Q1.

 ‘Securities market in India is still considered to be in nascent stage’. Do you agree with
the statement? Explain with reasons. 

Answer: The Indian securities market has advanced significantly in recent years and has
undergone a number of structural and regulatory adjustments to improve its efficiency and
transparency. Although there is always space for improvement, some industry professionals
contend that the market is still in its infancy. Here are a few explanations:

Low penetration: Despite the significant progress made in recent years, the securities market's
penetration is still low. A considerable section of the population still does not invest in the stock
market, and the market's overall size is relatively small as compared to other major economies.

Limited participation: Most of the trading in the market is still dominated by retail investors. The
participation of institutional investors such as mutual funds, insurance companies, and pension
funds in the market is limited.

Lack of depth: The market's depth is limited, and there is a lack of liquidity in some securities.
This can make it difficult for investors to buy or sell securities at the desired price, which can be
a significant challenge for institutional investors.

Regulatory challenges: The regulatory framework for the securities market in India is still
evolving, and there are several challenges related to compliance and enforcement.

In conclusion, while the securities market in India has made significant progress, there are still
some challenges that need to be addressed. The market's low penetration, limited participation,
lack of depth, and regulatory challenges are some of the factors that contribute to the view that
the market is still in its nascent stage.

Q2. Explain the concept of ‘corporate governance’ and critically analyse the role of Board
of Directors in this context.

Answer: In seeking to understand the Corporate Governance structure of a Company, we have to

take into account two basic factors, which would be at work to create the structure. The first
factor which would be there is that wherever there is a divergence between ownership of an asset
and control over it, certain duties will be imputed by law upon the person who is in control of the
asset. Further new duties may be added or the implied duties may be diluted by contract, but
there has to be a certainty as to who is bound and to what extent. Law of trust is a perfect
example of this situation where there is distinction drawn between the legal owner (the person in
control) and the beneficial owners (real owners i.e. property exists to their benefit). Further
examples of it may be drawn from law of agency and the law of partnership. The second factor
which works in determining the contours of corporate governance structure is the fact that
whenever the state imparts legal personality upon an entity which is not natural, it will generally
provide for rules of ascription. The statute which will grant recognition to the legal personality of
an artificial person will be the primary source of ascription of action upon the artificial person, in
order to ensure that its own decisions and acts should bind it and there should be minimal source
of discord in future as to the binding nature of the action upon the artificial person. Statutes or
charters which created local bodies, universities etc, follow this principle in laying down the
broad norms for decision making process by which decisions could be ascribed to the body,
while giving it enough discretion to formulate its own bye laws, regulations rules etc. There
would not be much of a difference where the statute instead of creating an artificial person,
allows an artificial person to come into existence provided norms laid in it are followed. Only it
may provide for a greater scope for experimentation and provide for an authority to oversee that
the norms for recognition of personality are followed.

Examples of this approach are the cooperatives and companies. If the entity is for a single
purpose; the degree of flexibility allowed will be lower, which we witness in cooperatives. The
rules are there not just for the ascription of decisions but also in doing so, how to reconcile the
different interests which may interact, taking into account the purpose of the entity.

The Role of the Board of Directors in Corporate Governance

Corporate board directors face the continual challenge of aligning the interests of the board,
management, investors, shareholders and stakeholders. They respond to their duties and
responsibilities with full regard to transparency and accountability.

It's often said that corporate boards are responsible for providing oversight, insight and foresight.
That's a tall order in today's marketplace, which is complex and volatile. Good governance
principles are fundamental to the work that board directors do.

Boards also regularly delegate some of their duties to board committees. Corporate board
committees act as a subset of the full board. Committees devote the necessary time and resources
to issues for which the full board doesn't have time. Committees delve deep into issues, often
calling in experts to assist them. Committees provide regular reports to the board on the matters
they're charged with handling.

1. Articulating Long-Term Plans to Shareholders and Stakeholders

The role of the board is to plan and strategize goals and objectives for the short- and long-term
good of the company and to put mechanisms in place to monitor progress against the objectives.
To this regard, board directors must review, understand and discuss the company's goals. In
particular, the board relies on independent directors to challenge the board's perspectives to
ensure sound decision-making.

