Company

law
Suresh Makwana
Formation of companies with charitable
objects (Section 8 )
Power of Central Government to issue
the license

Central
Government ROC
Power
21/05/2014

without
Issue license
addition of or ‘Private
to section 8
Word limited’
company
‘Limited’
Penalty/ punishment in contravention
Exceptions
Registered Office of Company (Section 12)

Section 12 of the companies act,2013 seeks t provide for the

registered office of the companies for the communication
and serving of necessary documents, notices, letters etc.

It could be different from a head office or corporate office.

This is also important for determining the jurisdiction of the

court.
Registered Office of Company (Section 12)

1. Registered Office :- Within 30 Days of its

incorporation
2. Verification of registered office:- Within a period of
thirty days of its incorporation
3. Labeling of Company :-Paint or affix its name and
address of its registered office on the outside of
every office.
4. Have its name printed on hundis, promissory notes,
bills of exchange, business letters, billheads etc
Registered Office of Company (Section 12)

5. Name change by the company:- Where a

company has changed its name during he last two
years it shall paint or affix along with its name.

6. Notice of change to registrar :- Within 30 days of

the change.
Registered Office of Company (Section 12)
 IPO

Issue of Securities
Public Offer FPO

Private
OFS
Placement
Public
Company
Right Issue

Issue of Bonus Issue

Securities
Private
Placement

Private
Right Issue
Company

Bonus Issue
Prospectus Any
document
describe as
prospectus

Including any Including

notice/Circular/ Prospectus red herring
advertisement prospectus

Including
shelf
prospectus
Matters to be stated in prospectus
• Date indicated on prospectus is deemed to be the date
of prospectus

• Prospectus not to be issued unless copy has been filed

with the registrar for registration

• It is to be signed by every person named therein as

director or proposed director.

• Registrar not to register unless all compliances are over

and all persons named in prospectus have filed their
consent in writing
Punishment (Contravention of section 26)

Company
50k to 3
Punishment
Lakh
Any Person
Securities to be in Dematerialized Form
Section 29 along with PAS Rules,2014

Listed Co.
Securities Held in
Every Company Dematerialized
form
Unlisted Co.
Securities to be in Dematerialized Form
Section 29 along with PAS Rules,2014
 Shelf Prospectus,
Red Herring Prospectus and
Abridged prospectus
1. Shelf Prospectus (section 31)
It Means a prospectus with a given shelf life. Any number
of issues could be made during the tenure of the shelf
prospectus.

The Expression “shelf prospectus” means a prospectus in

respect of which the securities or class of securities included
therein are issued for subscription in one or more issues over
a certain period without the issue of a further prospectus.
2. Red Herring Prospectus (section 32)

The expression “red herring prospectus” means a

prospectus which does not include complete particulars of
the quantum of price of the securities included therein.
1. Red herring prospectus is issued prior to issue of
prospectus;
2. Filling with the registrar
3. Obligations under red herring prospectus vis-av-vis
prospectus
4. Filling of Red Herring Prospectus with registrar and SEBI
upon closing of offer
3. Abridged Prospectus section 2(1)

Abridged prospectus is a summarized form of actual

prospectus.
Securities to be dealt with in stock exchange (section 40)

1. Filling of an application with recognized stock exchange

Every Company Before IPO Apply to securities Exchange

2. Prospectus to state name of stock exchange

BSE NSE Any other 21

Securities to be dealt with in stock exchange (section 40)

3. Maintaining of separate bank account

Money received on Deposited in Separate

Application Bank Account and
not utilized for
any other purpose

4. Default in complying with provisions

Company Defaulting officer

Min- 500000 Min- 50000

Max-5000000 Max- 300000
Securities to be dealt with in stock exchange (section 40)

5. Payment of Commission to Underwriters as per Rule 13 of Companies (PAS)

Rules,2014
* Commission authorized by AOA
* Commission paid out of proceeds of issue or profit or Both

6. Rate of Commission

Shares = Not more than 5% of issue proceeds

Debentures = Not more than 2.5 of issue proceeds

7. Copy of payment of commission to be delivered to ROC

 Share Capital and Debentures (Section 43 to 72)

Definition section 2(84)

* Share as a share in the share capital of a company including stock.

