MANAGEMENT OF COMPANIES

INTRODUCTION

" Directors are the persons appointed to direct and supervise the affairs of a
company.
"The company's business is consigned in the hands of directors. Team of
directors of the company is collectively known as its Board of Directors
" "Board of Directors or Board in relation to a company means the collective
body of the directors of that company."

Board of Directors [Sec 2( 10)]

The Board directs, controls, manages and superintends the affairs of the
company. It formulates the general policy of the company.

An individual director has no authority to act on behalf of the company

unless he was authorised by the
The Act
" Articles of Association.
"Resolution of the board of directors
"Resolution of the sharcholders
Who is a director?
According to Section 234 of the Companies Act 2013, director means a
director appointed to the board of a company.
Number of Directors

Number of Public Private One Person

Directors Company Company Company
Maximum 03 02 01
Minimum 15 15 01
For more than 15 Pass a special Pass a special Pass a special
directors resolution resolution resolution

Types of Directors
1.Deemed directors
2. Executive Directors
3. Non-Executive Directors
4. Women Directors
5. Residential Directors
6. Small Shareholder Directors
7. Alternate Directors
8. Additional Directors
9. Nomince Directors

DEEMED DIRECTORS
"A deemed director is someone who is not appointed officially as a
Director of the company but the Board follows his directions and
orders
They are very influential just like any other Director of a company
but they manage to avoid the liability that arises thereof.
They give orders and their orders are followed but they do not have
any managerial position in the company
"A deemed director is nowhere mentioned in the Companies Act, 2013
EXECUTIVE DIRECTOR
"Exccutive directors are internal professionals i.e. they are internal to the
organization and are involved in the daily functions of the company
" As defined in Seetion 2(94) of Companies Act, 2013- Rule 2(1) (k) of
Companies (Specification of Definitions Details) Rules, 2014 - Exccutive
Director means a whole-time director
" Executive Director can be designated as Managing Director and
whole-time Director
" He is usually responsible for the executive functions in the management
and administration of the company.
"Certain skills are required for a person to be an executive director

NON-EXECUTIVE DIRECTORS
" Non-executive directors are external professionals. The Companies Act.
2013 does not define non-executive directors but.
" Directors who are not involved in the day-to-day functions or activitics of
the Company are called non-executive directors.
"The Board needs their inputs in certain areas, or because there may be a
legal requirement to have them on the Board
" Non-executive directors come to the company only to make certain
decisions at the Board meeting.
"Two typcs of Non-Executive Director are Independent director and
Nominee Director

TaTIun

Mcang Excutivc dirocn represcnt the senior Non-cecutive dirccots do nt have

comy They have nanagement responsibilties They seek to
annuny's ieret and are
ppointed 2 the ('), (FO, MD. te
Keynsbility EsCutive dracas take up ieml
Non-eccative
aecth dreckors
ef hiess anitandin moniting
Ktivitis nnde
lealrhip mles They maaye the cunpany
Nad engage in hih-od objectve ights for decisan-mak ing

Aeoutat APany cnpary sarehollers thrugh

leter of appunent
mployment,
Impesment They re full-tine enployce and are part of iey can he a art of the bwnd, but they ar
the bourd of directos nol fullme emplyees of the cuipany
Represeation They repesent the company' nternal They ae the external directn
drecn
Independence They mumuge the buneVS Inlrnally and are They are indenendent of the compuny
inveved in the company's ttairs
management and nteestod pames.
Koowlelñe
They posses ful-fledged knew letåe cf They are uensed to bave a beler
copuny allais vesht nd hedp take indepenket unbiased
docisions
 RESIDENT DIRECTOR
" Provisions of Section 149(3) of the Companies Act, 2013 deals with the
residence of a Director. The new Companies Act introduced this concept
of Resident Director. The Act makes the residence of a Director in India
mandatory
" Every Company shall have at least | Director who has resided in India
for a total period of not less than 182 days in the previous financial/
calendar year. This provision applies to all companies, both private and
public
Declaration of aResident Director is not required. AResident Director is
likee any other Director and he is required to attend at least I Board
Meeting in a year.

WOMEN DIRECTORS
"The Companies Act, 2013 made it mandatory for certain companies to
appoint a woman director. As per the provisions of Section 149(1) of the
Act and Rule 3 of the Companies (Appointment & Qualification of
Directors) Rules, 2014 - The Companies that need to appoint a women
director are as follows
" Every listed company
" Every other public companies having a paid up share capital of Rs. 100
crores or more or turnover of Rs. 300 crore or more

