholder and may be a member if the
articles so provide.
A
shareholder is a person who buys and holds shares in a company having a share
capital. They become a member once their name is entered on the register of
members. Many companies limited by guarantee do not have a share capital, and
consequently, their members are not shareholders.
HOW DO YOU ATTAIN MEMBERSHIP OF A
COMPANY?
Company
is the backbone of industrial society. Whether private or public, large or
small, the company is right at the heart of business life. In fact, it is the
most effective vehicle yet discovered to manage and control modem business
enterprises. It permits, with the minimum risk of loss to investors, the
combination of capital and skill for vast business operations. Without it,
industry and commerce could not function. Yet, strangely enough, the word
"company" has no strict legal meaning.' To a lawyer it means a
company registered under the Companies Act, but in general parlance it can be
either a partnership or a registered company. In any event, the implication and
legal theory of the term "company" is that it is an association of
persons formed for some common object usually with a view to the making of a
profit.
In
simple terms a company is a collection of individuals, and when incorporated,
e.g., by registration, it becomes a corporate body-an entity distinct from the
members constituting it. "The company" says Lord Coke, "is
called corporate body, because the persons comprising it are made into one body
by the process of incorporation according to the law of the land." And by
the process of law, this association of persons, desirous of being formed into
a company, is clothed with legal personality. The essential legal definition
that covers the whole ground and expresses the very essence of the company may
be said to be this: "A company is an artificial legal person, a succession
of individuals, or an aggregate body considered by the law a single continuous
person, limited to one peculiar mode of action, and having power only of the
kind and degree prescribed by the law which confers them",
A
member is one of the company’s owners whose name has been entered on the
register of members. Members delegate certain powers to the company’s directors
to run the company on their behalf.
A person whose name is entered in the
register of members of a company becomes a member of that company. The register
includes every single detail about the member like name, address, occupation,
date of becoming a member, etc. It also includes every person who holds
company’s shares and whose name is entered as the beneficial owners in
depository records.
The liabilities of members are limited
to the amount of shares held by them in the case of a company having share
capital while in the case of a company limited by guarantee the liability of
members is limited to the amount of guarantee given by them. But, in the case
of an unlimited company the members have to contribute from his personal assets
to pay the debts.
The members cannot take part in the
management of the company, i.e. the management of the company is looked after
by the Board of Directors. Although, the right to appoint and remove the
directors is in the hands of members.
Method
of attaining membership
A person may become a member in a
company in any of the following ways:
(1)
By allotment:
Ordinarily a person becomes a member of
the company by applying for the shares in writing and securing the allotment
thereof directly from the company.
(2)
By subscribing to the memorandum:
Section 41 of the Act provides that—”The
subscribers of the memorandum of a company shall be deemed to have agreed to
become members of the company, and on its registration shall be entered as
members in its register of members.” Thus, the signatories to the memorandum
become members of the company, simply by reason of their having signed the
memorandum. Neither application form nor allotment of shares is necessary for
becoming a member in their case. Even entry in the register of members is not
necessary to confer upon them the rights and liabilities of membership
(Official Liquidator vs. Suleman Bhai).
(3)
By agreeing to purchase qualification shares :
As per the provisions of Section
266(2), all such persons who have signed an undertaking to take and pay for
their qualification shares, for acting as a director of the company and
delivered it to the Registrar, are also in the same position as subscribers to
the memorandum. As such they are also deemed to have become members
automatically on the registration of the company.
It must, however, be noted that this
method of becoming a member is only possible in public companies having a
share capital because Section 266 does not apply to: (a) a company not having
a share capital; (b) a private company; or (c) a company which was a private
company before becoming a public company [Sec. 266(5)].
(4)
By transfer:
A person may also become a member of the
company by purchasing shares in the open market and then getting them
registered in his name.
(5)
By transmission or succession:
A person may become a shareholder by
transmission of shares through death , lunacy or insolvency of a member.
Transmission is different from transfer. It is an involuntary transfer. It
takes place by operation of law, to a person who is entitled under the law to
succeed to the estate of the deceased or lunatic automatically and does not
require an instrument of transfer.
