Company Management &

Directors

Kunal Upadhyay

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Kunal B. Upadhyay

A company is an artificial person created by law. It has no physical existence but it exist in eyes of law. It cannot act itself. It acts through some persons who are representatives

of the shareholders. Shareholders do not manage the company. Shareholders elect directors which are collective

called “Board Of Directors”

Introduction

Kunal B. Upadhyay

Structure Of Company ManagementShareholders

Board of Directors

Elect

Appoints

Chief Executive Officer

Sales Manager

Production Manager

Financial Manager

HR Manager

Kunal B. Upadhyay

Person responsible for direction, control and management of the affairs of the company

Definition

Number Of Directors

Public Company Minimum 3 directorsPrivate Company Minimum 2 directors

Kunal B. Upadhyay

A person cannot become director of more than 15 companies.

In computing the 15 directorship the followings are not taken into account-

1) Private companies2) Unlimited companies3) Association not for profit4) Alternate dictatorships If a person is director of more than 15 companies he

has to quit his office in one Punishable with fine 50,000

Number Of Directorships

Kunal B. Upadhyay

Directors as Trustees◦ Holds property on trust for other person◦ The directors are in charge of the properties and money of the

company or trust

Directors as Agents◦ The directors of the company act for and on behalf of the company◦ They represent the company outside and enter into contract with

the outsiders◦ Also manage the company’s business, formulate policies and take

decisions

Legal Position Of Directors

Kunal B. Upadhyay

Directors as Managing Partners◦ Representative of the share holders ◦ Contribute share capital with others shareholders ◦ Authorized people who managed the companies

Cont…

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Directors can be appointed in following ways-

1) First directors

2) Appointment at general meeting

3) Appointment of directors by the board

4) Appointment of directors by third parties

5) Appointment of directors by proportional voting

6) Appointment by Central Government

Appointment Of Directors

Kunal B. Upadhyay

the memorandum appoint the first director and their

names be mentioned in the articles

At the incorporation stage of company the promoter

mentioned proposed directors name who act as

director of the company

Articles may prescribe the method of appointing them.

First directors

Kunal B. Upadhyay

Not less two-third of the total number of directors of a public company must be appointed in general meeting

The directors longest in the office shall retire in the first place. The retiring director shall be eligible for re-election

Appointment of directors of a public company shall be done individually by a separate resolution passed by simple majority

Appointment at general meeting

Kunal B. Upadhyay

Additional directors: additional directors shall hold office only up to the end of

the next annual general meeting Casual vacancies:

If the office of a directors falls vacant for some reason before his term expire.

Alternate directors: alternate directors appoint during the absence of a directors

for more than three months.

Appointment of directors by the board

Kunal B. Upadhyay

The articles under certain circumstances give power to vendors, banking companies, financing corporations or debenture holders

The numbers of directors so appointed shall not exceed one-third of the total numbers of directors.

Appointment of directors by third parties

Kunal B. Upadhyay

The directors may be appointed either by a system of

straight majority of votes or by a system of

proportional representation showing hands,

by saying yes or no,

divide the group in two like fever and against,

by poll

Appointment of directors by proportional voting

Kunal B. Upadhyay

In case of mismanagement, the Central Government may appoint any number of directors.

Any director appointed by the central government shall not be required to hold any qualification shares nor hall his period of office be liable to termination by retirement of directors by rotation

Appointment by Central Government

Kunal B. Upadhyay

The Companies Act does not lay any academic or shareholding qualification for a director

Specific number of ‘ Qualification Shares’ According to articles of company the director must

obtain specific Qualification shares within 2 months The Nominal Value of Qualification share must not

exceed Rs. 5000 Punishable fine of Rs. 50 per day on failure to attain

Qualification shares

Qualification Of Directors

Kunal B. Upadhyay

A person of unsound mind An undercharged insolvent A person who has applied to be adjudicated as

insolvent and his application is pending A person whose call in respect of shares of the

company held for more than six months have been amount overdue

As per Amendment, 2000 no person can hold office of directorship in more than 15 companies

