We know that there are various types business entities available for doing business. A person can choose one from many formats of entities such as a proprietorship Firm, Partnership Firm, Company, LLP etc., based on his/her requirement and capital base. Many of these entities have legal existence and treated as separate from its promoters or owners. These entities are required to be registered under particular applicable laws and after existence various other laws, rules and regulations become applicable to these entities. The laws, rules and regulations are enforced the government and carry with them penalty and imprisonment on non-compliance.

There are various laws applicable to an entity based on the nature of business and structure of entity, this relates to Social, Environment and revenue laws.

The compliance with applicable laws is extremely important and the cost of noncompliance is much more than cost of compliance.

The compliance of provisions of various laws, rules and regulations bring a good relationship between the government and the entity and other stakeholders. A well complied company earned reputation in the market and investor put their money in the stocks of the Company. A well complied company gets various rebates from the government as well as easily raise finance from the Banks or from the market.

Wikipedia Defines: In general, compliance means conforming to a rule, such as a specification, policy, standard or law. Regulatory compliance describes the goal that organizations aspire to achieve in their efforts to ensure that they are aware of and take steps to comply with relevant laws, policies, and regulations.

The multiplicity of laws, rules, regulation, etc., has necessitated introduction of a system to ensure compliances under various laws, every entity generally adopted Legal Compliance Reporting System. This system has two hold objectives;

  1. Firstly, to protect interest of the customers, employees, revenue, environment and the directors and officers of the company;
  1. Secondly, to avoid any unwarranted legal actions by the law-enforcing and other authorities.

In-depth compliance reports provide organisations with a way to understand how well they are falling in line with industry standards, rules, regulations and laws set by the government and/or regulatory bodies.

The process of compliance reporting includes compiling information on company data and how it is collected, controlled, stored and shared, both internally and externally. Internal stakeholders, management teams, executives and third-party auditors may elicit the information gleaned from compliance reporting to ensure that the company is following the law.

Reports that are designed for an external audience are generally part of a compliance audit that comes as part of a request from a regulatory agency, or auditor. When reviewed, an outward-facing compliance report can face serious consequences, should there be evidence of noncompliance. This could be in the form of sanctions, fines, or more serious penalties. If the compliance reports proves that the organisation is working in good faith, but still suffering from noncompliance, then the regulatory body may aid the organisation in its remediation efforts.

Compliance reports are also used internally and may be read by stakeholders, board members or other department heads. These reports tend to be more focused and targeted with reference to specific regulations. Overall, a compliance report can become a learning tool for the entire organisation for how to adhere to standards and regulations, thereby showcasing how to conduct business processes in the optimal manner.

Under most laws, the persons responsible for compliance and liable for punishment are directors, company secretary and some of the senior officers, who have been designated for specific compliance. Among directors the responsibilities of Managing Director and Executive Directors, who are running the business are the most. As a result of stricter enforcement of laws and the intervention of Court of Land, it become necessary and important to have a strong Legal Compliance Reporting System in the company.

SALIENT FEATURES OF LEGAL COMPLIANCE REPORTING SYSTEM:

1. All major laws affecting the Company’s affairs at different levels will be divided amongst the various divisions/departments having regard to their functions.

2. The main Responsibility for the legal compliances will rest with the concerned division/department head who will designate officers to undertake the operational responsibility in this regard.

3. The Company Secretary and other officers in the Secretarial and Legal Department will act as counsellors to guide and advise the officers, who have operational responsibility, in respect of certain laws which will be specified in the format of reporting devised by the Secretarial and Legal Department.

4. Every Officer will submit report in the prescribed format to the concerned division/department head, who will sign it and forward to the MD/CEO through the CS of the Company.

5. The MD/CEO will submit the report to BOD at the periodical board meetings.

6. A copy of every Show Cause Notice/Demand Notice or any other notice received from any government authorities or any other party, regarding non-compliance of any law, terms or conditions of contracts, shall be forwarded to Secretarial & Legal Department immediately on receipt.

DEALING WITH LEGAL NOTICES/LEGAL CONTRACTS

1. One of the most important aspects of the Legal Compliance Reporting is timely and effectively action to be initiated against legal notices received by the Company either from lawyers or from courts, tribunals and other legal authorities. It means that any notice, whether it is on nature of Show cause/Demand or other received from any Central Government/State Government/Judicial/Quasi-Judicial/Local Authorities or any other authorities must have replied effectively and immediately, without any delay after consultation with professional or internal discussion.

2. It is advised to all departments/divisions of the company to send forthwith to the Secretarial & Legal department every Show-Cause/Demand/recover or any type of notice received by them.

3. All department/division be instructed that the Secretarial & Legal Department should be consulted in regard to drafting of any agreement or any other document, which creates contractual relationship and likely to give rise to legal implications such as enforcement in the course of law, liquidated damages and penalty.

4. Secretarial & Legal department of the Company should consist of well experienced and professional employees, who have knowledge of various laws, rules and regulations applicable to the Company. The appointment should be made on the basis of their experience and education and expertise in the field in which company is engaged.

SIGNING OF LEGAL DOCUMENTS

A Company acts through its Charter i.e., Articles of Association. AOA of company confers various authorities to its Board of Directors. Since a company is a legal entity and acts through its Board of Directors. Authority to sign a documents or contract/agreement etc., will be provided through Board Resolution, POA or Authority Letter. It is necessary for an officer to confirm that he has requisite authority before signing any documents on behalf of the Company. An officer such as a Company Secretary, Managing Director etc. have a Power of Attorney and POA authorises his to delegate powers to other officer, in this case he can delegate power to sign documents to various officers of the Company on different occasions.

CONCLUSION:  it is very important for an entity to comply with all applicable laws,rules and regulations because cost of non-compliance will be much more than the cost of compliance. A non-compliant company will face various types of penalties and litigations from various government or other authorities ,which will affect its business sustanibility and reputation. A well complied company earned emense reputation and confidence among its stakeholders. It is necessary for a company to have  a strong Legal Compliance Reporting system in the organisation under a suitable and experience person. It is duty of every department/division of the company to co-operate with the Secretarial & Legal department of the Company for promptly compliance of all applicable rules and regulations.

Author Bio

Qualification: CS
Company: SBI GENERAL INSURANCE COMPANY LIMITED
Location: MUMBAI, Maharashtra, India
Member Since: 25 Aug 2018 | Total Posts: 134
A Qualified Company Secretary, LLB from Purvanchal University UP and a Science Graducate , Alumni of Banaras Hindu University (Bsc.), having more than 19 years of experience in the field of Secretarial Practice, Project Finance, Direct Taxes ,GST, Accounts & Finance and recently working as a M View Full Profile

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