(6)
By principle of estoppels:
If a person’s name is improperly placed
on the register of members and he knows and assents to it, that is, agrees in
writing to become member or attends company meetings or/and accepts dividend,
he shall be deemed to be a member (In Re. M.F.R.D. Cruz). Under the principle
of estoppel if a person holds himself out being in a position of membership
which is not true, he will then be estopped from denying that he is a member.
It is important to note that such a
person whose name has been wrongly entered in the Register of Members, does not
become liable as a member unless either he agrees in writing to become a member
of the company or he has in fact accepted the position and acted as a member. A
person cannot be deemed to have become a member by means of ‘estoppel’ simply
because his name is entered wrongly in the ‘Register’.
DUTIES
OF MEMBERS OF COMPANY
1. An
important duty of a member is to pay the money they are liable to pay by virtue
of their membership. If a company is being wound up, each member has to
contribute to the company’s debts based on their liability limits. In a company
limited by shares, members are only committed to paying the price of the shares
allotted to them. In the case of a company limited by guarantee, members are
liable to contribute a set amount, which may be as low as E1. However, the
members of a company with unlimited liability are liable to pay all of its
debts if it is wound up.
2. It
is also essential that members take part in supervising the performance of the
company and its directors to protect their financial and other interests.
WHAT
ARE THE RIGHTS AND LIABILITIES OF A MEMBER OF A COMPANY?
MEANING
OF MEMBER / SHAREHOLDER
A shareholder
or stockholder is an individual or
institution (including a corporation) that legally owns one or more shares of
stock in a public or private corporation. Shareholders may be referred to as members
of a corporation. Legally, a person is not a shareholder of a corporation until
his or her name and other details are entered in the register of shareholders.
Shareholders of a corporation are
legally separate from the corporation itself. They are generally not liable for
debts of the corporation; and the shareholders’ liability for company debts are
said to be limited to the unpaid share price, unless if a shareholder has
offered guarantees.
RIGHTS
OF A MEMBER OF A COMPANY
The
rights of members are stated in the Companies Acts and in the company’s
memorandum and articles of association (its ‘constitution’).
The usual situation is that in return
for investing in a company, a shareholder receives a bundle of rights in the
company. These shareholder rights differ from company to company and within
companies depending on the class of shares held. Most companies only have one
class of share (ordinary shares) but Australian law allows for the creation of
different classes of shares. The rights which attach to the different classes
of shares is a matter for the company to determine and are usually set out in
the company’s constitution.
As a general rule, shareholders enjoy
the following rights:
A)
As
the head of the secretarial department, the Secretary has the right to control,
direct and supervise the activities of the department.
B)
As
the principal executive officer of the company the Secretary has the right to
sign documents which require authentication of the company.
C)
The
Secretary has the right to get remuneration from the Company. As an officer of
the company he has the right to claim two months’ salary as a preferential
creditor at the time of winding-up of the company.
D)
Voting on key issues (for example,
election and dismissal of directors) and attendance at shareholder meetings;
E)
Right to transfer ownership (often in
restricted circumstances);
F)
Receive company reports and
announcements;
G)
Entitlement to dividends and other
distributions;
H)
Entitlement to a final distribution on
winding up;
I)
Participation in corporate actions such
as further issues of shares, share buybacks, mergers and demergers; and
J)
Rights to sue to make the company act
lawfully.
K)
The
Secretary has the right to claim damages and compensation when his service is
terminated before the expiry of his terms as per service contract.
L)
The
company Secretary has the right to inspect the books maintained by the
secretarial department.
LIABILITIES
OF A MEMBER OF A COMPANY
The liabilities of a Company Secretary emanate from various
statutes and service contracts. The Secretary has two sets of
liabilities—statutory liabilities and contractual liabilities.
Statutory
Liabilities:
The
Company Secretary may be held liable for many penalties under the Companies Act
if he makes any default in complying with its provisions.