SMAL SHAREHOLDER DIRECTOR

" Any person who holds shares of the nominal value of not more than Rs.
20,000 in a Public Company is called a small shareholder.
" These small shareholders are allowed to elect a director in a listed
company. Thus, directors elected by these small shareholders are called
Small shareholders Directors
" Thus, a small sharcholder director can be appointed by a Company if
" The Company is a Public Company:
" The Company has at least 1000 or more small shareholders
 ALTERNATE DIRECTOR
Provisions of Section 1612) of the Companies Act, 2013deal with
Alternate directors. When a director of a company is not in India for
more than (3) three months then an alternate director can be appointed on
the original dircctor's behalf.
" An alternate or an alternative director acts on behalf of the director who
is not in the office due to being away for more than 3 months
The alternate director exercises his duties for a limited time only i.e. only
till the time the principal director returns to his duties.
Alternate directors are appointed by the Board as a replacement for a
director who is going to be away from India and is unable to attend board
mectings

ADDITIONAL DIRECTOR
"Provisions of Section l61(0) of the Companics Act, 2013 deal with the
Additional Dircctor. Where there is heavy pressure of work on the Board of
directors then the Board of directors can appoint an additional director. if
authorized by the Articles of Association of that company.
"he power to appoint an additional director rests with the Board of directors and
this power is given to the Board by the Company's Articles of Association
(AOA).
"If the AOA of the company does not confer the powers on the Board then the
Board cannot appoint an additional director

NOMINEE DIRECTOR
" Nominee Directors represent the stakeholders on the board of directors.
" A nominee director is a representative of the stakeholder who protects
the stakcholder's interest. Their job is to see that the company does not
function in a manner detrimental to the interest of the stakeholders they
represent
-Nomince directors are appointed by an agrecment (either Shareholder's
agreement or financing agreement) betwcen the company and the
stakeholder.
"The stakeholders are responsible for the payment of such nominee
directors they may appoint. A nominee dircctor must act in good faith
and the interest of the company even if they are nominated by the
stakeholders
INDEPENDENT DIRECTORS

An independent director is a non-executive director ofa company who

helps thc company in improving corporate credibility and govermance
standards
Independent Director acts as a guide, coach, and mentor to the Company.
The role includes improving corporate credibility and govermance
standards by working as a watchdog and help in managinggrisk.
Independent directors are responsible for ensuring better governance by
actively involving in various committees set up by the company.
Every listed public company shall have at lcast onc-third of a total
number of dircctors as indepcndent directors

POSITION OF INDEPENDENT DIRECTORS

Non-executive directors CEO Board chair

An atemative Montors th Asounding board

communication channel chairCEO
daionship Apgraising pedormance
Amediator
Support and counterpower

Nomination and
Lood lndependent ucoession d the char
Sukeholders Diector
Point of contact

DIRECTOR IDENTIFICATION NUMBER (DIN)

THYNK
UNLIMITED

ld Card :123-456-7890
Email :hello@roallygrcatsite.com
Address 123 Anywherc., Any City
Phone +123-456-7890

Benjamin Shah
Creative Director
"A Director ldentification Number (DIN) is a distinctive 8-digit code given to
each person assuming the position of a company director.
"This alphanumeric code, allocated by the Indian Ministry of Coporate
Affairs (MCA), is obligatory before any director appointment.
"(DIN) system was introduced in India through the Companies Act of 2006.
Before this act, the tracking of directorship activities and histories was
difficult due to lack of a standardizcd system.
"This often led to confusion and a lack of accountability and transparency in
corporate govemance. To remcdy these issues, the Indian government
introduced the DIN system

"This unique identification system was brought into cffect to create a

comprchensive database of company directors, enabling casy
identification, tracking, and regulation of directors and thcir
activities.
" This enhanced scrutiny helps deter fraudulent activities, enables the
tracing of a director's transactions across different companies, and
facilitates quicker legal proceedings when nccessary

LEGAL POSITIONS OF DIRECTORS

" Since Companies Act does not clearly define the legal position of
directors in a company, they are referred as trustees, agents, managing
partners, etc., in various instances. As such, a company's director attains
following roles as per their situation
Directors are also defined as the company's trustees as they stand in a
fiduciary capacity towards the company. They are not to be mistaken as
trustees in the legal sense. as the regulations under the trustee's actions
do not apply to the directors but to the assets and properties of the
company
Legal Position Of Direetors

1. Directors as agents
2. Directors as trustees
3. Directors as officers in the company
4. Directors employces
5. Directors as managing partners

Appointment Of Direetors

"By the Aticles as regards first director (Section 152)

"If directors are named in article

"|f the directors are not named in the articles
" In case of one person company
 2. Appointment of directors at General Meeting section 152(2)