With voting Right

Equity share
capital
With differential right
Kinds of share
capital
With Payment of dividend and
Preference
Carries preferential right repayment of capital at a time of
share capital
winding up
Equity share with Differential Right

Rule 4 of companies(share and capital ) rules, 2014 issue of share with differential
right :-
1. Conditions for issue of share as differential right
a) Authorized by AOA
b) Authorized by OR in AGM
c) Voting power not exceeds 74%
d) Not defaulting in filing financial statement and Annual Return ( 3 Year )
e) not defaulting in payment of dividend
f) Company has not penalized by court
2. Content of explanatory statement
3. Disclosure in board report
Voting Right
Issue of shares at a premium or discount (Section 52 to 55 )

AT Par At Premium At discount

Utilization of securities premium (Section 52 )

1. in fully paid bonus shares

2. In writing off preliminary expenses of company
3. In writing off the expenses, or commission paid
or discount allowed on, any issue of share or
debenture of company
4. In providing for the premium payable on the
redemption of preference share or debenture
of company
5. For the purchase of its own shares
Issue of sweat equity shares (Section 54 )

Meaning of Equity share :- As per Section 2(88), the

term ‘sweat equity shares’ means such equity shares
as are issued by a company to its directors or
employees at a discount or for consideration, other
than cash, for providing their know how or making
available rights in the nature of intellectual property
rights or value additions, by whatever name called.
Conditions of Issue of sweat equity shares

According to section 54 (1), a company may issue sweat

equity shares of a class of shares already issued , if the
following conditions are fulfilled :-

1. The issue is authorized by a special resolution passed by

the company.
2. The resolution specified the number of shares, the current
market price, consideration, if any, and the class or
classed of directors or employees to whom such equity
shares to be issued.
3. Where the equity shares of the company are listed on a
recognized stock exchange, the sweat equity shares are
issued in accordance with the regulations made by SEBI.
Limit on Issue of sweat equity shares

According to rule 8 (4), a company shall not issue sweat

equity shares for more than 15% of the existing paid up equity
share capital in a year or shares of the issue value of rupees 5
crores, whichever is higher.

Provided that the issuance of sweat equity shares in the

company shall not exceed 25% , of the paid up equity capital
of the company at any time
Lock in period of Issue of sweat equity shares

Rule 8 (5) states that the sweat equity shares issued to

directors or employees shall be locked in/non-transferable for
a period of 3 years from the date of allotment.
Preference share
Preference share ( Section 55)

Section 55 contains provisions for regulation of issue and

redemption of preference shares. These are followings :--
1. Company to issue only redeemable preference shares
2. Time period within which preference shares are to be redeemed
3. Requirement of Special resolution and condition on no default in
payment of dividend or redemption of preference shares
4. Exceptional case where period may exceed twenty years
5. Preference shares to be redeemed out of the profits only
6. Only fully paid preference shares are to be redeemed
7. Transfer to CRR Account
8. Payment of premium in case of prescribed class of companies
9. Issue of further redeemable preference shares if a company is unable
to redeem existing preference shares or pay dividend
Issue of Bonus Shares ( Section 63)

Bonus shares are shares issued to proportionately by a company to its

current shareholders as fully paid-up shares free of cost.

Conditions and provision for issue of bonus shares :-

1.According to section 63(1), a company may issue fully paid-up bonus
shares to its members, in any manner whatsoever, out of-
a. Its free Reserves
b. The securities premium account
c. The Capital Redemption Reserve account/

Note :- No issue of bonus shares shall be made by capitalizing reserves

created by the revaluation of assets. In other words, a company cannot
issue bonus shares out of reserves created by the revaluation of assets.
Issue of Bonus Shares ( Section 63)