The Company Secretary may be held
liable for:
(i)
default in holding Statutory Meeting and filing and circulating the Statutory
Report to the Registrar of Companies and members of the company;
(ii)
Default in holding the Annual General Meeting of the Company;
(iii)
Failure to give due notice of Board Meetings;
(iv)
Failure to record the minutes of the Board and General Meetings;
(v)
Failure to maintain Director ‘Members’ and Debenture holders’ Registers and
Index;
(vi)
Failure in registering resolutions and agreements which need to be registered;
(vii)
Failure to make entries in the register of members on the issue of a share warrant;
(viii)
Default in filing with the Registrar particulars of any change created by the
company;
(ix)
failure to file with the Registrar copies of the annual Balance Sheet, Profit
and Loss Account, annual returns, statements, certificates, etc.;
(x)
Failure in circulating resolutions for which members have given notice;
(xi)
Failure in delivering share certificates, debentures etc. within 3 months of
the date of allotment and within 2 months of the application for registration
of transfer of shares;
(xii)
Failure in painting or affixing the name of the company outside every office
and place of business;
*3(xiii)
Non-compliance with the provisions of the Act relating to the appointment of
auditors, audit of accounts and auditor’s report;
(xiv)
Like any officer of the company, the Secretary will be punishable with imprisonment
for falsifying the books of the company and making willfully and knowingly a
material false statement in the Balance Sheet, or, in certain returns, reports,
certificates or other documents of the company.
Under the Income Tax Act, the
Company Secretary is liable for:
(i)
Failure to deduct income tax from salaries of employees at source;
(ii)
Failure to deduct income tax from dividend payable to shareholders;
(iii)
Failure to deposit tax deducted at source to the Income Tax Authority;
(iv)
Failure to pay corporate tax in time.
Under the Stamp Act, the Company
Secretary is liable for:
(i)
Failure to verify whether the requisite stamps are affixed to various documents.
Under the Sales Tax Act, the Company
Secretary is liable for:
(i)
Failure to get the company registered with the Sales Tax Authority;
(ii)
Failure to pay sales tax in time.
Under the Registration Act, the
Company Secretary is liable for:
(i)
Non-compliance with the rules and procedures of registration.
(ii)
Non-payment of registration charges under the MRTP, FERA, Shops and Establishment
Act. The Secretary may incur personal liability for default of any provision
of the respective Acts.
Contractual
Liabilities:
The Company Secretary also has
certain liabilities arising out of his contract of service with the company
for:
(i)
Disclosure of official secrets;
(ii)
Acts done beyond the limits of his authority;
(iii)
Acts of omission and commission in violation of the rules and fraud in course
of employment;
(iv)
Making breach of trust;
(v)
Discharging duties without reasonable care and skill.
PRINCIPLES
OF CORPORATE PERSONALITY
INTRODUCTION
A company by law is a different person from
its subscribers to the memorandum. It involves the principles of corporate
personality which include perpetual succession, proprietary interest, debts and
the process of suing and being sued (Foss v Harbottle). It is concluded with
the main instances of lifting the veil of corporation, such as number of
membership, fraudulent trading, evasion of legal obligations, holding and
subsidiary company, and publication of name.
PRINCIPLES OF CORPORATE PERSONALITY
Corporate
personality is the fact stated by the law that a company is recognized as a
legal entity distinct from its members. A company with such personality is an
independent legal existence separate from its shareholders, directors, officers
and creators. This is famously known as the veil of incorporation. The
'veil of incorporation' can be described as being the separation between a
company and its members. Due to the separate legal status of a company from its
members this is usually very strictly maintained. However, there are certain
circumstances when the courts will deny the people who run the company the
advantage of hiding behind the corporate veil. In these instances the veil of
incorporation is said to be 'pierced' or 'lifted', i.e. the barrier between a
company and its members is removed so there is no legal separation between
them. There instances are however, difficult to predict as the reasons depend
on the judges interpretation of "fairness" or "policy" or
of how a particular statute should be interpreted. The principle of separate
corporate personality has been firmly established in the common law since the
decision in the case of Salomon v Salomon & Co Ltd, whereby a corporation
has a separate legal personality, rights and obligations totally distinct from
those of its shareholders. Legislation and courts nevertheless sometimes
"pierce the corporate veil" so as to hold the shareholders personally
liable for the liabilities of the corporation. Courts may also "lift the
corporate veil", in the conflict of laws in order to determine who
actually controls the corporation, and thus to ascertain the corporation's true
contacts, and closest and most real connection.
