MODULE 2

2.1 Definition of Deposits

As per the Companies Act, 2013, a deposit is any money that is received, either by means of a deposit or a
loan or any other form as may be prescribed, but does not include certain classes of transactions

Eligibility to accept Deposits

1. Public company
2. To be eligible to accept deposits, a private company must:
-up capital of at least INR 25 lakhs.

In addition to the above, a private company must also comply with the following conditions:
ain the prior consent of its shareholders by means of a special resolution.

trustees for the depositors.

Applicability
The type of company - Public companies are considered to be more risky than private companies, and
therefore need to be more closely regulated
The amount of deposits that the company wants to accept - Public company can only accept
deposits up to a maximum of 25% of its paid-up share capital and free reserves. A private company can
accept deposits up to a maximum of 100% of its paid-up share capital and free reserves
The purpose of the deposits - Company that wants to accept deposits to finance its working capital
requirements
The regulatory requirements in the relevant jurisdiction - the Reserve Bank of India (RBI) has issued
its own guidelines on the acceptance of deposits by companies

Conditions for acceptance of Deposits from its members

Condition Requirement
Consent of shareholders Special resolution
Deposit trust deed Yes
Trustees Yes
Circular or advertisement Yes
Register of deposits Yes
Receipts Yes
Repayment On due date
Maximum amount 100% of paid-up share capital and free reserves
Maximum amount from one member 25% of paid-up share capital and free reserves
Maximum amount from one member 10% of member's own net worth

Damages for fraud

Compensatory damages – Restitution - Incidental damages - Consequential damages

Time period & Acceptance Limit for Deposit

• A public company can accept deposits for a maximum period of 180 days.
• A private company can accept deposits for a maximum period of 365 days.
2.2 Registration of charges
The registration of charges is the process of registering a charge on property with the Registrar of
Companies (ROC). A charge is a security interest in property that is created to secure the repayment of a
debt. The registration of charges is important because it provides notice to the public of the existence of
the charge and gives the charge holder priority over other creditors in the event of a default by the
borrower.

Creation, Modification & Satisfaction of Charges

A charge is a security interest created over the assets of a company to secure the repayment of a debt.
 A fixed charge is a charge over specific assets of the company, such as land or buildings.
 A floating charge is a charge over the company's assets as a whole, which means that the charge holder
can take possession of any of the company's assets if the company defaults on the debt.

Creation of a charge
The creation of a charge must be in writing and signed by the company and the charge holder. The charge
must also be registered with the Registrar of Companies (ROC) within 30 days of its creation.

The particulars of the charge that need to be registered with the ROC are:
 The name of the company creating the charge.
 The name of the person in whose favor the charge is created.
 The amount of the charge.
 The description of the property that is charged.
 The date on which the charge is created.

Modification of a charge
A charge can be modified by agreement between the company and the charge holder. The modification
must be in writing and signed by both parties. The modification must also be registered with the ROC
within 30 days of its execution.

Satisfaction of a charge
A charge is satisfied when the debt that it secures is repaid in full. The satisfaction of a charge must be in
writing and signed by the company and the charge holder. The satisfaction must also be registered with the
ROC within 30 days of its execution.

Floating Charge
A floating charge is a security interest created over a company's assets that are constantly changing, such as
stock, receivables, and inventory.
• It is a security interest over a company's assets that are constantly changing.
• The charge does not attach to specific assets, but rather to a class of assets.
• The charge crystalizes into a fixed charge when the company defaults on the debt secured by the charge.
• The charge is subject to the pari passu rule, which means that all creditors with floating charges over the
same assets share equally in the proceeds of the sale of those assets.

Fixed Charges
A fixed charge is a security interest created over specific assets of a company, such as land or buildings.
 It is a security interest over specific assets of the company.
 The charge attaches to the assets and cannot be removed without the consent of the charge holder.
 The charge is not subject to the pari passu rule, which means that the charge holder has priority over
other creditors in the event of the company's liquidation.

