Unit 2 Company Law - Part II

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Company Law - Part II

Unit II


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Managerial Personnel : Directors &

Managers 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 approvalof the Central Govt.


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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 proportionalrepresentation

By the Central Government


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Legal Position of Directors

Directors are not the companys employeesnor 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


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Legal Position of Directors

They are protected by an Indemnity Clause in theArticles 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


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Disqualification of Directors

Circumstances in which a person cannot beappointed 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


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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


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Vacation of Office by Directors Directors office become vacant if

He ceases to hold the share qualification required of himby 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


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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


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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


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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


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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 publicdeposits) 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.


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PersonnelWhere the effective capital of company is Monthly remuneration payable

shall not exceed

i) Less than Rs. 1 crore Rs. 1,50,000

ii) Rs. 1 crore or more but less than Rs. 5 crore 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


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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


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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


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Personnel

Sitting Fee

Payable to director for each meeting

Not exceed ceiling prescribed by Central

Government (presently Rs.5000)


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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 Going-

concern basis


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Meetings of the Board

Atleast 1 in every 3 months

Atleast 4 in every year

Notice of meeting should be given in writing toevery 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


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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


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Duties of Directors

Exercise some degree of skill and diligence

Act honestly in performance of his duties

Must perform their duties personally; notdelegate 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


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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


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Liability to Company


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Documents

Unit 2 Company Law - Part II