1) PERPECTUAL
SUCCESSION:
As a result of corporate personality, a company has perpetual succession. It
simply means the company is everlasting and will continue to do business until
it is properly wound up. As a separate legal person, a company will not be
affected by changes such as death, transfer of shares or resignation of any
members but will continue to exist despite the number of times the changes of
membership occur. Even if all the members die, it will not influence the
privileges, immunities, estates and possessions of a company.
2) PROPRIETARY
INTEREST:
Proprietary interest is another principle of corporate personality. Proprietary
interest refers to the ability of a company to own property like a land or
building. A company as a body corporate has every right to acquire, hold and
dispose of as well as transfer property in its own name. Since a company gain
full ownership of property, any changes among individual membership would not
affect the title. According to the case of Macaura v. Northern Assurance Co.
(1925), the property of a company is not the property of the shareholders; it
is the property of the company. Each shareholder has no legal rights on the
capital and assets held by the company (Lee, 2005).
3) DEBT: Debt is also the principle in
corporate personality. A company being a legal person has an unlimited amount
of debts. The company is fully responsible for the debts that will be incurred
during the course of business. However, this principle does not apply to its
members with a limited liability. In case the company is insolvent, members are
not required to pay more than the initial amount invested on their shares or
guarantee. Their liability is limited to the amount of shares they subscribe or
any unpaid value on such shares. Therefore, creditors of the company cannot
take any action against the members if the company went into liquidation as
established in Salomon v. Salomon Co Ltd (1897) (Lee, 2005).
4) SUE
OR SUED IN ITS NAME:
The other principle of corporate personality is demonstrated in the case of
Foss v. Harbottle (1843). A company may sue or be sued in its own name. The company
must take the initiative to sue the other party by using its own name or handle
any possibilities of criminal complaint that might be filed against it. For
instance, John as a director cannot take an action against one of his employee
for money laundering. It is the company’s position to sue the employee for the
wrongdoing. Foss v Harbottle (1843) is a leading English precedent in corporate law. In
any action in which a wrong is alleged to have been done to a company, the
proper claimant is the company itself. This is known as "the rule in Foss
v Harbottle",
CASES OF PRINCIPLES OF CORPORATE
RESPONSIBILITY
Ø In the leading case of Salomon v Salomon & Co Ltd, Salomon incorporated his boot and shoe repair
business, transferring it to a company. He took all the shares of the company
except six, which were held by his wife, daughter and four sons. Part of the
payment for the transfer of the business was made in the form of debentures (a
secured loan) issued by the company to Salomon. Salomon transferred the debentures to Broderip in exchange for a loan. Salomon defaulted on payment of interest on
the loan and Broderip sought to enforce the security against
the company. Unsecured creditors tried to put the company into liquidation. It
was argued for the unsecured creditors that Salomon's security was void (not legally
binding) as the company was a sham and in reality the agent of Salomon. However, the House
of Lords held that the company had been properly incorporated and therefore the
security was valid and could be enforced. Lord McNaughten stated that, "The company is at law a different person
altogether from the subscribers to the memorandum: and although it may be that
after incorporation the business is precisely the same as it was before, and
the same persons are managers, and the same hands receive the profits, the
company is not in law the agent of the subscribers or trustee for them. The spirit of the decision has not been
universally followed due to varying views of the judge's interpretation and
there are exceptions to the Salomon principle where the corporate veil is
lifted
Ø In
cases such as Lee V Lee’s Air Farming Company Limited in which Lee
formed a company in which he was the sole governing Director. He was also
appointed the chief pilot and caused the company to insure against liability to
pay compensation under the Workers’ Compensation Act. He was killed in a flying
accident. The Court of Appeal of New Zealand held that his widow was not
entitled to compensation from the company since Lee could not be regarded as a
worker (servant) within the meaning of the Act. The Privy Council, in reversing
the decision, held that Lee and his company were distinct legal entities which
had entered into contractual relationships under which he became, qua chief
pilot, a servant of the company.
