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CORPORATE GOVERNANCE AND ETHICS UNDER THE COMPANIES ACT, 2013

CORPORATE GOVERNANCE AND ETHICS UNDER THE COMPANIES ACT, 2013

Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. The Companies Act, 2013 recognizes the importance of corporate governance and ethics and sets out various provisions to ensure that companies operate in a responsible and ethical manner.

The Act requires companies to have a board of directors that is responsible for the overall management and direction of the company. The board of directors is required to act in the best interests of the company and its stakeholders, and to ensure that the company operates in an ethical and responsible manner.

The Act also sets out various provisions relating to the composition and functioning of the board of directors. For example, the Act requires that at least one-third of the directors on the board of a public company be independent directors. Independent directors are individuals who do not have any material or pecuniary relationship with the company or its promoters, and who are expected to bring an objective and independent perspective to the board’s decision-making.

In addition, the Act requires that companies have an audit committee, a nomination and remuneration committee, and a stakeholder relationship committee. The audit committee is responsible for overseeing the company’s financial reporting and internal controls, while the nomination and remuneration committee is responsible for recommending the appointment and remuneration of directors. The stakeholder relationship committee is responsible for monitoring and addressing the concerns of the company’s stakeholders.

The Act also sets out various provisions relating to the disclosure of information by companies. Companies are required to disclose certain information to their shareholders and other stakeholders, such as information about their financial performance, the remuneration of their directors and key managerial personnel, and their policies relating to corporate social responsibility.

The Act also contains provisions relating to the prevention of insider trading and the prohibition of fraudulent and unfair trade practices. Companies are required to have a code of conduct for their directors and employees, which sets out the ethical standards that they are expected to adhere to.

Overall, the Companies Act, 2013 recognizes the importance of corporate governance and ethics in ensuring that companies operate in a responsible and sustainable manner. The Act sets out various provisions to promote transparency, accountability, and ethical conduct, and to ensure that companies act in the best interests of their stakeholders. By complying with these provisions, companies can enhance their reputation, attract investment, and contribute to the long-term success of the economy as a whole.

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