2. Section 63(2) states that no company shall capitalize its profits or

reserves for the purpose of issuing fully paid-up bonus shares, unless-
a. It is authorized by its articles
b. It has on the recommendation of the board, been authorized in the
gereral meeting of the company
c. It has not defaulted in payment of interest or principal in respect of
fixed deposits or debt securities issued by it.
d. It has not defaulted in respect of the payment of statutory dues of the
employees, such as, contribution ot provident fund, gratuity and
bonus.
e. The partly paid up shares must be made fully paid up
f. It complies with such conditions as prescribed by Rule 14 of the
companies( share capital and debenture) Rules, 2014 a company
which has once announced the decision of its board recommending
a bonus issue, shall not subsequently withdraw the same.
Issue of Bonus Shares ( Section 63)

3. According to section 63 (3), the bonus shares shall not be issued in lieu
of dividend.
Buy Back of Securities ( Section 68-70)

Buy back is the re-acquisition by a company of its won securities.

Power of company to purchase its own securities (section 68 )

1. Sources of funds for buy-back of shares:- The purchase should be
made out of :
a) its free reserves or
b) the securities premium account or
c) the proceeds of the issue of any shares or other specified securities.
Buy Back of Securities ( Section 68-70)

2. Conditions for Buy-Back :-

a) the buy-back is authorized by its articles
b) a special resolution authorizing the buy-back is passed in gereral
meeting of the company
c) the buy-back is 25% or less of the aggregate of PUSC and Free
reserves of the company
d) the ratio of the aggregate debts owed by the company after buy
back is not more than twice the pusc and its free reserves
e) all the shares or other specified securities for buy-back are fully paid
up
f) the buy back of the shares or other specified securities listed on any
recognized stock exchange is in accordance with the regulations made
by SEBI in this behalf.
Buy Back of Securities ( Section 68-70)

3. Procedure before Buy- Back:- SR passed with

a. A full and complete disclosure of all the material facts
b. The necessity for the buy back
c. The class of shares of securities intended to be purchased under the
buy back
d. The amount to be invested under the buy back and
e. The time limit for completion of buy back
Buy Back of Securities ( Section 68-70)

4. Time limit for completion of buy back:- Withing 12 months from the date
or passing the special resolution.

5.Whose securities are to be purchased under Buy Back :-

a. From the existing shareholders or security holders on a proportionate
basis or
b. From the open market or
c. By purchasing the secuririies issued to employees of the company
pursuant to a scheme of stock otion or sweat equity.
Buy Back of Securities ( Section 68-70)

6. Declaration of solvency
7.Extinguishment of securities
8. Cooling period
9. Register of buy back
10. Filing of return of buy back
11. Penalty for default ;- Company – Fine 1 to 3 lakh
Every Officer- Fine 1 to 3 lakh
Directors ( Section 149 to 205 )
Section Section Section
149-172 173-195 196-205

Appointment
Appointment
Meetings of and
and
board and its Remuneration
Qualification
power of managerial
of director
person
 Types of director
Section 149

Non
Executive Executive
Director Directors

Non
Independent
independent
MD/WTD director
director
 No of Directors ( Section 149)
Private Public
OPC
Co. Co.

Minimum
1 2 3

Maximum 15 15 15
 3 New type of director

Woman Resident Independent

director director director
 Woman Director
Q Which company are required to have a woman director ?
Answer :- 1. Every listed company or
2. Every unlisted public company having PUSC equal to or more than 100 crore or
3. Every unlisted public company having turnover equal to or more than 300 crore

Q How many WD ?
Answer :- At least one

Q By what time WD should be bought on the board ?

Answer :- Within six months from the date of incorporation.

Q How will the causal vacancy in the position of a woman director by filed ?
Answer :- Board shall fil it within 3 months from the date of vacancy.
 Resident Director
Section 149 (3) of the Companies Act, 2013 has provided for
the residence of a director in India (Resident Director in India)
as a compulsory i.e. every company shall have at least one
director who has stayed in India for a total period of not less
than 182 days in the previous calendar year
Independent director

Listed Co. Unlisted Co.

Following unlisted
public companies at
least 2 independent
directors
1/3rd independent
directors of board 1. PUSC 10 crore
2. Turnover 100 crore
3. O/s loans debentures
deposits 50 Crore
 Meaning of Independent Director Section 149 (6)

An independent director in relation to a company.

