Company Law - Part II

Unit II

 Sec 2 (13) of Companies Act 1956, Director includes any person occupying the position of director by whatever name called. Minimum number of Directors : Atleast 3 (Public Company); Atleast 2 (Private Company) Maximum number of Directors :
A company can by ordinary resolution passed in general meeting increase or decrease the number Public Company or a Private Company which is a subsidiary of a Public Company cannot increase beyond the maximum specified in Articles without the approval of the Central Govt.

Managerial Personnel : Directors & Managers

Appointment of Directors
By the Articles as regards first Directors By the Company in General Meeting By the Directors By third parties eg., lending institutions for nominee directors By the principle of proportional representation By the Central Government

Legal Position of Directors

Directors are not the companys employees nor its servants They are treated as Officers of the Company for certain matters under Companies Act They are Trustees of Companys money and property and the powers entrusted to them They control the affairs of the Company (artificial person governed by human agency) as its Agents; they are accountable to the company

Legal Position of Directors

They are protected by an Indemnity Clause in the Articles of Association Penalties imposable on Directors for the contravention or defaults are of two types
Those imposable on them directly as Directors Those imposable on them directly as Officers who are in default

Share Qualification : Articles requires that the qualification of a Director shall be holding of a specified number of shares known as Qualification shares; nominal value not to exceed Rs.5000

Disqualification of Directors
Circumstances in which a person cannot be appointed as a director
Unsound mind Insolvent Convicted of an offence involving moral issues and sentenced to imprisonment for a period not less than 6 months and 5 years had not elapsed since the expiry of his sentence Has not paid any call on shares held for 6 months from the last day fixed for payment Disqualified by order of Court

Restriction or Ceiling on number of directorships

After Amendment Act 2000, a person can be a director of not more than 15 companies Companies excluded in calculating the number of companies of which a person may be a director
A private company which is neither a subsidiary nor a holding company of a public company An unlimited company An association not carrying on business for profit A company in which such person is only an Alternate Director

Vacation of Office by Directors

Directors office become vacant if
He ceases to hold the share qualification required of him by the Articles of Association Found to be Unsound mind by competent court Insolvent Convicted of an offence involving moral issues and sentenced to imprisonment for a period not less than 6 months and 5 years had not elapsed since the expiry of his sentence He absents himself from 3 consecutive meetings of the Board of directors or from all meetings of the Board for continuous period of 3 months without obtaining leave of absence from Board

Public Company
Atleast 3 directors With paid up capital of 5 Crores or more and 1000 or more small share holders : Atleast 1 director elected by small shareholders (shareholder holding shares of value less than Rs.20000), elected in a prescribed manner Removal of Directors :
Share Holders Central Government The Court of Law

Remuneration of Managerial Personnel

Total Managerial Personnel Remuneration : Not exceed 11% of net profit for that financial year; Fees payable to directors for attending Board meetings is not included

Remuneration of Managerial Personnel

Not exceeding ceiling limit of Rs.24,00,000 per annum or Rs.2,00,000 per month Less than Rs. 1 crore : Rs. 75,000 Rs. 1 crore or more but less than Rs. 5 cr. : Rs. 1,00,000 Rs. 5 crore or more but less than Rs. 25 cr. : Rs.1,25,000 Rs. 25 crore or more but less than Rs. 50 cr. : Rs.1,50,000 Rs. 50 crore or more but less than Rs. 100 cr. : Rs.1,75,000 Rs. 100 crore or more : Rs. 2,00,000

Remuneration of Managerial Personnel

Provided that the ceiling limits specified under this sub-paragraph shall apply, if
Payment of remuneration is approved by a resolution passed by the Remuneration Committee; The company has not made any default in repayment of any of its debts (including public deposits) or debentures or interest payable thereon for a continuous period of thirty days in the preceding financial year before the date of appointment of such managerial person.

Remuneration of Managerial Personnel

Where the effective capital of company is Monthly remuneration payable shall not exceed i) ii) Less than Rs. 1 crore Rs. 1 crore or more but less than Rs. 5 crore Rs. 1,50,000 Rs. 2,00,000

iii)

Rs. 5 crore or more but less than Rs. 25 crore

Rs. 2,50,000

iv)

Rs. 25 crore or more but less than Rs. 50 crore

Rs. 3,00,000

v)

Rs. 50 crore or more but less than Rs. 100 crore

Rs. 3,50,000

vi)

Rs. 100 crore or more

Rs. 4,00,000

Remuneration of Managerial Personnel

Provided that the ceiling limits specified under this sub-paragraph shall apply, if
payment of remuneration is approved by a resolution passed by the Remuneration Committee; the company has not made any default in repayment of any of its debts or debentures or interest payable for a continuous period of thirty days in the preceding financial year before the date of appointment of such managerial person; a special resolution has been passed at the general meeting of the company; a statement along with a notice calling the general meeting is given to the shareholders containing the

Remuneration of Managerial Personnel

A Statement along with a notice calling the general meeting is given to the shareholders containing the following information
General Information Information about the Appointee Other Information Disclosures

Remuneration of Managerial Personnel

Sitting Fee
Payable to director for each meeting Not exceed ceiling prescribed by Central Government (presently Rs.5000)

Directors Responsibility Statement

Applicable accounting standards have been followed in preparing annual accounts Such accounting policies are selected and applied consistently Have taken proper and sufficient care
For maintenance of adequate accounting records For safeguarding assets of the company For preventing and detecting fraud and other irregularities

Have prepared the annual accounts on a Goingconcern basis

Meetings of the Board

Atleast 1 in every 3 months Atleast 4 in every year Notice of meeting should be given in writing to every director Quorum for a meeting is 1/3rd of its total strength If meeting could not be held for want of quorum, then it would automatically adjourned to same day next week

Powers of Board
General Powers
All such powers and do all such acts and things, as company is authorized to exercise and do

Powers to be exercised by Board only at meeting

Power to make calls Issue debentures Power to borrow money other than issue debentures Power to invest the funds of the company

Duties of Directors
Exercise some degree of skill and diligence Act honestly in performance of his duties Must perform their duties personally; not delegate to some other person Is not bound to give continuous attention to the affairs of his company Not bound to examine individual entries in the books of accounts

Liabilities of Directors
Liability to Outsiders
Not personally liable to outsiders if they act within powers vested Shall be personally liable if
They contract in their personal capacity Act as agents of an undisclosed principal Enter into contract on behalf of a prospective company Contract is ultra-vires the company

Liability to Company