The
position of the law is therefore, that the corporate veil is not to be lifted
or ignored unless there are compelling circumstances which in this case, should
be intentional fraud in the course of conducting the business of the company by
the Directors or Shareholders.
Ø The courts are prepared to pierce the corporate veil to
combat fraud. They will not allow the Salomon principle to be used as an engine of
fraud. For example, in the case of Gilford
Motor Co Ltd v Horne an employee had entered into an agreement not to compete with
his former employer after ceasing employment. In order to try to avoid his
restriction the employee set up a company and acted through that. The court
held that this manoeuvre would not be tolerated, the veil would be lifted and
an injunction would be issued against the company too.
Ø In the case of Smith,
Stone and Knight Ltd v Birmingham Corporation, Smith, Stone and Knight Ltd incorporated a wholly owned
subsidiary company called Birmingham Waste Co. Ltd, which nominally operated
the waste-paper business, but it never actually transferred ownership of the
waste-paper business to that subsidiary, and it retained ownership of the land
on which the waste-paper business was operated. Atkinson J held that, "...the subsidiary was the agent or employee; or
tool or simulacrum of the parent.., and lifted the veil to enable a
subsidiary company operating business on land owned by the holding company to
claim compensation on the ground of agency. So, in this case the key point is
that even though there is no agency agreement between the holding and
subsidiary company with regard to the transaction, in such situations the
holding company is liable for the actions of the subsidiary and there is no
division between them.
CONCLUSION
A
company in law is a separate person from its subscribers to the memorandum of
association. In the principle of corporate personality, a company is classified
as a separate person from its member. Therefore, company as a separate legal
entity should have perpetual succession, proprietary interest, debts, limited
liability and may sue and be sued in its own name. On the other hand, we also
note that the main instances of lifting the veil of incorporation are the
number of company members, fraudulent trading, and evasion of legal obligations,
holding and subsidiary company and publication of names. All in all, we can
define that the effect of incorporation of a company means it has a separate
existence.
MEANING
OF DEBENTURE
Debenture is one of the capital market
instruments which is used to raise medium or long term funds from public. A
debenture is essentially a debt instrument that acknowledges a loan to the
company and is executed under the common seal of the company. The debenture
document, called Debenture deed contains provisions as to payment, of interest
and the repayment of principal amount and giving a charge on the assets of a
such a company, which may give security for the payment over the some or all
the assets of the company. Issue of Debentures is one of the most common
methods of raising the funds available to the company. It is an important
source of finance.
In corporate
finance, a debenture is a medium to long-term debt instrument used
by large companies to borrow money, at a fixed rate of interest. The legal term
"debenture" originally referred to a document that either creates a
debt or acknowledges it, but in some countries the term is now used
interchangeably with bond, loan stock or note.
A debenture is thus like a
certificate of loan or a loan bond evidencing the fact that the company is
liable to pay a specified amount with interest and although the money raised by
the debentures becomes a part of the company's capital structure, it does not
become share
capital. Senior debentures get paid before subordinate debentures, and
there are varying rates of risk and payoff for these categories.
Debentures are generally freely transferable by the debenture holder. Debenture
holders have no rights to vote in the company's general meetings of shareholders,
but they may have separate meetings or votes e.g. on changes to the rights
attached to the debentures. The interest paid to them is a charge against
profit in the company's financial statements.
The term "debenture" more descriptive that
definitive. An exact and all-encompassing definition for a debenture has proved
elusive. The famous English commercial judge, Lord Lindley, notably remarked in
one case: "Now, what the correct meaning of ‘debenture’ is I do not know.
I do not find anywhere any precise definition of it. We know that there are
various kinds of instruments commonly called debentures.
ATTRIBUTES OF DEBENTURE
·
A
movable property
·
Issued
by the company in the form of a certificate of indebtedness
·
Generally
specifying the dates of redemption, repayment of principal and payment of
interest
·
May
or may not create a charge on the assets of the company.
·
Corporations
in the US often issue bonds of around $1,000, while government bonds are more
likely to be $5,000
Debentures gave rise to the idea of the rich "clipping
their coupons," which means that a bondholder will present their
"coupon" to the bank and receive a payment each quarter (or in
whatever period is specified in the agreement).