“Independent Director” means a director, ([other than a
managing director or a whole-time director or a nominee
director,]
a. Who, in the opinion of the Board, is a person
of integrity and possesses relevant expertise and
experience;
 Meaning of Independent Director Section 149 (6)

b. (i) Who is or was not a promoter of the company , or

its holding, subsidiary or associate company,
(ii) Who is not related to promoters or directors in the
company, its holding, subsidiary or associate company,
 Meaning of Independent Director Section 149 (6)

c.
Has no pecuniary (monetary Holding Company
relation now or during Subsidiary Company
Associate Company
2 Immediately Preceding Joint Venture
previous year +
Promoters
Directors of these company
 Meaning of Independent Director Section 149 (6)

d.
Has no pecuniary (monetary Holding Company
relation now or during Subsidiary Company
Associate Company
2 Immediately Preceding Joint Venture
previous year +
For an amount exceeding lower Promoters
of Directors of these company
1) 2% of Gross turnover of these
companies and promoter
and directors
2) 2% of Total income of these
3) 50 Lakh rupees
 Meaning of Independent Director Section 149 (6)

E (1 and 2).
Is not or has been KMP or
Employee for last 3 year
All these
companies
Is not or has not been the
following for last 3 years :-
a. Auditor
b. Secretary
c. Cost auditor
 Meaning of Independent Director Section 149 (6)

E (3).

Company
Does not hold more than 2% of
voting power
 Meaning of Independent Director Section 149 (6)

E (4).
Not for profit organization
which satisfied any one of
the following
1. 25% of funding of NGO
Is not a CEO or Director comes from these
companies
2. NGO holds more than 2%
voting power in the
company
 Meaning of Independent Director Section 149 (6)

f. Who possesses prescribe expertise in

Finance, law, marketing, management, research,
sale, technical operations administration etc
 Data bank of Independent Director Section 150

(1) Subject to the provisions contained in sub-section (6) of

section 149, an independent director may be selected
from a data bank containing names, addresses and
qualifications of persons who are eligible and willing to act
as independent directors, maintained by any body,
institute or association, 100 as may by notified by the
Central Government, having expertise in creation and
maintenance of such data bank and put on their website
for the use by the company making the appointment of
such directors
 Small Shareholder director ( Section 151)
“small shareholders” means a shareholder holding
shares of nominal value of not more than twenty
thousand rupees or such other sum as may be
prescribed.
Small Shareholder director ( Section 151)
Manner of Appointment

A listed company, may upon notice of not less than:

(a)“One thousand small shareholders”, or
(b) “One-tenth of the total number of such shareholders”,
whichever is lower; have a small shareholders’ director elected by
the small shareholder

Note:- A ‘Small Shareholder’s Director’ may be elected voluntarily by

any listed company
Small Shareholder director ( Section 151)

Small shareholders’ director to be an independent director:

Small shareholders’ director shall be considered as an independent

director, if
(a)he is eligible for appointment as an independent director as per
sub-section (6) of section 149; and
(b) he gives a declaration of his independence as per sub-section (7)
of section 149.
Small Shareholder director ( Section 151)

Tenure of office and no retirement by rotation:

The tenure of small shareholders’ director shall not exceed a period

of 3 consecutive years and he shall not be liable to retire by rotation.
Further he shall not be eligible for re-appointment after the expiry of
his tenure.
 Appointment of Director
Appointment
Appointment
First Director by
by Board
shareholders
1.Retiring rotational 1. Additional
director (section Director Section
152) 161 (1)

2. Fresh Candidate 2.Alternate Director

Section (160) Section 161 (2)
Section 152
3.Nominee Director
3.SSD Section (151)
Section 161 (3)

4.Proportional
4. Casual Vacancy
Representative
Section 161 (4)
Section (163)
First Director section 152
1. First director shall be the person who are mentioned in
the “AOA” as first director.
2. If AOA does not provide the name of first directors but
provides the “Manner of Appointment” of first directors,
than follow that manner and appoint 1st director.
3. If “AOA” of company are silent and table F is not
excluded, than regulation 60 of table F shall apply. As
per table F “the no of director and the names of first
directors shall be determined by the subscribers to
MOA or Majority of them.
4. If “AOA” is silent and table F is also excluded then as
per section 152 the subscribers to the memorandum
shall be the deemed first directors.
First Director section 152

