CS :: Company Secretary : An understanding

01. Who is a Company Secretary? What is Company Secretaryship?

What would you tell a prospective student about company secretaries? This is what we need to explain in trying to make a person understand what a company secretary is. To have an understanding on what a chartered accountant does, you have to understand some relevant aspects which are explained below. Please be patient enough to read through. It would give you a clear understanding of what a company secretary is?

Different ways in which you can establish a business

Say you have a very good business idea. You think that establishing a very big departmental store at you place would be a profitable venture. Say it would cost Rs 2 crores to establish the business.

There are a number of different possible routes for establishing the said business based on your financial resources and other factors.

Sole Proprietor

If you have all the money needed or if you can pool up loans to the required extent on your own, you can establish it on your own self. In this case you are the owner of the business. You are called the Sole Proprietor. Everything is yours. You take all the risk/gain.

Say you have to wind up the business on account of losses.

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Even after you have sold all the assets of the business and paid up debts of the firm there are certain debts unpaid. In such a situation you will have to repay the remaining debts by selling off your personal assets.

You have to take personal responsibility for the debts of the business. You cannot say they are business debts and I am not responsible for them personally. Your liability is unlimited.

Partnership

If you as a single person cannot invest the total amount but a few friends of yours (say 10) together can raise the capital and loan to the required extent, you can do the business together. In this all of you together are the owners of the business and together you are called the partnership firm. It is the firm which owns this business. The firm is a collective identity for all of you together.

Even in this case, if the business is wound up and the assets of the business are not sufficient to clear the debts of the firm, each partner has a responsibility to clear the debts of the firm using his private estate.

The responsibility of the partner is a joint responsibility (i.e. responsibility to clear his proportionate share of the un cleared debts) as well as a several responsibility (i.e. responsibility to clear all the unpaid debt of the firm in case the other partners do not have enough private assets to clear their share). This responsibility accrues to a partner irrespective of his share (i.e. a partner with a very minute share say 1% may be needed to take up the total responsibility.

Need for looking at alternate business forms

If you cannot pool up the resources from a few persons and intend to raise the resources from many more persons you cannot form a partnership. There is a restriction on the maximum number of members in a firm (20 for normal business and 10 in case of banking business). If you intend to collect capital from more than 20 you have to take up alternative business forms.

Co-operative Society

You go to people around your place and tell them the benefit of having such a business which would be of great utility to them. You propose to run the business in the name of a society. You convince them that the profits would be shelled back to improve services to the members of the society or for their benefit only.

Even people capable of investing small amounts say Rs 100 or Rs 1000 etc can become members.

The society is an artificial person who owns the business. All the assets, all the profits earned, etc., belong to the society and all the risks of the business are totally borne by the society. The society can sue and be sued on its own name. If some one owes money to the business run by the society, it can move the court asking for justice.

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In such a case the society becomes the plaintiff and the person who owes money the respondent. If the society owes money to some one that person can move the court asking for justice. In such a case the person becomes the plaintiff and the society the respondent. The members of the society are not personally liable for the debts of the organization (society) unless they have given a personal guarantee.

This is the reason why the rules and regulations governing the activities of the society are clearly framed and laid out at the time of formation of the society, which are called the bye laws of the society. The bye laws express what the society can and should do and what it cannot or should not do. Since there is an involvement of a lot of people, the government also takes responsibility to ensure that no one is cheated. For this reason, the society is also governed by the provisions of the Societies Act within whose frame work it has to work.

Since a society is an artificial person and has an identity recognized by the court of law it is called an artificial juridical person. Since the society is artificial it has to have some one who takes care of ensuring that every thing being done is as per the bye laws of the society and within the legal frame work. This person is called the "secretary" of the society. A secretary of the society is in a way a live form of the artificial entity. The society has a seal (which is like the signature) which is to be authenticated every time it is used by a relevant person like the secretary.

Company

The disadvantage with a society is that the profits of the business cannot be distributed among members in cash. Only some sort of benefit can be passed on to the members if there are profits.

You have people who are willing to invest in small amounts but they are not within your locality. They are spread all over a wide geographical area say all over the country. In such a case it would not be possible to pass on any benefit to them in a way you do to the members of the society. More over they are interested in the business part of your idea. In such a case, you have an alternative form of organization which is similar in working to a society with the fundamental restriction in distributing profits not being present.

You can float a company, by collecting resources from many people and establish the business. The business is owned by the company and the company is responsible for all the debts and liabilities. The members who contribute capital are called the share holders of the company. The contribution itself being called the share capital.

Profits made by the company can be distributed to the share holders in cash or any other form such distribution of profits being called payment of dividend.

A company like a society, is an artificial juridical entity. It can sue and be sued on its own name. It has a seal which acts like its signature. Companies like the societies are governed by the provisions of its memorandum and articles of association (similar to the bye laws of the society) and also the provisions of the Indian Companies Act within whose purview it has to work. (Similar to the co operative society's act in case of societies).

Since the company is also an artificial person it also should have some one who takes care of ensuring that every thing being done is as per the memorandum and articles of association of the company and within the legal frame work of the companies Act.

This person is called the "secretary" of the company. Under Sec 383 of the Companies Act, every company with a paid up share capital of Rs 2 crores or more as prescribed by the central government are statutorily required to appoint a whole time company secretary who is a member of the ICSI.

A CS is the representative/custodian of the body corporate

This forms the major function of the company secretary. He looks after all the affairs of the artificial juridical person i.e. the company.

Though we can use the same idea with regard to a secretary of a co-operative society and others, the profession of CS is more related to companies.

Author Credit : Team Future Accountant