Board & Audit Committee Advisory: The Process, Start to Finish
The mechanics of Board & Audit Committee Advisory are what clients ask about once they have decided to proceed. The questions below are the ones raised most often in practice; the full scope of the service is on the Board & Audit Committee Advisory page.
What exactly does 'Board Constitution, Independent Director & Audit Committee Advisory' cover?
It covers three connected pieces of work: designing the right board composition for your company's size, stage, and regulatory classification; identifying and vetting independent director candidates against the statutory independence tests; and constituting an Audit Committee with the correct composition, terms of reference, and ongoing meeting discipline. PNPC handles the advisory, drafting, and MCA filing work — from the initial diagnostic through to the annual governance calendar that keeps the structure compliant.
In practice: Companies often come to this work after crossing a threshold they did not realise applied to them, or when an investor's term sheet suddenly makes board composition a closing condition. We prefer to be engaged before either of those moments — the advisory is far less rushed and far more effective when there is time to identify the right candidates rather than the first available ones.
How long can an independent director serve, and can the term be renewed?
An independent director may hold office for a term of up to five consecutive years and is eligible for re-appointment for one more term of five years, provided this is approved by the shareholders through a special resolution and disclosed in the Board's Report. After serving two consecutive terms (a maximum of 10 years), the individual becomes ineligible for re-appointment as an independent director in that company for three years — and the proviso to Section 149(11) bars them, during those three years, from being appointed in or associated with that company in any other capacity, directly or indirectly. They may continue to serve as independent directors of unrelated companies, subject to the applicable limits.
In practice: It is worth starting the re-appointment or succession conversation well before a term expires. Waiting until the term lapses leaves the company below its mandatory minimum until a replacement is identified, vetted, and formally appointed.
How often must the Audit Committee meet?
The Companies Act 2013 does not prescribe how often the Audit Committee must meet or a specific quorum for it; an unlisted company's committee should meet often enough to discharge its Section 177(4) functions. For listed entities, SEBI LODR Regulation 18(2)(a) requires at least four meetings a year, with not more than 120 days between two meetings, and Regulation 18(2)(b) sets the quorum at two members or one-third of the committee's members, whichever is greater, with at least two independent directors present.
In practice: We build the committee's annual meeting calendar at the time of constitution — aligned to quarterly financial reporting, so the committee reviews results before Board approval each quarter, rather than meeting reactively only when a specific approval is needed.
What is a related-party transaction and why does the Audit Committee's approval matter?
A related-party transaction (RPT) is a transaction between the company and a related party as defined under Section 2(76) of the Companies Act 2013 — including directors, key managerial personnel, their relatives, and entities in which they hold significant interest. Section 177(4)(iv) requires the Audit Committee's prior approval for related-party transactions (with a limited omnibus-approval mechanism for repetitive transactions within specified conditions), and Section 188 sets out additional approval requirements including, for material RPTs, shareholder approval with related parties abstaining from voting. Without a validly constituted Audit Committee, this approval step cannot be properly satisfied.
In practice: A common source of governance gaps is related-party transactions that were approved by the full Board rather than routed through a properly constituted Audit Committee first. This is a substantive compliance failure, not just a procedural one — it can affect the enforceability of the transaction.
Does the Audit Committee replace the statutory auditor's role?
No. The statutory auditor independently examines the company's financial statements and expresses an opinion on whether they present a true and fair view. The Audit Committee's role is different and complementary: it recommends the auditor's appointment and remuneration, reviews the auditor's independence and the scope of the audit, reviews the financial statements and the auditor's findings before they go to the full Board, and provides a layer of independent-director oversight over the entire financial reporting and audit process. The two functions work together — an effective Audit Committee actually strengthens the value of the statutory audit by ensuring management does not have unchecked influence over the audit relationship.
In practice: Companies sometimes treat Audit Committee formation as a redundant formality once they already have a statutory auditor. The two roles are legally and practically distinct — the Committee provides board-level oversight of the audit and financial reporting process, which the auditor alone does not and cannot provide.
How does board composition affect a company's ability to raise institutional funding?
Institutional investors — venture capital funds, private equity funds, and increasingly even later-stage angel syndicates — routinely include board composition and governance commitments as conditions in the term sheet and definitive investment agreements: a board seat or observer right for the investor, an independent director requirement, and sometimes specific Audit Committee or approval-matrix requirements for related-party transactions and related-party related expenditure. A company that has never had to think about board composition before often finds this becomes a negotiated, and sometimes contentious, term at the closing stage.
In practice: We advise clients to think through their post-funding governance structure before the term sheet stage, not after — it changes the negotiating dynamic considerably when the company proposes a sensible governance structure proactively rather than reacting to investor-imposed terms during closing.
What penalties apply if the Audit Committee is not properly constituted or does not function as required?
Failure to constitute an Audit Committee when required, or non-compliance with its composition or functioning requirements under Section 177, exposes the company and every officer in default to penalties under the general penalty provisions of the Companies Act (Section 178(8) specifically addresses NRC/Stakeholders' Committee defaults; Section 177 defaults fall under the general penalty in Section 450). Beyond direct penalties, an improperly constituted committee can render its approvals — particularly related-party transaction approvals — vulnerable to challenge, with downstream tax, contractual, and governance consequences.
In practice: We do not lead with the direct penalty amount when advising clients — it is usually not the largest risk. The larger and more common risk is a challenged approval (especially an RPT) or a diligence finding that delays or devalues a transaction.
How is this advisory priced, and is it a one-time or ongoing engagement?
PNPC prices board and Audit Committee advisory as a fixed, scoped engagement — agreed in writing before work begins — covering the diagnostic, candidate vetting, drafting, and filing work for the initial restructuring. Ongoing governance discipline (meeting calendar management, minute review, tenure tracking, annual re-assessment against thresholds) is typically offered as part of an annual governance retainer, similar to how we structure annual compliance retainers for MCA filings. The exact scope and fee are confirmed before engagement begins.
In practice: We consistently recommend the ongoing retainer over a one-time engagement for any company with an actively functioning Audit Committee — governance structures that are set up correctly but never reviewed tend to drift out of compliance quietly, often only discovered at the next secretarial audit or due diligence exercise.
Does an unlisted public company have different requirements from a listed company?
Yes. An unlisted public company's board and Audit Committee obligations are governed purely by the Companies Act 2013 thresholds discussed earlier. A listed company must additionally comply with SEBI LODR, which is generally stricter — higher independent director ratios, an independent Audit Committee chairperson, mandatory Nomination & Remuneration and (where applicable) Stakeholders' Relationship Committees regardless of the Companies Act's separate thresholds, and ongoing quarterly disclosure obligations to the stock exchanges. A company planning to list should design its governance structure to the SEBI LODR standard well before the listing process begins, not retrofit it afterward.
In practice: We advise pre-IPO clients to adopt the SEBI LODR-standard board composition at least one to two financial years before the anticipated listing date — this gives the independent directors a track record of actual committee functioning before the offer document is filed.
Where this sits in the wider engagement
Board & Audit Committee Advisory rarely arrives on its own. The statutory basis and the current requirements are set out on the Board & Audit Committee Advisory service page, and the related services are grouped under Corporate Law.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Board & Audit Committee Advisory we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.