Crystallization of Charge
Crystallization of charge refers to the process by which a floating charge becomes a fixed charge.
2.3Meetings - Kinds of Meetings
Decision-making meetings : Informational meetings : Problem-solving meetings : Brainstorming meetings :
Training meetings : Status update meetings : One-on-one meetings

Types of Resolutions;
- Ordinary resolutions are passed by a simple majority of votes cast. This means that more than half of the
votes cast must be in favor of the resolution for it to pass. Ordinary resolutions are used to make most
decisions in a company, such as appointing directors, approving the annual accounts, and declaring
dividends.
- Special resolutions are passed by a 75% majority of votes cast. This means that 75% of the votes cast
must be in favor of the resolution for it to pass. Special resolutions are used to make more important
decisions in a company, such as changing the company's constitution, winding up the company, or selling
all of the company's assets.

Notice, Quorum, Poll, Chairman, Proxy;

Notice: Notice is a formal communication that is given to the members of a company or organization in
advance of a meeting.
The notice must contain the following information:
a. The date, time, and place of the meeting.
b. The purpose of the meeting.
c. The agenda for the meeting.
d. The right to attend the meeting and vote on resolutions.

Quorum: A quorum is the minimum number of members that must be present at a meeting in order for the
meeting to be quorate and for resolutions to be passed. The quorum for a general meeting is usually set
out in the company's articles of association.
If the quorum is not met, the meeting is adjourned and must be reconvened at a later date.

Poll: A poll is a vote that is taken by all of the members of a company or organization. A poll can be used to
decide a matter that is being debated at a meeting, or to elect a person to a position.

Chairman: The chairman is the person who presides over a meeting. The chairman is responsible for
ensuring that the meeting is conducted in a fair and orderly manner. The chairman also has the power to
decide on procedural matters, such as whether to take a poll or to adjourn the meeting.

Proxy: A proxy is a person who is authorized to vote on behalf of another person at a meeting. A proxy can
be used if a member of a company or organization is unable to attend a meeting.

Meeting and Agenda;

A meeting is a gathering of people for a specific purpose. Meetings can be formal or informal, and they can be held
for a variety of reasons, such as to discuss a project, make decisions, or share information.
Key elements of an agenda:

information, such as the need for a quorum or the need to take a vote.

Voting and its types-vote on show of hands, Poll, E-Voting, Postal ballot;
Voting is a process by which a group of people make a decision by casting their votes.
Vote on show of hands – Poll – Evoting – Postal Ballot
Circulation of Members’ Resolutions etc.;
The circulation of members' resolutions is a process by which members of a company can propose
resolutions to be voted on at a general meeting.

Signing and Inspection of Minutes

The signing and inspection of minutes are important corporate governance procedures that help to ensure
the accuracy and transparency of meeting records.

Register of Members & other Security Holders

A register of members is a record of the names and addresses of the members of a company. It also
includes information about the shares that each member holds. The register of members is an important
document that is used to keep track of the ownership of shares in the company.
h member.

Significant Beneficial Owners

A significant beneficial owner (SBO) is a person who ultimately owns or controls more than 25% of the
shares or voting rights of a company. The Companies Act, 2013 requires companies to identify and disclose
the identity of their SBOs to the Registrar of Companies (ROC).

Key benefits of the SBO disclosure requirement:

• It helps to improve transparency in corporate ownership.
• It can help to prevent fraud and other irregularities.
• It can help to track the flow of money and power within a company.
• It can help to identify potential conflicts of interest.
• It can help to comply with anti-money laundering regulations.
• However, there are also some potential drawbacks to the SBO disclosure requirement:
• It can be a burden on companies to identify and disclose the identity of their SBOs.

Annual Return is a document that must be filed by every company with the Registrar of Companies (ROC)
every year. It contains information about the company's activities and financial position during the previous
year. The Companies Act, 2013 requires every company to file an annual return within 60 days of the end of
its financial year.

