A present obligation of the entity to transfer an economic resource as and (ii) to meet the definition of a liability, an obligation should have the. Understanding your rights and liabilities when forming business that if your partnership firm is insufficient to meet its financial obligations, you. An obligation to pay money to another party. The obligation may arise from borrowing funds or from a legal action. also called liability.
Inaccurate or misleading financial reports Unless the Directors can prove that it was not caused by their fault or negligence, the members of the Boards of Directors will be held jointly and severally liable to third parties who suffer a loss due to an inaccurate, untrue or misleading report being presented.
Failure to accept returned interim dividends The Directors will be held jointly and severally liable for company losses if the Shareholders cannot return interim dividends that have been declared. Failure to report their share ownership Members of the Board of Directors who fail to report their shareholdings will be held personally liable if the failure causes the Company to make a loss.
Liability for bankruptcy losses In the event that bankruptcy occurs as a result of the fault or negligence of the Board of Directors and the assets of the Company are insufficient to cover the losses incurred in the bankruptcy, the members of the Board of Directors may be held jointly and severally liable for the balance of the obligations that cannot be repaid from the assets.
Restrictions Other than the above Duties, Responsibilities and Liabilities, the Board of Directors must also observe certain restrictions imposed by the Company Law, such as: Directors acting as proxies of the shareholders in the General Meeting of Shareholders will have no voting rights in the meeting; the Board of Directors may not perform any legal action on behalf of the Company after the expiration of the term of the Company; the Board of Directors cannot file for the bankruptcy of the Company without approval from the General Meeting of Shareholders; and for certain corporate actions, such as amending the Articles of Association of the Company, conducting a merger or acquisition, placing a security over the Company's assets, and any other actions regulated in the Articles of Association of the Company, the Board of Directors must obtain prior approval from the Board of Commissioners or the General Meeting of Shareholders before conducting the action.
In addition, a member of the Board of Directors is not entitled to represent the Company in the event i there is a dispute between the Company and the relevant Director, or ii the relevant Director has a conflict of interest with the Company. In this case, another member of the Board of Directors will represent the Company, or the Board of Commissioners will do so if all the Directors have a conflict, or another party appointed by the General Meeting of Shareholders if all the members of the Boards of Directors and Commissioners have a conflict of interest with the Company.
Please note that the Board of Commissioners is not involved in the day-to-day operations of the Company, such actions being the responsibility of the Board of Directors. The requirements to be eligible to be a Director provided above also apply to the Commissioners.
Duties and Responsibilities The following are some of the duties and responsibilities of the Board of Commissioners in the Company: Supervising the Company The Board of Commissioners must in good faith, prudently and responsibly carry out their duties in supervising the Company and give advice to the Board of Directors for the interests of the Company and according to the purposes and objectives of the Company.
Annual report and business plan The Board of Commissioners must examine the annual report and approve the budget plan as required by the Articles of Association of the Company submitted by the Board of Directors.
Secretarial responsibilities to prepare minutes of meetings of the Board of Commissioners' meetings and keep or maintain a copy; to report to the Company their own and their immediate family member's share ownership in the Company or other companies; to report the performance of their supervision duties during the past year to the General Meeting of Shareholders.
In certain transactions such as a merger, acquisition, consolidation, or segregation, the Board of Commissioners must also assist or supervise the Board of Directors in the transactions, including approving the transaction plan.
If the Board of Commissioners consists of more than one member, the above liability applies jointly among each of the members. Other liabilities which apply to the Board of Directors also apply to the Board of Commissioners, such as if they provide inaccurate or misleading financial reports, fail to return interim dividends, and for bankruptcy losses. Restrictions Commissioners acting as proxies of shareholders in the General Meeting of Shareholders will have no voting rights in the meeting.
Please note that a member of the Board of Commissioners cannot act alone; all actions taken on behalf of the Commissioners must be taken through the Board. The above information is only intended to be a brief summary of the duties, responsibilities and liabilities of directors and commissioners and should not be relied upon as legal advice or as a substitute for legal advice in individual cases.
Liabilities possess the following characteristics: The obligations must arise out of some past transaction or event. A liability is not a liability of an enterprise until something happens to make it a liability of that enterprise.
The kinds of transactions and other events and circumstances that result in liabilities are the following Acquisition of goods and services, impositions by law or governmental units, and acts by an enterprise that obligate it to pay or otherwise sacrifice assets to settle its voluntary non-reciprocal transfers to owners and others. In contrast, the act of budgeting the purchase of a machine and budgeting the payments required to obtain it results neither in acquiring an asset nor in incurring a liability.