Shall given consent letter to company

in “DIR-2” on or before appointment

Shall file form “DIR-12” within 30 days of

appointment
Retiring and Rotational Directors Section 152 (6)(7)
Retiring and Rotational Directors Section 152 (6)(7)
Retiring and Rotational Directors Section 152 (6)(7)

Note
1. Directors who have been longest in the office shall retire first.
2. In case few directors were appointed on the same day, then it
shall be decide by mutual agreement or by lot.
3. Retiring director may be re-appointed
4. A new candidate can also appointed to fill this vacancy by
follow section 160
5. shareholders pass a resolution for keep the position vacant
Section 160 Right of persons other than retiring
directors to stand for directorship
A person who is not a retiring director in terms of section 152 shall, subject to the
provisions of this Act, be eligible for appointment to the office of a director at any
general meeting, if he, or some member intending to propose him as a director,
has, not less than fourteen days before the meeting, left at the registered office of
the company, a notice in writing under his hand signifying his candidature as a
director or, as the case may be, the intention of such member to propose him as
a candidate for that office, along with the deposit of one lakh rupees or such
higher amount as may be prescribed which shall be refunded to such person or,
as the case may be, to the member, if the person proposed gets elected as a
director or gets more than twenty-five per cent. of total valid votes cast either on
show of hands or on poll on such resolution. As per Section 160 notice along with
the deposit of Rs. One Lakhs is required to be given at least 14 days before the
general meeting at the Registered Office of the Company.
Section 160 Right of persons other than retiring
directors to stand for directorship
 Appointment of director
by BOD (Section 161)

Board
Resolution

BR by
BR in BM circulation
Additional Director Section 161 (1) :-
When the scope of business expands and the BOD feels that
is necessary to appoint of Additional director.

Alternate Director Section 161 (2) :-

If original director goes out of India for more then 3 Months.

Filling of Casual Vacancy Section 161 (4)

Casual vacancy due to death, resignation, disqualification
and vacation of director.
Appointment of director by BOD
Additional Alternate Casual
Director Director Vacancy
161(1) 161(2) 161(4)
1. BR (Both) 1. BR in BM
2. Tenure- Hold (Only)
1. BR (Both)
office till the 2. Tenure- Hold
2. Tenure- hold
original office till the “
office till
director return vacating
ensuring AGM
to India director “
3. Power to would have
3. Power to
appoint held office
appoint
conferred on
conferred on 3. Power to fill
BOD by AOA
BOD by AOA conferred on
or OR BOD by Act.
 Appointment of Director
Appointment
Appointment
First Director by
by Board
shareholders
1.Retiring rotational 1. Additional
director (section Director Section
152) 161 (1)

2. Fresh Candidate 2.Alternate Director

Section (160) Section 161 (2)
Section 152
3.Nominee Director
3.SSD Section (151)
Section 161 (3)

4.Proportional
4. Casual Vacancy
Representative
Section 161 (4)
Section (163)
Appointment of Proportional Representation
Section 163 :-
The appointment of directors is normally done through a simple
majority in the general meeting of the company. As such, majority
shareholders are in a position to select all the directors and a
significant minority shareholder may not be able to appoint even a
single director. To mitigate this disadvantage of the minority
shareholders, section 163 of the Company Act, 2013 had provided
that the minority shareholders could have an opportunity of
placing their representatives on the Board of Directors where the
concerned company adopts the system of proportional
representation in their ‘Articles of Association’.
TENURE OF DIRECTORS: The appointment of
directors may be for as long as 3 years or as may be
decided by the shareholders since the term for the
appointment of directors under this system is nowhere
specified in the act.