Resolutions and agreements to be filed

Under the Companies Act, 2013, certain resolutions and agreements passed by a company must be filed
with the Registrar of Companies (ROC).
- Resolutions passed at general meetings
- Resolutions passed by the board of directors
- Agreements entered into by the company

Report on annual general meeting

- Date, time, and place of the meeting
- Number of shareholders in attendance
- Appointment of chairman
- Approval of minutes of previous meeting
- Presentation of annual report
- Appointment of auditors
- Election of directors
- Discussion of other business
Meetings of Board and its Committees
The meetings of the board of directors and its committees are governed by the Companies Act, 2013. The
Act sets out the following requirements for meetings of the board and its committees:
Notice – Quorum – Chairman – Voting - Minutes

Frequency, Convening and Proceedings of Board and Committee meetings;

1. Frequency: The board of directors must meet at least once every three months. However, the articles of
association of the company may provide for a different frequency.
2. Convening: The board of directors may be convened by the chairman of the board, the managing
director, or any two directors.
3. Proceedings: The board of directors may decide its own procedure for meetings. However, the following
requirements must be met:
a. All directors must be given notice of the meeting.
b. The meeting must be chaired by the chairman of the board or, in his absence, by a director elected
c. Decisions of the board are made by a majority vote of the directors present.
d. Minutes of all board meetings must be kept.

Quorum; Resolution by Circulation;

A quorum is the minimum number of members required to be present at a meeting in order for the
meeting to be valid and for decisions to be made.
Board of directors: The quorum for the board of directors is one-third
Committees: The quorum for a committee is one-third of the total number of members

2.4 Dividend - Declaration of dividend

A dividend is a distribution of profits by a company to its shareholders. It is a way for companies to reward
their shareholders for their investment in the company.
Types : Cash dividends - Stock dividends - Scrip dividends - Liquidating dividends
Benefits of Dividend -
They provide a way for companies to reward their shareholders for their investment.

er, there are also some potential drawbacks to dividends:

r the company to invest in its business.

they have been announced.

Unpaid Dividend Account is a ledger account that is used to track dividends that have been declared by a
company but have not yet been paid to shareholders. The account is typically held at a bank or other
financial institution.

Investor Education and Protection Fund

The Investor Education and Protection Fund (IEPF) is a statutory body established under Section 125 of the
Companies Act, 2013. The IEPF is responsible for promoting investor education and protection in India.

Punishment for failure to distribute dividends

 Every director of the company who is knowingly a party to the default shall be punishable with
imprisonment for a term which may extend to two years and with fine which shall not be less than one
thousand rupees but which may extend to ten thousand rupees.
 The company shall be liable to pay simple interest at the rate of 18% per annum on the amount of
dividend which is not paid within thirty days from the date of declaration, to the shareholders entitled to
receive the same.
2.5 Accounts - Books of Accounts:
Books of accounts are the records of a company's financial transactions. They are used to track the
company's assets, liabilities, and equity. Books of accounts are also used to prepare financial statements,
such as the balance sheet and the income statement.

Financial Statements;
Financial statements are a set of documents that provide information about a company's financial
performance and position.
Balance Sheet – Income Statement – Cash Flow Statement - Statement of retained earnings

National Financial Reporting Authority;

The National Financial Reporting Authority (NFRA) is an independent statutory body established under the
Companies Act, 2013. The NFRA is responsible for overseeing the quality of financial reporting in India.

The NFRA has the following powers and functions:

• Recommend accounting and auditing policies and standards to be adopted by companies.
• Monitor and enforce compliance with accounting and auditing standards.
• Conduct investigations into cases of suspected financial reporting irregularities.
• Impose penalties on companies and auditors for non-compliance
• Promote awareness of accounting and auditing standards

Auditors-Appointment, Resignation and Procedure relating to Removal,

In India, the Companies Act, 2013 requires all companies to have their accounts audited by a qualified
auditor. The auditor is appointed by the shareholders of the company at the annual general meeting (AGM).
The auditor is responsible for ensuring that the company's accounts are accurate and that they comply with
the applicable laws and regulations.