No transaction or event has occurred that gives the enterprise access to or control of future economic benefit or obligates it to transfer assets or provide service to another entity.Civil Liability
Many agreement specify or imply how a resulting obligation is incurred. For example, borrowing agreement specify interest rates, periods involved and timing of payments, rental agreements specify rental and periods to which they apply. The occurrence of the specified event or events results in a liability.
Liabilities: Meaning, Characteristics and Measurement
Transactions or events that result in liabilities imposed by law or governmental units also are often specified or inherent in the nature of the statute or regulation involved. For example, taxes are commonly assessed for calendar or fiscal years, fines and penalties stem from infraction of the law or failure to comply with provisions of law or regulations, damages result from selling defective products.
The essence of a liability is a duty or requirement to sacrifice assets in the future. A liability requires an enterprise to transfer assets, provide services or otherwise expend assets to satisfy a responsibility it has incurred or that has been imposed on it.
Most liabilities presently included in financial statements qualify as liabilities because they require an enterprise to sacrifice assets in future.
Thus, accounts and bills payable, wages and salary payable, long term debt, interest and dividends payable, and similar requirements to pay cash apparently qualify as liabilities. Liabilities are in relation to specific enterprises and a required future sacrifice of assets is a liability of the particular enterprise that must make the sacrifice.
An enterprise commonly receives cash, goods or services by incurring liabilities and that which is received is often called proceeds, especially if cash is received.
Receipt of proceeds may be evidence that an enterprise has incurred one or more liabilities, but it is not conclusive evidence.
Proceeds may be received from cash sales or by issuing ownership shares—that is, from revenues or other sales of assets or from investment by owners —and enterprises may incur liabilities without receiving proceeds, for example, by imposition of taxes. The essence of a liability is a legal, equitable or constructive obligations to sacrifice economic benefits in the future rather than whether proceeds were received by incurring it.
Proceeds themselves are not liabilities. A liability once incurred by an enterprise remains a liability until it is satisfied in another transaction or other event or circumstances affecting the enterprise. Most liabilities are satisfied by cash payments.
Liabilities are also sometimes eliminated for forgiveness, compromise or changed circumstances. Capital invested by the owner or shareholders in an enterprise is not regarded as an external liability in financial accounting.
But shareholders have a right at law to the payment of a dividend once it has been declared. As a result, unpaid or unclaimed dividends, are shown as current liabilities.
Liabilities: Meaning, Characteristics and Measurement
It is the practice to show proposed dividends as current liabilities also, since such proposed dividends are usually final dividends for the year which must be approved at the annual general meeting before which the accounts for the year must be laid. Liabilities are measured in conformity with the cost principle.
When an obligation is created initially, the amount of liability is equivalent to the current market value of the resources received when the transaction occurs. In most cases, liabilities are measured, recorded and reported at their principal amounts. In other words, liabilities should be measured and shown in the balance sheet at the money amount, necessary to satisfy an obligation Interest included in the face amount of accounts payable is deducted from the face amount when reporting the liability in the balance sheet.
If liabilities are not valued at cost, they can be valued at the fair market value of goods or services to be delivered. For example, an automobile dealer who sells a car with a one year warranty must provide parts and services during the year.
The obligation is definite because the sale of the car has occurred, but the amount must be estimated. In historical accounting, liabilities appear on the balance sheet as the present value of payments to be made in future. It is significant to observe that liabilities appear at the amount payable because the difference between the amount ultimately payable and its present value is immaterial.
It is only as the maturity date of liabilities is longer that there can be difference between historical or cost value value as per the contract creating the obligation and present value of future payment.
Liabilities may be valued: While accounting conventions dictate that the valuation of liabilities should be based on the sum which is payable, it is accounting practice to make a distinction between current and long term liabilities. As regards current liabilities, there is little difference between the discounted net value and the contractual value of liabilities. In this connection, current liabilities are defined as those which will mature during the course of the accounting period.
The gap between the two methods of valuation is significant as regards long term liabilities. Long-term liabilities are valued on the basis of their historical value, that is, by reference to the contract from which they originated, and hence during periods of inflation or where the interest payable is less than the current market rate of interest, the accounting valuation will certainly be overstated by comparison with the discounted net value.
Failure to record a liability in an accounting period means that expenses have not been fully recorded. Thus, it leads to an understatement of expenses and an overstatement of income. Liabilities should be recorded, as stated earlier, when an obligation occurs. When there is a transaction that creates obligation for the company to make future payments, a liability arises and is recognised as when goods are bought on credit. However, current liabilities often are not represented by a direct transaction.
This is the reason that some unrecorded liabilities are recorded at the end of accounting period through adjusting entries such as salaries, wages and interest payable. Other liabilities that can only be estimated, should also be recognised by adjusting entries such as taxes payable.
In fact, the requirement for an accurate measure of the financial position and financial structure should determine the basis for liability valuation.