What does corporate governance mean?
Corporate governance means the arrangement by which a company’s board, its shareholders, and its management take and record decisions. The Companies Act, 2013, is the framework for every company. It does not promise that the company will grow.
Who decides what?
Shareholders appoint the directors and the auditor, and they decide the matters the Act reserves for them, including the annual accounts and a dividend. The board is responsible for the conduct of the company and delegates day-to-day work to management. Who may be a director is on the director qualification page.
What must the directors do?
Section 166 requires a director to act in good faith to promote the objects of the company for the benefit of its members as a whole and in the best interests of the company, its employees, the shareholders, the community, and the environment. A director must exercise reasonable care, skill, and diligence, avoid a conflict with an undue personal interest, and not achieve an undue gain. The board keeps proper books and lays financial statements before the members. Those statements are on the financial statements page.
Which meetings does the Act require?
The board meets as section 173 requires. How a meeting is called is on the board meetings page. An annual general meeting is held each year, other than by a one person company, within the time on the annual general meeting page. The meeting approves the financial statements, declares a dividend if one is proposed, and deals with the appointment of directors and the auditor.
What extra rules does a listed company have?
A listed company also follows the SEBI listing regulations. Those regulations add independent directors, board committees, and periodic disclosures to the stock exchange. A private company is not a listed company, so those regulations do not apply to it. Publishing information on a website is an extra disclosure a listed company, or a company that has a website and a filing that asks for it, may have to make. It is not a substitute for the registrar filings.
Frequently asked questions
Four questions cover profit, day-to-day control, the annual general meeting, and a private company.
Does corporate governance guarantee a profit?
No. It is the structure for decisions, records, and disclosure. It does not promise that the business will succeed.
Do shareholders run the day-to-day business?
No. Shareholders appoint the directors and the auditor. The board directs the company, and management carries out that direction.
Does every company hold an annual general meeting?
A company does, other than a one person company. A one person company has no annual general meeting.
Do the listing regulations apply to a private company?
No. Those regulations apply to a listed company. A private company is governed by the Companies Act and its own articles.
Sources
Directors’ duties are section 166. The board’s powers are section 179. The annual general meeting is section 96. A listed company also follows the SEBI listing regulations.