Management of companies

Director
• Director is a person elected by the
shareholders to manage the affairs of the
co.
• Directors collectively are called board of
directors
 Appointment of directors
• Appointment of first directors – by the
subscriber to the memorandum and are
generally named in the article of a co.
• Such directors shall retire at the first AGM
of the co when directors will be appointed
in accordance with provisions of Sec 255
• Appointment by co in general meeting – Sec 255
lays down that not less than 2/3 of the total
number of directors of co must be appointed by
the co in general meeting
• The rotation for retirement shall be determined
by the length of office of directors and if all the
directors were appointed at one and the same
date. The retiring directors are also eligible for
reappointment
• The retiring director is deemed to have
been reappointed at the adjourned
meeting unless
1) The resolution for reappointment of such
director was lost
2) The director in writing has expressed his
unwillingness to be reappointed
3) He is disqualified for appointment.
• A notice in writing at least 14 days before
meeting must be given top the co. The co
shall give 7 days notice to the members
about the post of directorship
• Appointment of directors by board –
1) Additional director Sec 260 if article
permit additional directors can be
appointed by the board to hold office until
the next annual general meeting.
2) Casual vacancy Sec 262 can fill up
casual vacancy by appointing director in
case a director has resigned or has died
• Alternate director Sec 313 – if director is absent
for more than 3 months and hold office until the
original director’s term expires
• Appointment of directors by third parties Sec 255
if article provide not more than 1/3 of the total
number of directors of a public co may be
appointed by creditors,debentureholders or
financial corporation
• Appointment of directors by central govt
Sec 408 in case of oppression or
mismanagement
• To appoint such number of directors as it
consider necessary to protect the interest
of the co at the request of 100 members or
holding not less then 1/10 of the total
voting power
• Appointment of directors by proportional
representation Sec 265 – if article provides
not less than 2/3 of its directors may be
appointed by proportional representation
either by single transferable note or by a
system of cumulative voting
 Powers of directors (Sec 291)
• BOD is entitled to exercise all such
powers and to do all such acts and
things as the co is authorised to exercise
1) The board shall not do any act which is
to be done by the co in general meeting
2) It shall exercise its powers subject to the
provisions contained in the co act
 Powers to be exercised at board
meetings
• Make calls on shareholders in respect of
money unpaid on their shares
• Issue debentures
• Borrow money otherwise than on
debentures
• Invest the funds of the co
• Make loans
 Powers to be exercised with the
approval of the co in general
meeting (Sec 293)
1) Sale or lease of the co undertaking
2) Extension of the time for payment of a debt due
by a director
3)Appointing a director, his partner or relative to an
office of profit under Sec314
4)Appointing sole selling agents for a term
exceeding five years at a time
5) Borrowing of money in excess of paid up capital
of the co
• To contribute to charitable and other funds
not directly relating to the business of the
co amounts exceeding in any financial
year Rs 50000
 Powers
• Power to give loan, guarantee or security in
connection with a loan made by any other
person
• Power to increase remuneration of any director,
manager
• Power to appoint or reappoint manager or whole
time director
• Power to amend any provision relating to
appointment or remuneration of manager or
whole time director
Duties and liabilities of directors
• As trustee their duty is to act bonafide in
the best interest of the co
• As officers of the co they are bound to
comply with the various provisions of the
act
 Liabilities of directors
• They are required to act within their power
• He will be liable to make good the loss
suffered by the co
• He is required to act in the best interest of
the co
• They will be liable to surrender the secret
profit to the co
• They are liable to comply with the various
provision of the act
1) Liability to third parties
Directors may incur personal liability
1) On their failure to pay application money
if minimum subscription has not been
subscribed
2) On an irregular allotment of shares to an
allottee
• On their failure to repay application money
if application for securities to be dealt in
recognised stock exchange is not made
2) Independently of the act – directors as
agent of a co are not personally liable on
contracts entered in to as agent on behalf
of the co
• He is personally liable to the holder of
such instrument if he acts in his own
name.
3) Liability to the co – may arise from
1) Ultra vires acts
2) Negligence – it is essential in an action
for negligence that the co suffers some
damage. Damage without negligence is
not actionable
• Breach of trust – they must discharge their
duties as such trustees in the best interest
of the co as he hold the position of
trustees as regards its money and
property which comes in to their hands
• Misfeasance – which means wilful misconduct of
the directors for which they may be sued in a law
court. Incase of misfeasance proceedings the
directors may apply for relief under Sec 633
• Liability for breach of statutory duties – most of
their duties relate to maintenance of proper
accounts, filing of returns or observance of
certain statutory formalities. If they fail to perform
they are liable to penalties
• Liability for acts of his co directors – he is
not liable for the acts of his co directors
provided he has no knowledge and he is
not a party.
 Criminal liability
• Liability incurred by the directors may be
civil as well as criminal. If he fraudulently
induce persons to invest money is
punishable with 5 years imprisonment or a
fine of Rs 5000 or both
 Duties of directors
• Fiduciary duties
• Duties of care, skill and diligence
1) Fiduciary duties
a) Exercise their powers honestly and
bonafide for the benefits of the co as a
whole
b) Not place themselves in a position in
which there is a conflict between their
duties and their personal interests
• Duties of care, skill and diligence –
• There are various standards of care
depending upon
1) The type and nature of work
2) Division of powers between directors and
other officers
3) General usages and customs in that type
of business
4) Whether directors work gratuitously
Other duties of directors
1) To attend board meetings
2) Not to delegate his functions except to
the extent authorised by the act
3) To disclose his interest
 Managerial remuneration
• Overall maximum managerial
remuneration Sec 198
• Remuneration not to exceed 11 % - not to
exceed 11% of the net profit of the co in
the manner laid down in Sec
349,350,351.The percentage shall be
exclusive of fees payable to directors for
meeting of the board of directors
• If in any financial year a co has no profit
then co shall not pay to its directors except
with the previous approval of the central
govt subject to the provision of Sec 269
 Rules regarding directors
remuneration
• It cannot exceed 11% of the net profit
1) The remuneration payable to the
directors shall be determined in
accordance with the provisions of Sec
198 and 309 either by the articles or by a
resolution passed by the co
2) He may receive remuneration by way of
fee for each meeting
• A whole time or managing director may be
paid remuneration either by way of a
monthly payment or at specified
percentage of the net profit of the co
• A part time director may be paid
remuneration either
• a) by way of monthly, quarterly or annual
payment with the approval of central
government
• By way of commission if the co by a
special resolution authorises such
payment
• The remuneration paid to part time director
shall not exceed
i) 1% of the net profits of the co if the co has
a managing or whole time director or a
manager
ii) 3% of the profits in any other case
Can increase these rates with approval of
the central govt
• The net profit of the co shall be computed
in the prescribed manner without
deducting the director’s remuneration from
the gross profit
• A whole time director or managing director
who receives commission from the co
shall not be entitled to receive commission
from any subsidiary of the co
• If any director receives any sum in excess
of remuneration due to him he shall hold
the excess amount in trust for the co and
shall refund it to the co
• A co shall not pay to any officer or
employees remuneration free of tax
• The above rules do not apply to a private
co unless it is a subsidiary of a public co