module_6_24_

CORPORATE
GOVERNANCE

CERTIFICATE COURSE

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DEVELOPED BY

MODULE - 6

CORPORATE ADVISORY SERVICES

6.1 INTRODUCTION company with regard to tax and accounting,
and regulatory compliances.
We all are not perfect all the time, we tend to divert
from the way of reaching our goals and when we have When a company acquires another company and
completely lost the path we all need an experienced merger or amalgamation takes place the transferee
person or a wise person to help us get back in the company undergoes dissolution and the assets are
track. Similarly to keep the financial goals of the taken up by the transferor company. These involve
company intact without any wavering there are complicated and minute accounting details which
Corporate Advisory services providing organisations. involves settlements to creditors etc. In such cases
the companies take up the services provided by these
These organisations can be banks, insurance bodies that are specialised to handle these situations
companies, credit card service providers, consumer in a professional way. They simplify the procedure
finance operators, stock brokers, and some and make it easier for the company the company to
Government enterprises specialised for this. pass through the whole procedure smoothly and
calmly.
The main areas of duties of these companies are:
When a company takes up a new project it will face
a. Financial solutions for the issues faced by the problems regarding allotment of funds. These bodies
business operations. lend a helping hand to estimate the cost of whole
project and how to save the money. When the project
b. Financial procedures management at the time goes beyond the budget they look into aspects of
of mergers and acquisition reducing the price thereby fitting the entire project
into the budget. They also take up the responsibility
c. Financial guidance in the business operations of distribution of the funds allocated for the project.
d. Financing for the corporate companies to

generate funds.
e. They act as advisory body that help the

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Also, sometimes a company might not have enough Also, it is pertinent to state that these organisations
funds to run the business and in such cases there have wide knowledge about the domestic as well as
might be a situation where it might have to borrow the international market conditions.
money from external resources. In such situations
these service providers help the company to get the They appoint professionals who have wide
required money from the external resources. knowledge on various fields so that they act as expert
Sometimes in rare cases the advisory bodies act as advisors for the companies that need their help.
guarantee for such companies that borrow money.
The company also helps in the process of due
The also help a company to keep record and proper diligence where the financial, legal and operating
documentation of financial records. This is a valuable aspects of the company are investigated. The due
service that is provided by the company because in diligence process protects the company from the
the current scenario there is a dire need for proper unforeseen liabilities that might come up in future.
documentation of the financial records of the When these advisory bodies take up the due diligence
company. In case of any suit against the company process they make sure that the process is not biased
there will be requirement for these well documented and is done with a motivational attitude. Through this
records which might possible help the company to get process the company is able to analyse its strengths,
out of the allegations. weaknesses, opportunities and other threats that can
further development of the company. It also helped
In case a company plans to restructure itself they the company to know whether it within the
would opt for these advisory services. These bodies confinement of the legal regulations.
will help the company by analysing the market
situations and thereby helping the company to plan 6.2 ROLE OF AUDITORS:
their reconstruction accordingly. They also help them 6.2.1 Promote Accountability
regarding all the legal procedures and with
appropriate agreements. The researchers have found out that extent
evaluating controls and operations as a role of
We can also state these bodies are risk managers who auditors enhances corporate governance. Measures
help the companies that are sinking through advice and policies introduced by external auditors are
on rehabilitation and turnaround management. designed to compel accountability in the workplace.

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For example, if the financial statements are 6.2.3 Crisis Management
manipulated by inflating figures or cooking
accounting numbers, auditors could recommend By developing efficient crisis management plans to be
penalties. For such acts, penalties could include used in the event of allegations of corruption or fraud,
stripping the manager of his position or his an auditor helps in ensuring good corporate
compensation, reducing annual bonuses or pensions. governance. Typically, the idea is to assign
So, if the auditor has the slightest bit of suspicion of responsibilities to different officials of the
the legality and integrity of a record or transaction, it administration. This provides that if the company
his/her the duty to investigate and report it, before he becomes involved in a financial crisis, those officials
certifies it to be true. have an action plan that can be used in making sure
that confidence among investors is sustained.
6.2.2 Represent Interest of Shareholders Controls measures that are to be used with the media
and law-enforcement officials are part of the crisis
One of the many important roles of a professional management plans.
Auditing in India in corporate governance is to
protect the interests of shareholder and stakeholders 6.2.4 Risk Assessment and Mitigation Planning
of a company. It is made possible by conducting
independent reports by the auditors and not being Auditors help in promoting corporate governance by
influenced by the company. conducting a period risk assessment. External
auditors reassess the security measures that a
External auditors are required to state the finances of company has in place against corruption or corporate
the company and attest to the validity of financial fraud.
reports that may have been released. It is their job to
ensure that the board receives accurate and reliable Additionally, they also analyze the on the whole risk
information. The board may also question the views tolerance of the company and the efforts that the
expressed and an assessment made by the auditor on company has made towards lessening the risks. For
the appropriateness of the principles used by the example, if a government agency or a company has a
company. system with an under-performing whistle-blower,
then the efforts may be made to improve the system
in question.