Disqualification of Directors

Kunal B. Upadhyay

Powers to exercised by a resolution passed at the Board Meetings

Powers to be exercised with the consent of General Meeting

Powers of Directors

Kunal B. Upadhyay

To make calls on shareholders in respect of money unpaid on their shares

To issue debentures To invest the funds of the company To make loansOther powers To fill casual vacancies To enter into contract To received notice of disclosure of directors interest in any

contract

Powers to exercised by a resolution passed at the Board Meetings

Kunal B. Upadhyay

To receive notice of disclosure of shareholding of directors

To appoint as managing director or manager a person who is already a managing director or manager of other company

To make investments in companies in the same group To recommend dividends

Cont…

Kunal B. Upadhyay

To sell, lease or otherwise dispose off the whole or substantially whole undertaking of the company

To contribute to the charitable or other funds not directly relating to the business of the company

To contribute money to any political parties or to any persons of political purpose

To remit or give time for repayment of any debt due to a director except in case of an advance made by banking companies

Powers to be exercised with consent of General Meeting

Kunal B. Upadhyay

Statutory Duties◦To organize Statutory Annual General Meeting and also

extra Ordinary General Meeting ◦To prepare and place at annual general meeting along

with balance sheet and profit and loss account◦To authorized and approved annual financial statement◦To appoint the first auditor of the company◦To appoint the cost auditor of the company ◦To make declaration of solvency in the case of a

member’s voluntary winding up

Duty of Directors

Kunal B. Upadhyay

◦To file return of allotments

◦Not to issue irredeemable preference shares or shares

redeemable after twenty years

◦To disclose interest in transaction of the company

◦To attend board meeting

◦To take and pay for qualification shares

◦To make disclosure of shareholding

Cont…

Kunal B. Upadhyay

General Duties ◦ Duty of good faith:

the first and the most obvious obligation of the directors is to act with honesty in the discharge of their duties

◦ Duty with reasonable care: a director must exercise some degree of skill and diligence

◦ Duty to attend meeting: director are not bound to attend all meeting all of the

meeting of the board, but his general duties to attend meetings

◦ To work in capacity: as agents, trustee and organ of the company

◦ Not to delegate duty: unless permitted by the Companies Act or Articles of the

company

Cont…

Kunal B. Upadhyay

Liability towards the company

Liability to third parties

Criminal Liability

Liabilities of Directors

Kunal B. Upadhyay

For ultra vires act◦ breaking to Memorandum or Articles, liable for damages

For breach of trust ◦ Make secret profits or use company’s fund for their personal

purpose For gross negligence

◦ Fail to exercise reasonable case, skill and diligence, they shall be liable for any loss or damages

Willful misconduct◦ Misapply or misappropriate money or properties of the

company

Liability towards the company

Kunal B. Upadhyay

For misstatements in the prospectus

For acting in their own name

For breach of warranty

Unlimited liability

Fraudulent trading

Board of Director’s Responsibility statement

Liability to third parties

Kunal B. Upadhyay

Under Sec.63- for misstatements in the prospectus

Under Sec.75- For failure to file return as to allotments with

registrar

Under Sec.150- For not keeping registers of members and debenture

holders

Under Sec.168- For failure to lay before the company at every

annual general meeting, annual accounts and balance sheet.

Under Sec.274- For holding office as directors in more than fifteen

companies

Criminal Liability

Kunal B. Upadhyay

Means a director who by virtue of (a) and agreement with the company or (b) a resolution passed (i) by the company in general meeting or (ii) by its Board of directors or (c) by the memorandum and/for the articles of association is entrusted with substantial powers of management of the company

Managing Director

Kunal B. Upadhyay

A managing director is appointed with the approval of the Central Government

In case of public company or a private company which is subsidiary of a public company incorporated after the commencement of the companies act 1988, the appointment of a person as a managing

Tem fixed for MD is FIVE years

Appointment

Kunal B. Upadhyay

MD or to a whole time director shall not exceed FIVE percent of the be profit for on such director

There are more than one such directors, TEN percent for all of them together

NO INCREASE IN REMUNERATION without sanction of the Central Government

Remuneration of a Managing Director

Kunal B. Upadhyay

Two capacities of a Managing Director◦ Director of company◦ In contract with company for his services

The whole time director◦ The whole time director is entrusted with certain

duties & responsibilities

Ambit of his jurisdiction◦ Work only with the articles and provisions regarding

services

Duties & Responsibilities