2. The Corporate Board's Role in Stewardship

In essence, board directors act as stewards of the company that govern for the present times and
provide guidance and direction for the future. In their role as overseers, boards must continually
assess a variety of risks in the following categories:

Financial reporting

Reputation

Litigation

Ethics

Technology

Health

Safety

Environment

3. The Board's Relationship with Management

It's in the board's best interest to develop good working relationships with managers.
Corporations run best when the board and senior management hold the same perspectives on
strategy, priorities and risk management.

Diligent’s Modern Governance Solution Responds to Evolving Board Demand

Corporate governance is in a constant state of. Boards must be able to adapt and respond quickly
to a variety of opportunities and risks.

Q3. Write a note on new companies introduced by the Companies Act, 2013.

Answer: Following four are the new companies introduced by the Companies Act, 2013.

1. One-person Company has been a new concept introduced vides the Companies Act,
2013 whereby a small/micro entrepreneur can now be in a position to convert their firm
into a corporate entity without worrying about the complex compliance regime. Many
countries like China, Singapore, Australia also permit the incorporation of a one-person
entity.
 In India, it was as early as 2005, when the JJ Irani Committee recommended the setting
up of a one-person company requiring simpler legal compliance regime and thereby
enabling the small businesses to acquire a corporate entity without wasting much time
and resources on compliances. Upon a conjoint reading of sections 2(62) and 3(1) (c), it
can be deduced that a one-person company is a type of a private company. Hence a one-
person company can be incorporated as a private company having one member and
minimum one director.
Further, taking into account, section 3(2), a one-person company can either be constituted
as an unlimited company or a company limited by shares or guarantee. Along with ‘one
person’, the memorandum of a One-Person Company shall also indicate the name of one
other person (as a nominee), with his prior (written consent), who shall become the
member of the company in the event of subscriber’s death or his incapacity to contract.
Rule 3 of the Companies (Incorporation) Rules, 2014, enumerates the rules governing the
one-person companies. In case where the paid- up share capital of an OPC exceeds fifty
lakh rupees and its average annual turnover during the relevant period is more than two
crore rupees, such company would not be entitled to continue as OPC. Here, the option
would lie the company itself to either convert itself into a private company or a public
company within a period of six months. A number of privileges in terms of procedural
relaxations are available to a One-Person company over other companies like, it is not
required to hold an annual general meeting [section 96(1), neither it is required to prepare
cash flow statement as a part of its Financial Statement [section 2(40)], nor it is required
to appoint an independent director on its Board [section 149(4)]. Due to the
abovementioned benefits in past three years, i.e. since 2014 this provision has come into
place, thousands of one-person companies have been incorporated.
2. Small Company [section 2 (85)] is another new form of a private company introduced
by the new Act. This classification of a private company has been made on the basis of
size of the company in terms of its paid-up capital and turnover. The ideology as stated in
the JJ Irani Committee recommendations, behind the small company was to give some
relief to small sized entities by giving them flexibility in decision making by simplified
procedures and statutory compliances for internal regulation.
A small company also enjoys a number of privileges in terms of exemptions as against
other companies like:
i. A small company is not required to appoint more than two directors on its Board,
ii. Not required to appoint independent directors,
iii. The directors are not required to retire each year,
iv. The report of an annual general meeting is not required,
v. Preparation of the cash flow statement as a part of its Financial Statement is also not
required.
3. Associate Company: Associate Company is another new concept introduced by the
Companies Act, 2013, whereby more transparency is sought to be brought amongst
companies which shared associate relationship and were not covered in terms of holding-
 subsidiary. Moreover, as per provisions of the Act, an associate company is also a
‘related party’ for a company in question [section 2 (76) Companies Act, 2013]. A
company is an associate of another when it possesses significant influence over that
company. A joint venture can also be an associate company. However, it must not be a
subsidiary of the company exercising such influence [section 2(6) Companies Act, 2013].
The Act, stipulates the exercise of significant influence in terms of control (by holding at
least 26 percent of the total share capital) or decision making.
4. Dormant Company [section 455]: The Companies Act, 2013, has introduced another
kind of company known as a dormant company. The concept of dormant company, was
introduced in the regulatory regime, keeping in mind that there were large number of
companies which actually not carrying out any significant business activity, and were
merely holding an asset or an intellectual property or were incorporated for a project to
be carried out in future. Hence, the compliances as against these companies were relaxed.
Such inactive companies have to apply to the Registrar of Companies to get the ‘dormant
company’ status. The Registrar once satisfied may grant such status and enter the name
of such company in the Register of Dormant Companies. The name of any company can
also be entered in such register, in case the company fails to file its annual returns or the
financial statements for two consecutive years. However, there remains no embargo upon
dormant companies from securing an active status later on.

