How to look at “Corporate Governance” – Indian Corporate Law

by V. Durga Rao, for Desi Toob, March 15, 2010.

Company Law is very very complicated and interesting. If we look at all the corporate regulations or law, it is very clear that it focuses mainly on the interests of the shareholders. The liability of the members is limited in limited companies and as such the shareholders will be clueless often when their investment in the Company is not properly managed.

While the professionals use the term “Corporate Governance” with its relevance, many use the term “Corporate Governance” generally and emphasizing on good governance. While it is true that the “Corporate Governance” is meant to provide “Good Governance” in the Company, there is a specific way to understand the term “Corporate Governance”.

The term “Corporate Governance” is used in Listed Public Companies as they need to comply with the “Corporate Governance” commitments agreed with the Stock Exchanges. The term “Corporate Governance” is specifically used under clause 49 of the model listing agreement to be entered into with the Stock Exchanges and the violation of which may lead an action by the Stock Exchange to de-list the company’s shares.

While we look at the logical understanding and analysis of “Corporate Governance”, we need to look at the corporate set-up in brief and have an understanding of the law or the regulations governing different kinds of companies. While the provisions of Companies Act, 1956 provides certain kinds of companies like company limited by shares, company limited by guarantee, an unlimited company, a company incorporated under section 25 and a producer company etc; the concept has become vague with describing companies based on certain elements like “Family Companies”. For the purpose of getting a basic understanding as to the law or regulations governing the Companies in India, we can consider following kind companies…(continue reading)

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