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6.2.5 Maintain Strong Relationship with 6.3 ROLE OF POLICY MAKERS:
Regulators
Organizational policymakers i.e. Board of Directors,
The efforts put in by an external auditor helps in Management Committee, Executives, must go about
fostering a good relationship with regulators. Mostly the process of policy formation in a careful way.
if the companies and agencies have transparent Policymakers must engage, and be seen to engage, in
operations, the regulators are supportive of them. the process of consultation. A charge of 'failing to
External auditors evaluate the compliance with the consult' is a charge of considerable magnitude. Whilst
regulations of a company’s organization. Once an much information can be gleaned by listening to
auditor attests the company’s disclosures, it is more people, there is also often a need to conduct research
likely that the regulators also show their trust i.e. statistical surveys, monitor events, etc.
towards them.
The role of the policy maker is acting as a funnel to
Apart from examining the company’s accounts and gather information through consultation and
reports, these days’ auditors are also asked to research and to reduce and extract from the
comment on internal control being practiced in the information, a policy or a set of policies which serve
company. to promote what is the preferred course of action.

All in all, the role of an audit committee and auditors Some of the skills that policymakers need to ensure
has become very crucial in the current scenario. the development of effective policies are:
Stakeholders expect loyalty and trust from auditor
while resolving financial facts and exposing the fault a. Collecting statistical information
in an organization. b. Convening and chairing discussion forums
c. Be able to write policy documents in an
An auditor’s experience, qualification background,
relevant exposures, and in-depth knowledge need to appropriate language and without ambiguity.
be highlighted. As, when directors are experts, d. Seeking information from experts from
qualified, experienced and financial wizards, they can
have vision and foresightedness to protect outside the organization (this may include
stakeholders. government personnel, other sport and
recreation managers and academics in sport
and recreation management)

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Your success in policy development will depend to the company toward that goal. If resources are being
some extent on your ability to research examples of allocated to places that do not support this strategic
policy and to discuss policy issues with numerous goal, then the board's due diligence must identify the
other people. Good policies stem from wide reason why and give input into which is off-strategy:
consultation and in-depth discussion. the strategic goal itself or the resource actions that
appear initially to be out-of-sync.
6.3.1 Policy Setting
6.3.3 Assurance That Actions Support Strategic
Corporate governance is the system used to direct Positions
and control organizations. One of roles played by
corporate boards and executive committees is to A company's executive team is directly accountable
establish and enforce policies which are necessary for to the board of directors. This requires that major
the effective operation of the company. These may corporate decisions and results tracked against the
include codes of ethical conduct towards customers, corporate goals should be vetted, if not by the full
vendors, employees and shareholders, input into the board, then by the board's executive committee. Key
organization's structure, as well as approval of strategic actions, such as mergers and acquisitions,
functional positions and responsibilities. This may major new market entries, exiting markets, closing
include input into the corporate culture or a host of plants, or changing the diversification mix or pricing
subtle governance cues that affect the transparency position, are examples of decisions that require the
or opaqueness of strategic decision making. oversight of corporate governance.

6.3.2 Establishing Corporate Strategy 6.3.4 Monitoring Investment Decisions and
Capital Investments
An organization's corporate board must be intimately
involved with establishing a clear definition of the The corporate board has a responsibility to review
organization's purpose and desired outcomes. If a and understand the financial statements of the
company sets the goal to become the global leader in company and accordingly guide the prudent
telecom technology for the military market, for investment of funds to maximize net income and
instance, then corporate objectives, strategic plans, returns. After the introduction of the Sarbanes-Oxley
financial allocations, and measurable outcomes Act of 2002, corporate boards must be vigilant
should all be measured against their ability to move regarding the strategic impact of new requirements