1. Appointment: The auditors of a company are appointed by the shareholders at the annual general
meeting (AGM). The auditor can be a chartered accountant (CA) or a cost accountant (CMA) who is
registered with the Institute of Chartered Accountants of India (ICAI) or the Institute of Cost Accountants of
India (ICAI), respectively.
2. Resignation: An auditor can resign from his or her position by giving a written notice to the company at
least three months before the date of resignation. The company must then appoint a new auditor within
three months of the resignation.
3. Removal: An auditor can be removed from his or her position by the shareholders at the AGM, if:
a. The auditor is convicted of an offence involving moral turpitude.
b. The auditor is guilty of any misconduct in relation to his or her duties as auditor.
c. The auditor is unable to discharge his or her duties due to illness or other incapacity.
d. The auditor has become disqualified to be an auditor under the Companies Act.

Auditor’s Qualification and Disqualification;

Qualifications:
Be a chartered accountant (CA) or a cost accountant (CMA) who is registered with the Institute of
Chartered Accountants of India (ICAI) or the Institute of Cost Accountants of India (ICAI), respectively.
Have at least five years of experience in auditing or accountancy.
Not be disqualified to be an auditor under the Companies Act.
Disqualifications :

or she has become disqualified to be an auditor under any other law.

Rights, Duties and Liabilities of an Auditor :
Rights:
 Access to the company's books of accounts and other records: The auditors have the right to access the
company's books of accounts and other records, such as invoices, contracts, and bank statements.
 Right to ask questions: The auditors have the right to ask questions of the directors, officers, and
employees of the company.
 Right to report to the shareholders: The auditors have the right to report to the shareholders on the
results of their audit.
 Right to indemnity: The auditors have the right to be indemnified by the company for any losses or
damages that they suffer in the course of their audit.
Duties:
• To audit the company's financial statements: The auditors have the duty to audit the company's financial
statements and to report to the shareholders on whether they are prepared in accordance with the
applicable laws and regulations.
• To express an opinion: The auditors have the duty to express an opinion on whether the company's
financial statements are true and fair.
• To report on irregularities: The auditors have the duty to report to the shareholders on any irregularities
that they find in the course of their audit.
• To maintain confidentiality: The auditors have the duty to maintain confidentiality of the information that
they obtain in the course of their audit.
Liabilities:
 Negligence:** The auditors may be liable for negligence if they fail to exercise reasonable care and skill in
the course of their audit.
 Fraud:** The auditors may be liable for fraud if they knowingly make false or misleading statements in
their audit report.
 Breach of contract:** The auditors may be liable for breach of contract if they fail to comply with the
terms of their engagement.

Audit and Auditor’s Report;

An audit is a process of examining and verifying the financial statements of a company. The auditor is
responsible for ensuring that the financial statements are prepared in accordance with the applicable laws
and regulations and that they give a true and fair view of the company's financial position.
The auditor's report is a formal document that is issued by the auditor to the shareholders of the company.
The auditor's report is typically divided into three sections: • Introduction• Scope of the audit • Opinion

Internal Audit;
Internal audit is a process of evaluating and improving the effectiveness of internal controls and risk
management in an organization. It is an independent, objective assurance and consulting activity designed
to add value and improve an organization's operations.

Cost Audit
Cost audit is a systematic examination of the cost accounting records and systems of an organization to
ascertain whether the costs are correctly classified, computed, and reported. It also helps to identify areas
where costs can be reduced or controlled.

Integrated Reporting
Integrated reporting (IR) is a process of communicating to internal and external stakeholders about how an
organization's strategy, governance, performance, and prospects create value over the short, medium, and
long term.