Q4. Write a note on incorporation of companies and related documents that are required
to be prepared by the companies for incorporation.

Answer: The Companies Act, 2013 stipulates the process for registration and incorporation of
companies in India for all types of companies including private and public companies.
Incorporation of Company under the Companies Act, 2013

Under the Companies Act, 1956 for incorporation all the important documents are filed with the
Registrar by the Company, under 2013 Act section 7 talks about the incorporation of company, it
states that the documents shall be filed by the company to the Registrar within whose jurisdiction
the registered office of a company is proposed to be situated. Sub-section (1) of section 7 lays
down the list following documents and information which is required to be filed by the company
for incorporation 24

 Duly signed memorandum and articles of the company by the subscribers of the
memorandum in the manner prescribed.
 A declaration in the prescribed form by an advocate, a charted accountant, company
secretary, a person named in the articles as a director, manager or secretary of the
company that all the requirements have been complied with.
  An affidavit from each of the subscriber to the memorandum, that he is not convicted of
any fraud or offence in connection with the promotion, formation or management of the
company.
 The particulars of name, surname, residential address, nationality of every subscriber to
the memorandum with an identity proof and in case of a subscriber being a body
corporate, such particulars as may be prescribed.
 The particulars of the person mentioned in the articles as the first directors of the
company.

On the basis of documents and information filed under the sub-section (1), the Registrar shall
issue a certificate of incorporation in the prescribed form, to this effect the proposed company is
incorporated under this Act. Sub-section (3) of section 7 of this Act states that on and from the
date mentioned in the certificate of incorporation, the Registrar shall allot to the company a
corporate identity number, which will provide a distinct identity to the company and will also be
mentioned in the certificate.

Procedure for formation of a company in India:

1. Obtain directors identification number for the proposed directors of the company.
2. Obtain digital signature certificate for at least one director for the purpose of filing the
forms electronically
3. File an application for the approval of name for the company.
4. Preparing the Memorandum of Association and Articles of Association of the company.
5. Have the appropriate number of persons to subscribe to the Memorandum of the
company (minimum two in case of private company and minimum seven in the caseof
public company)
6. Submit all the documents along with the required fees to the ROC.
7. ROC issues a receipt of certificate of incorporation.
8. In case of a public company obtain a certificate of commencement of business from
ROC.
9. Introduction to the first and the most important step in forming a company –Incorporation
under the Companies Act, 2013
10. Understanding the basic documents of a company which are memorandum of association
and articles of association and understanding their importance in incorporating a
company under the law.

Companies (Incorporation) Fourth Amendment Rules, 2016 25 and Simplified Process for
Incorporating Company Electronically (SPICe) e-Form.

The Ministry of Corporate Affairs In exercise of the powers conferred by sub-sections (1) and
(2) of section 469 of the Companies Act, 2013 (18 of 2013), vide its notification dated October
01, 2016, amended the rule and introduced rule 38 in the principal rules. This amendment comes
in light of ease of doing business and government’s initiative in Government Process Re-
engineering (GPR). The rule 3 amendment/addition introduced a new measure known as
Simplified Process for Incorporating Company Electronically (SPICe) e-Form 26 , the objective
of which is to provide faster incorporation and related services within stipulate times frames
which are in sync with international best practices.

The main features of SPICe are as follows: -

1. Simplified and integrated Digital form for Company Incorporation.

2. Introduction of standard format of e-Memorandum of Association as per Companies Act,
2013 27
3. Standard format of e-Articles of Association as per Companies Act, 2013 28
4. Memorandum and Articles will now be filed as linked e-forms (except for Section 8
companies)
5. Provision to apply for Company Incorporation with a pre-approved Company Name.