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for internal controls. Corporate boards must also producers, it followed years of unprecedented
review and understand product portfolio and support revenue growth and shareholder returns. As
the executive management team, offering strategic unprecedented profits rolled in, it appeared that little
oversight regarding adjustments to the product mix, to no corporate investment was designated to
approving or shifting capital investment to product technology, safety inspections or deep water disaster
categories with the most potential to maintain and response plans, even as oil reserves were tapped in
grow revenue streams and manage expenses. deeper and deeper water. Surely the stakeholders in
However, helping the executive team balance the this disaster go far beyond BP shareholders and
short-term goals so desired by shareholders with the include the fishermen and small business people
long-term investment necessary to ensure the whose livelihoods were destroyed, the wildlife being
company's future, is another difficult task for killed by it and the people of the Gulf, whose lives
corporate boards. would be impacted for decades to come. A corporate
board that does not prepare for crisis, or consider the
6.3.5 Accountability to Stakeholders broad impact of their operational decisions, is not
fulfilling its board mandate.
Accountability is mostly not considered from the
point of view of governance. Since ages, curriculum of 6.4 ROLE OF LAWYERS IN CORPORATE FINANCE
business school has emphasized responsibility
primarily for stock shareholder returns ignoring the Corporate finance lawyers advise companies on
responsibilities of a corporation to be a good complying with various business assets. Company
corporate citizen. As stock prices and quarterly requires guidance compliance with company law
dividends have taken centre stage, long-term procedures, the raising of funds and, compliance with
investments are often set aside.i Critical aspects of foreign laws (in the case of international
corporate governance responsibilities, such as transactions).
infrastructure investment, plant retooling, workplace
safety or disaster planning, have often been ignored The Companies Act, 2013 along with some
or delayed past safe time parameters. The Gulf oil amendments introduced extensive ideas about
disaster in 2010 has shown questionable judgment by finance management in companies with the help of
the corporate governance of British Petroleum (BP). lawyers. It has changed the concept of loans and
While the lapse was perhaps shared by many oil investments by a company.

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Section 186 (1),2013 states that companies before securities law and the laws which are related to the
the 2013 Act that is the companies registered under business corporations for which they work.
1956 are not restricted but the rest shall make
investments in two layers. The companies outside In recent cases like Walmart, General Motors, etc.,
India are exempted under this amendment. have focused on the corporate lawyers in
investigations in which the corporal privileges had
The exceptions are available from the provisions of been misused. The confidential information of clients
the 1956 Act of Companies Act to private companies had been accessed to the society where the clients
that loans made by a holding out to its subsidiary are less likely to approach the corporations if the
company is not available anymore under Sec. 372A. corporate lawyer has not taken proper care of such
circumstances.
‘Layer’ according to explanation (d) of Section 2(87)
of the Act about holding Company means its Corporate lawyers need to draft documents related
subsidiary or subsidiaries. to the corporation and clients and review the
agreement if necessary and have to make any
An Investment Company is a Company whose amendments or limit the agreements or add any
principal business is the acquisition of shares, exceptions or conditions according to the parties,
debentures or other securities as according to the required.
Companies Act 2013.
A Corporate lawyer is the one who negotiates the
a. To assure the legality of the transaction done deals between the parties and also negotiates on
by such corporations. behalf of the corporation that he is working with
being impartial and with a lawful objective.
b. Advice the corporations on their legal rights
and duties. Corporate lawyer’s presence is necessary for the
meetings between the parties to facilitate them, to
c. The responsibilities of such corporations negotiate and act as a mediator understanding the
should also be remanded to the corporations. circumstances of both the sides and help make
Corporation means the corporate officers decisions and suggestions.
involved in such field.
Likewise, not all will include the mergers and
To do the above-mentioned tasks one should possess, acquisitions all the time, as there are many divisions
intense knowledge of the laws such as contract law,
tax law, intellectual property rights, banking law,

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made under the umbrella of the corporate law. in is to be restricted by a lawyer and prevent them
from doing so.
A corporate lawyer can also be a partner of the firm
and of other fields as well. This provision from Companies Act, 2013 was first
applied to public companies, but now it has been
A Corporate lawyer should have a piece of additional extended to the private companies also.
updated knowledge about the laws and should apply
them in practicality. Some practical knowledge of the Corporate lawyers are experts in company and
same is discussed below. business laws. They understand the minute
distinction between legal entities and how to best
A Corporate lawyer should have a command on the utilize them for different purposes. They also assist
subject that he is dealing with and should apply his companies in various transactions supporting
mind taking decisions or while suggesting with all the business operations and management.
pros and cons that are possible to foresee and advice
In the field of mergers and acquisitions, corporate
6.4.1 Restriction on Investment lawyers enter into negotiations with the entity,
coming up with a memorandum of understanding
A corporate lawyer must restrict from investing more (MOU). The next step for the corporate lawyers
than two-fold in the case of shares, debentures and would be conducting legal due diligence on the target
other securities. company, assessing what legal liabilities exist.

