Reasons for not returning the Share Application Money

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Meenakshi Ramandasani (Querist)
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08 June 2023 A private company has received share application money under private placement but did not issue shares in lieu of that. Nor company did not refund that money. what can be the reasons of doing that by company ??

What should be the management response on auditor's qualified opinions ??

Please help.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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10 July 2024 There could be several reasons why a private company has received share application money under private placement but has not issued shares or refunded the money. Some of the possible reasons include:

1. **Financial Constraints:** The company might be facing financial difficulties or liquidity issues that prevent it from issuing shares or refunding the application money.

2. **Legal or Regulatory Compliance Issues:** There could be legal or regulatory hurdles that are preventing the company from completing the issuance of shares or refunding the money. For example, regulatory approvals or compliance with Companies Act provisions might be pending.

3. **Operational Issues:** Internal operational issues within the company, such as changes in management, disputes among shareholders, or administrative delays, could also delay the issuance of shares or refunds.

4. **Strategic Considerations:** The company might be strategically holding onto the funds for future investment or expansion plans, pending regulatory approvals, or awaiting better market conditions.

As for the management's response to the auditor's qualified opinion, here’s how it typically unfolds:

1. **Understand the Nature of the Qualified Opinion:** The management should carefully review and understand the reasons behind the auditor’s qualified opinion. The qualified opinion indicates that the auditor found limitations or exceptions in the financial statements, which could be due to the non-issuance of shares or non-refund of application money.

2. **Rectification or Explanation:** Management should take steps to rectify the underlying issue if feasible or provide a detailed explanation to the auditors regarding the circumstances leading to the qualified opinion. This might involve providing evidence or documentation to support their position.

3. **Disclosure in Financial Statements:** The qualified opinion will be disclosed in the financial statements, usually in the auditor's report. Management should ensure that the disclosure accurately reflects the reasons for the qualification and any corrective actions taken or planned.

4. **Communication with Stakeholders:** If the qualified opinion could affect stakeholders' perceptions (such as shareholders or potential investors), management should consider proactive communication to provide clarity on the situation and the steps being taken to address it.

5. **Future Actions:** Management should establish procedures to prevent similar issues from arising in the future. This may involve improving internal controls, enhancing compliance processes, or seeking professional advice on regulatory matters.

In summary, while the exact response will depend on the specific circumstances and the nature of the qualified opinion, it is critical for management to address the underlying issues promptly, ensure accurate disclosure, and maintain transparency with stakeholders.

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