There are also other features that minimize risk, such as a
"sinking fund," which means that the debtor must pay some of the
value of the bond after a specified period of time. This decreases risk for the
creditors, as a hedge against inflation, bankruptcy, or other risk factors. A
sinking fund makes the bond less risky, and therefore gives it a smaller
"coupon" (or interest payment). There are also options for
"convertibility," which means a creditor may turn their bonds into
equity in the company if it does well. Companies also reserve the right to call
their bonds, which mean they can call it sooner than the maturity date. Often
there is a clause in the contract that allows this; for example, if a bond
issuer wishes to rebuy a 30-year bond at the 25th year, they must pay a
premium. If a bond is called, it means that less interest is paid out.
Failure to pay a bond effectively means bankruptcy.
Bondholders who have not received their interest can throw an offending company
into bankruptcy, or seize its assets if that is stipulated in the contract.
TYPES
OF DEBENTURES
1. Convertible
and Non-convertible debentures
Convertible debentures which are convertible bonds or bonds that can be converted into equity shares of
the issuing company after a predetermined period of time.
"Convertibility" is a feature that corporations may add to the bonds
they issue to make them more attractive to buyers. In other words, it is a
special feature that a corporate bond may carry. As a result of the advantage a
buyer gets from the ability to convert, convertible bonds typically have lower
interest rates than non-convertible corporate bonds.
Non-convertible debentures: which are simply regular debentures, cannot be
converted into equity shares of the liable company. They are debentures without
the convertibility feature attached to them. As a result, they usually carry
higher interest rates than their convertible counterparts.
2. Redeemable
and Irredeemable Debentures
Redeemable debentures are those which can be redeemed or paid back at the end of a specified period mentioned on the debentures or within a specified period at the option of the company by giving notice to the debenture holders or by installments as per terms of issue. Irredeemable debentures are those which are repayable at any time by the company during its existence. No date of redemption is specified. the debenture holders cannot claim their redemption. However, they are due for redemption if the company fails to pay interest on such debentures or on winding up of the company. They are also called perpetual debentures.
Redeemable debentures are those which can be redeemed or paid back at the end of a specified period mentioned on the debentures or within a specified period at the option of the company by giving notice to the debenture holders or by installments as per terms of issue. Irredeemable debentures are those which are repayable at any time by the company during its existence. No date of redemption is specified. the debenture holders cannot claim their redemption. However, they are due for redemption if the company fails to pay interest on such debentures or on winding up of the company. They are also called perpetual debentures.
3. Secured and
Unsecured Debentures
Secured or mortgaged debentures carry either a fixed charge
on the particular asset of the company or floating charge on all the assets of
the company. Unsecured debentures, on the other hand, have no such charge on
the assets of the company. They are also known as simple or naked debentures.
4. Registered
and Bearer Debentures
Registered debentures are registered with the company. Name, address and particulars of holdings of every debenture holders are recorded on the debenture certificate and in the books of the company. At the time of transfer, a regular transfer deed duly stamped and properly executed is required. Interest is paid only to the registered debenture holders. Bearers debentures on the other hand, are transferred by more delivery without any notice to the company. Company keeps no record for such debentures. Debentures-coupons are attached with the debentures-certificate and interest can be claimed by the coupon-holder.
Registered debentures are registered with the company. Name, address and particulars of holdings of every debenture holders are recorded on the debenture certificate and in the books of the company. At the time of transfer, a regular transfer deed duly stamped and properly executed is required. Interest is paid only to the registered debenture holders. Bearers debentures on the other hand, are transferred by more delivery without any notice to the company. Company keeps no record for such debentures. Debentures-coupons are attached with the debentures-certificate and interest can be claimed by the coupon-holder.