NUMBER OF DIRECTORS THAT CAN BE APPOINTED UNDER

THIS PROVISION: The minimum number of directors to be
appointed through this system shall be 2/3rd which can even go
beyond 2/3rd of the total number of the directors
 Nominee Director Section 161 (3)

BOD may appoint Person nominated by F.I ,CG or

A Nominee Director SG to pursuant to any statute
By Passing BR or Agreement
 DIN Section 153 to 159

Section 153 :- As per section 153 a person who is purpose to be appoint as director
shall apply to central government online in form DIR-3 along with prescribed fees
for obtaining DIN along with DIR following document shall be attached :- Photo,
Proof of Identity, Proof of residence, signature etc.
Section 154 :- As per section 154 central government shall allot DIN within 1 month
of receipt of application. If the application is complete in all respect then central
government shall allot DIN. If application is incomplete or central government
needs additional information then it shall ask the applicant for re-submission of form
and if central government is not satisfied then it may be reject the application.
Section 155:- Prohibition ot obtain more than one director identification number.
Section 156 :- Director to intimate director identification number within 1 month of
the receipt of DIN
Section 157 :- Company to inform DIR to Registrar within 15 days of the receipt DIN
Section 158:- Obligation to indicate DIN in return, information, contain any
reference of any director.
Section 159 :- Punishment for contravention Imprisonment up to 6 Months
Fine Rs up to 50000
Terms of Appointment The following are the conditions for the
appointment of the Directors-
1. Only a natural person may be appointed as a Director.
2. A person may not be appointed as a director unless he or she has a
Director ID number (DIN).
3. The person will receive a Digital Signature Certificate (DSC) from the
accrediting authority for appointment as director.
4. Every person nominated for appointment as a director must submit his or
her DIN and declaration that he or she is eligible for appointment as a
director under the Companies Act, 2013.
5. Everyone will give their consent to serve as a director on Form DIR-2
before or after his or her appointment.
6. A person may not be eligible for appointment as a director, if he or she
does not qualify under subsection (1) of Section 164 of the Companies Act,
2013. One cannot hold directorship of more than twenty companies at one
time including any other directorate position.
7. In addition, the maximum number of public companies for which a person
may be appointed as director should not exceed ten.
Qualifications of Directors The Companies Act, 2013 has
not yet determined any educational or professional qualifications
of directors. Also, the Act does not place qualifications for
directors. Therefore, unless a company article contains a
provision for that, the director does not have to be a shareholder
unless he wishes to be one voluntarily. But articles usually
provide for a small portion of eligibility.
Section 164 of the Companies Act 2013 deals with
disqualification of Directors. According to the Companies Act
2013, the following conditions can be reasons for disqualifying
a Director.
➢ The Director is of unsound mind and stands so declared by a competent court.
➢ The Director is an undischarged insolvent.
➢ The Director has applied to be adjudicated as an insolvent and his application
is pending.
➢ The Director has been convicted by a court of any offence, whether involving
moral turpitude or otherwise, and sentenced in respect thereof to
imprisonment for not less than six months and a period of five years has not
elapsed from the date of expiry of the sentence. Also any person who has
been convicted of any offence and sentenced to imprisonment for a period of
seven years or more, will not be eligible to be appointed as a director in any
company.
➢ An order disqualifying the Director for appointment as a director has been
passed by a court or Tribunal and the order is in force.
➢ The Director has not paid any calls in respect of any shares of the company
held by him, whether alone or jointly with others, and six months have elapsed
➢ The Director has been convicted of the offence dealing with
related party transactions under section 188 at any time during
the last preceding five years.
➢ A company in which the Director is a part of the Board has not
filed financial statements or annual returns for any
continuous period of three financial years.
➢ The company has failed to repay the deposits accepted by it or
pay interest thereon or to redeem any debentures on the due
date or pay interest due thereon or pay any dividend declared and
such failure to pay or redeem continues for one year or more.
Power of Directors
• Power of Board
179

• Restrictions on powers of board

180

• Company to contribute to bona fide and

181 charitable funds

• Prohibitions and restrictions regarding political

182 contributions

• Power of Board and others persons to make

183 contributions to national defence fund
Section 179- Power of Board
1. Make call on shareholders in respect of money unpaid on their
shares
2. Authorize buy back of securities
3. Issue securities
4. Borrow monies
5. Invest the funds of the company
6. Grant loans or give guarantee
7. Approve financial statement and the board report
8. Diversify the business of the company
9. Approve amalgamation, merger or reconstruction
10. Take over a company or acquire a controlling or substantial stake in
another company
Section 180- Restrictions on powers of Board
1. Sale of Lease of Substantial Undertaking
2. Investment of compensation received from amalgamation
3. Restriction on Borrowing power of Directors
4. Remission of Loan given to directors

