A company is a legal entity that exists independently of its shareholders, directors, and management. A firm, on the other hand, is run by its directors, who are appointed by shareholders and are in charge of the day-to-day business operations. Businesses have recently received finance from international groups, bolstering the Indian corporate sector and trading in the global market. Scams and frauds including the syphoning of funds, accounting irregularities, non-compliances, and corruption, on the other hand, have become a part of corporate functioning, creating a grey area that requires prompt action. The issue of scams and fraud has been taken seriously by the government, with several arrests made against promoters and important individuals in some cases. The Companies Act of 2013 also established the Serious Fraud Investigation Office to keep an eye on white-collar crime. Concerns concerning the culpability of company directors have arisen as a result of the significant danger of internal fraud. In this post, we'll go through the most important areas of liability for you as a director or a new individual joining the board of a firm as a director, as well as what precautions you can take ahead of time. Once a company is registered, it retains its unique status, assets, and obligations until the Registrar of Companies deregisters it. A company's directors are susceptible to the following categories of potential liabilities over the course of its existence:

A director is defined as "a director appointed to the Board of a company" under the Companies Act, 2013 (hence referred to as "the Act"). The idea of a 'officer who is in default' is also included in the Act for the purpose of laying accountability on such a person in the event that the firm violates the Act's provisions. Every whole-time director, director(s) who has given consent for becoming a key person in the absence of any key managerial personnel, and every director who is participating in proceedings relating to a contravention of provisions of the Act and is aware of such contravention fall under the definition of "officer who is in default." The Act contains various clauses that make a director liable to fines and imprisonment. Misleading statements in the prospectus, failure to repay deposit money to depositors, engaging in any fraud in a company or with creditors, failing to notify stock exchanges about public offers, and failing to maintain proper books of accounts prior to winding up are just a few of the defaults that expose directors to personal liability. It's critical for independent and non-executive directors to understand that they'll only be held liable if a company's acts of omission or commission occurred with their knowledge, attributable to board processes with their consent, or if they didn't act diligently and there's enough evidence to prove it.

An offense committed by an organization under work regulations viz. Industrial facilities Act, 1948, Employees Provident Fund, 1952, and so forth make the individual who has command over issues of the organization responsible for punitive outcomes. Along these lines, chiefs naturally come into the picture for possible liabilities and just those chiefs who are responsible for the general issues of the organization are expected to take responsibility for punishments and detainment.

When the indebtedness goal process under the Insolvency and Bankruptcy Code, 2016 (IBC 2016) begins, the powers of the governing body are suspended, and an outer expert is delegated to run the undertakings of the organization. IBC 2016 expands the obligation on the heads of the corporate indebted person (an organization under the IBC process) as and when an exchange including them is brought under question. The risk-on chiefs are forced to the degree of switching the exchange or making a sensible commitment to the resources of the organization under IBC interaction to guarantee the defense of the lender's advantage. Notwithstanding, a chief isn't obligated to assume a sensible expected level of investment is attempted and there was no false expectation.