The companies which are outside India can be Depending upon the nature of the transaction the
exempted from such restriction, and the laws of that lawyers will have to file notices in case of mergers and
country shall be applied. acquisition with Take Over And Regulation Panel
(TRP).
A subsidiary company having subsidiary investment
for meeting the requirements under any law. The lawyer also drafts conditions for such sale
agreements and finance related agreements to the
6.4.2 Restriction On Loans to Directors and Other transactions.
Persons
Once the transaction is finalized, the corporate
The loans made or security or guarantee provided to lawyer will draft the new shareholder agreements
any of the directors or any company or guarantee is
given to any company in which a director is interested

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and advice regarding the shares to be issued in By passing a special resolution in a general meeting,
accordance with their requirements. Furthermore, such restrictions can be overcome, or changes could
they will draft the new entities Memorandum Of be made to such limited conditions.
Incorporation (MOI) and lodge it at the (CIPC)
Companies And Intellectual Protection Commission Changes Made in Such Loans and Borrowings
together with documents affecting the name changes Recently
of the target company.
a. The restriction was there in case of public
As the transaction size and value increases, so also companies but has now been extended to
the complexity and risk, big law firms are often private companies.
preferred as they have specialists who focus
exclusively on these types of transactions as opposed b. Loans to companies are restricted and are
to smaller firms. extended to individuals and non-corporate
entities.
Corporate lawyers are experts in all facets relating to
company law as well as having a solid understanding c. Where a loan is guaranteed that security for
of how companies operate & function. Along with such loan has been provided, in a case
these factors, corporate lawyers are expected to be acquisition made by a holding company,
excellent contract negotiators and draftsmen. They where the passing of a particular resolution is
are expected to work long hours, often being held too not necessary.
tight schedules in their daily life.
6.4.4 Deposits
6.4.3 Loans and Borrowings of the Company
A public company can accept deposits from its
The inter-corporate loans shall be limits and give members and other persons, while private companies
guarantees or securities on behalf of the company can accept deposits only from its members.
shall be restricted to:
The definition of “deposit” as provided under the
a. 60% of it’s paid up share capital Companies Act 2013 and the Rules explicitly indicate
b. 100% of its free reserves and securities that loans obtained by a company shall also be
considered to be a deposit.
premium account Whichever is more.
Previously it did not require private companies to
elaborate requirements to accept deposits in

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compliance with the companies. Now it accepts d. Many businessmen are afraid to borrow
deposits by fulfilling certain details about such money or take debts as they may not be able
deposits like notice to members of the company, filing to repay the loans within the time limit. In
of a company with the Registrar of a company, case of loss it would be a problem if they are
separate bank account details, every loan made by not able to repay.
any member of the company comes under this
provision and should be in knowledge of the e. A Lawyer has to foresee such situations and
corporate lawyer. suggest about the current loan systems,
banking systems, etc.
However, loans made by the director in personal
interest shall not be considered and restricted. f. The financial institutions provide loans to
start a business and encourage them by
6.4.5 Debt Financing and Equity Financing offering loans, but the debt payers are afraid
a. Starting a business would cost much and of the interest that is charged by such
needs a sound financial support. Finance is financial institutions.
like a pillar of the business. Such loans shall be
borrowed or can but invested from savings. g. Some business men do not have enough
When one runs short of finance, debt credit worthiness to get a loan so they cannot
financing can be an option where the money is even afford to think of debts.
borrowed from any commercial finance
companies or financial institutions. h. Lawyers should apply their mind and take
b. A lawyer in a corporate field should be aware decisions. Banking decisions should be
of all the techniques on how finance can be preferably made by the corporate lawyers
created and earn profits with a lawful object and with a bona fide intention to earn profits
to fulfil the purpose of the business for the company.
commenced.
c. Funding a business could require good credit i. In the case of debt financing, it is an advantage
and solid financials which would give that the business ownership is in the hands of
collateral support for a longer run. the management unlike equity financing, and
they are the whole and sole managers who
control and regulate the business.

j. In case if there is a default, there won’t be a
huge loss to the company, but the tangible

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assets may be at risk. l. Also, taking on debt can build a business
k. The collateral and contingent funds which are credit, which is good for future borrowing and
insurance rates.
like reserve funds may help in such situations.
The creative and strategic control is not loss m. It’s also worth bearing in mind that interest
in this kind of financing. paid on loans is tax deductible, somewhat
softens the blow of repayment.

i Jan Wondra, The Role of Corporate Governance in Strategic 12:00AM), https://bizfluent.com/about-6618246-role-
Decision Making, Management (September 26, 2017, governance-strategic-decision-making.html

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