Section 181- Company to Contribute to Bona Fide and Charitable Funds

1. The Board of Directors of a company may contribute to bona fide
charitable and other Funds.
2. Prior permission of the company in general meeting shall be
required for such contribution in case amount the aggregate of
which, in any financial year, exceeds 5% of its average net profits ofr
the 3 immediately preceding financial years.
 Section 182 Prohibitions and restrictions regarding Political contributions
1. Who Cannot contribute :- Government Company OR a company
which has been in existence for less than 3 Financial year
2. Maximum amount of contribution:- 7.5% of its average net profits
during the 3 immediately preceding financial years
3. BR in BM
4. Disclosure in P&L A/c

Section 183 Power of Board and Other Persons to Make Contributions to

National defence Fund etc.
1. BR in BM
2. No Maximum Limit
3. Disclosure in P&L A/c
Sections 166 Duties of Directors
(1)Subject to the provisions of this Act, a director of a company shall act
in accordance with the articles of the company.

(2) A director of a company shall act in good faith in order to promote the
objects of the company for the benefit of its members as a whole, and in
the best interests of the company, its employees, the shareholders, the
community and for the protection of environment.

(3) A director of a company shall exercise his duties with due and
reasonable care, skill and diligence and shall exercise independent
judgment.

(4) A director of a company shall not involve in a situation in which he may

have a direct or indirect interest that conflicts, or possibly may conflict, with
the interest of the company.
Sections 166 Duties of Directors
(5) A director of a company shall not achieve or attempt to achieve any
undue gain or advantage either to himself or to his relatives , partners, or
associates and if such director is found guilty of making any undue gain,
he shall be liable to pay an amount equal to that gain to the company.

(6) A director of a company shall not assign his office and any assignment
so made shall be void.

(7) If a director of the company contravenes the provisions of this section

such director shall be punishable with fine which shall not be less than
one lakh rupees but which may extend to five lakh rupees.
Section 168 Resignation of Director

Notice of Resign
 Section 169 Removal of Directors

Company Shall circulate a

copy of
Special notice
Representation letter
At least 7 Days before
AGM
OR passed
Director Removed
DIR 12 filed with ROC

1% of Voting Power OR
PUSC of 5 Lacs
Whichever is lower
Sections 185 Loans to Directors
According to Section 185(1) of the Act, a company may not: directly or
indirectly make an advance loan, make an advance loan that is
expressed by a book debt, give a guarantee or security in conjunction
with any borrowed money
1. To its Director
2.To its holding company’s Directors
3.To Directors’ Relatives
4.To the business partner, if the Director is a partner
5.To the partnership firm in which the company’s Director or holding
company is a Partner.
Exceptions of Section 185
1. Companies that provide Business loan to Managing Directors or full-
time Directors are required to do so in accordance with the following
terms:
A. conditions of service provided to all of their workers, or
B. in accordance with a plan approved by special resolution.
2. Companies offering loans, guarantees, and securities in the regular
course of business charge interest that is at least as high as the
current yield on government securities with terms of one year, three
years, five years, or ten years.
Remuneration to Director Section 197+ Sch V

In case of Adequate Profit In case of Inadequate Profit

Max. Limits of Remuneration Max. Limits of Remuneration

given in sec.197 given in Sch V

AS % of Profits
Based on Effective capital
Maximum Return in case of Adequate Profits

For Executive director For non Executive directors

1. If the co has only 1 ED = 1. If the co has no ED+ 3%

5% of NP of NP to all NED

2. If Co has more than 1 2. If the co has more than 1

ED= 10% of NP to all ED ED= 1 of NP to ALL NED

Maximum Remuneration to All Directors

put together = 11% of NP
Maximum Return in case of Inadequate Profits
Based on Effective Capital