PROVISIONS
RELATING TO THE APPOINTMENT AND REMOVAL OF A COMPANY SECRETARY
Introduction
Company
Secretary Appointment according to sub section 24 of section 2 of Companies Act
2013, Company Secretary means a Company Secretary define in clause C of sub
section 1 of section 2 of the Company Secretaries Act 1980.And as per clause C
of subsection 1 of section 2 of the Company Secretaries Act 1980 Company
Secretary means a person who is a member of Institute of Company Secretary of
India. Company Secretary is managerial personnel in a private sector company
and in a public sector company. A Company Secretary is a person who can
represent his company before any quasi-judicial body in relation to any
legal dispute and other legal litigation.
STATUTORY GUIDELINES FOR APPOINTMENT
As
per section 203 of Companies Act 2013 every listed Company and every public
company having paid up share capital of rupees Five core or more shall have
whole-time Company Secretary in employment. And as per section 203 of
Companies Act 2013 above specified company also need to appoint whole-time-key
managerial personnel and as per Section 2(51) of the Companies Act 2013 Company
Secretary also covered under the definition of Key managerial personnel.
If
a company contravenes the provision regarding the appointment of Key Managerial
personnel (K.M.P.) under Section 203 than the company shall be punishable with
the minimum fine of rupees One lakh which may extend up to rupees Five lakh and
every director and K.M.P. of the company who is in default shall be punishable
with fine which may extend to rupees fifty thousand and if contravention is in
continuing in nature than with a further fine of rupees one thousands for
everyday after the first during which the contravention continues (sub
section 5 of Section 203).
PROCEDURE
TO BE FOLLOWED
Regulation
77 of table F provides that a Company Secretary may be appointed by the board
of director and can fix the remuneration and condition as it may think fit. Generally
board appoints the company secretary soon after the incorporation. Board of
director may appoint Company Secretary by passing the board resolution in the
meeting and execute a service agreement between Secretary so
appointed and the company.
STEPS
TO BE FOLLOWED FOR APPOINTMENT OF COMPANY SECRETARY:-
§ Resolution should be passed by the
board of director during the board meeting.
§ Agreement of service should be
prepared.
§ Details of Company Secretary must be
recorded in the register of Key Managerial Personnel.
§ A return in Form no DIR.12 shall be
filed with the R.O.C. within 30 days from appointment and MGT 14 is also
required to be filed along with fees.
§ A return in MR 1 shall be filed with
the R.O.C. within 60 days from the appointment.
PROCEDURE
FOR REMOVAL OF COMPANY SECRETARY
Company Secretaries are primarily
responsible for the efficient administration of a company, in relation to
ensuring compliance with statutory and regulatory requirements and ensuring
that the Board decisions are effectively implemented. For removal of Company
Secretary following procedures are required to be followed by a Company
1)
Convene Board Meeting
After giving notice to all directors, a
Board Meeting should be convened in order to take decisions of removing the
existing Company Secretary.
2)
Intimate the Secretary
The Secretary to be removed shall be
intimated regarding Board decisions & shouldbe asked to give representation
to the Board within 15 days of intimation.
3)
Convene Board Meeting 2
Time for considering the representation,
if any made by the Secretary & to cancel the agreement being entered by the
company with the Secretary another Board Meeting should be convened. Appoint
another Secretary in the same meeting.
4
) Inform the ROC (Removal of company secretary)
File e-Form 32 with the ROC to intimate
about the removal of existing Company Secretary and appointment of new Company
Secretary within 30 days of removal after payment of requisite fees.
5)
Sign & certify the E-form
E-Form to be digitally signed by the
managing director, manager or secretary of the company Also, the e-Form to be
duly certified by a chartered accountant or cost accountant or company
secretary in whole time practice by digitally signing the same.
6)
Penal Provisions
Failure to give notice. If any officer
fails to give notice for Board Meeting shall be punishable with a fine of
Rs.1000.Default in complying requirements The Company and every officer in
default shall be punishable with a fine of up to 500 for everyday during which
the default continues.
In this way after following the above
procedure Company Secretary can be removed from the Company.
CONCLUSION
On
the basis of above discussion we can say appointment of Company Secretary and
his unique position in the company who is vested with bunch of legal
rights and responsibilities as company secretary of any company. Company
Secretary can add value to their role by making a good judgment and making
quick accurate decision having commercial awareness in addition to their legal
expertise.
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