Retirement by rotation
"2/3 of the directors liable to retire by rotation, only 1/3 shall retire at every
Annual General Meeting.
" Example- If a company has 9 directors, only 3 can be appointed as
pemancent dircctors if the company so desires.
"The remaining six dircctors will bc liable to retire by rotation. Out of 6
directors, dircctors shall retire, in cach of 3 years

i. Where the Annual General Meeting is not held

ii. Deemed reappointment of a retiring director - adjoumment of meeting,

automatic reappointment

iv, No automatic reappointment

Where a resolution for such rcappointment was put and lost
Where the retiring dircctor has expresscd his unwillingness to continue
Where he is not qualified for appointment
A resolution is nccessary for his rcappointment
Where it is resolved to fill two or more vacancies by a single resolution

v. Fresh appointment
vi. Appointment of cach director to be voted individually
vii. Filing of written consent by directors

3. Appointment of directors by Proportional Representation (Sec l63)

"It intends to protect the interest of minority shareholder by giving them an
opportunity to place a nominee on the board.
The article may provide that the appointment of not less than two third of
the total number of directors of a company shall be according to this
principle.

4. Appointment by directors
Additional directors
Alternate directors

|"Directors filling casual vacancy

Directors filling casual vacancy

5. Appointment by third parties (Sec 152)

6. Appointment by the Central government

7. Appointment by small shareholders

8. Appointment of Special directors by the Tribunal in case of

sick industrial companies

Removal ofdirectors

1. By the shareholders (Section 169)

2. The Tribunal (Section 242)

POWERS OF BOARD
 General Powers

Two limitations upon their powers:

i. Board shall not exercise those powers the Companies Act 2013 for the
MOA or otherwise are required to be exercised by the company in
General Meeting

ii. In exercising all such powers or doing of any such act, the board will
be subject to the provisions of this or any other act, the MOA or the
Articles

Do shareholders have right to intervene?

Exceptional cases when the general meeting is completed to intervene

in a matter dedicated to board:

1. Dircctors acting malafide

2. Board incompctent
3. Deadlock board
4. Residuary powers

B. Powers under [Section |79(3)|- which shall always be considered at the

meeting of the board

To make calls on shareholders in respect of money and paid on their shares

To authorise buyback of securities (Sec 68)
.To issuc sccurities including debentures wcather in outside India
To invest the funds of the company
.To grant loans or give guarantee or provide security in respect of loan
To diversify the business
"To approve amalgamation merger or reconstruction
C. Powers under Rule &

In addition to the matters prescribed under Section 179(3), the following

powers shall be exercised only by the means of resolutions passed in meeting
of the Board
To make political contributions
To appoint or remove key managerial personnel
To appoint intermal auditors and secretarial auditors
To take note of the disclosure of director's interest and shareholding
"To accept or renew public deposits
"To review or changc the terms and conditions of public deposits
To approve quarterly half ycarly and annual financial statements

D. Other matters- Matters in the routine working of a company

Issuance of shares
" Allotment of shares and debentures
Appointment of directors
Consideration of annual accounts
" Approval of interim dividend and Recommendation of final dividend
Merger and amalgamation of Companies
.Capitalisation of reserves and issuance of Bonus shares
" Appointments of auditors in casual vacancy caused otherwise than by
resignation

Powers Or Board Exerciseable With The Consent Of General

Meeting Or Restrictions On Powers (Section 180)
1. Power to sell lease or otherwise dispose of the whole or substantially
The whole of the undertaking of the company

2. Power to remit a gift time for repayment of any debt due to the company by
a dircctor

3. Power to invest otherw ise than in trust securities, the amount of

compensation received by the company in respect of the compulsory
acquisition
4. Power to borTOW money
5. Power to contribute to Charitable fund

Any other fund not directly related to the business of the company
" Any other fund not directly related to the Wel fare of the employecs
Restriction on political contribution section 182
Political contribution means any contribution made, directly or indirectly
to

" Any political party

" Any person for any political purpose
Prohibition and certain companies to make political contribution:
"The government company and
The companies with less than 3 years of existence shall not make any
contribution to any political party or any political purpose to any person.

Duties Of Directors

1.Fiduciary duties
2. Duty of care and skill
3. Duty to attend board meetings
4. Duty not to delegate
5. Duty to disclose interest
6. Statutory Duties

6. Statutory duties
a. Duty not to allot shares until minimum subscription is raised (Sec 39)

b. Duty to sign annual returns and the certificate attached (Sec 92)

c. Duty to forward the statutory report to every menmber of the company

d Duty to call an AGM every year within the proper time (Sec 96)

c. Duty to call an extraordinary general meeting on a valid requisition (Sec 100)

f. Duty to prepare Prof+t and Loss account and Balance Shcet (Sec 128, 129 and
134)
Liability Of Directors
A. Civil Liability
B. Criminal Liability

Civil Liability
Liability towards the company Liability to third parties
1. Negligence 1. As to contracts
2. Misfeasance 2. As to frauds and torts
Breach of Trust 3. Liability under the provisions
4. Ultra-Vires acts of the act

3. Liability Under The Provisions Of The Act

" Mis-statement in a prospectus (Section 35)
"Failure to repay the application money for shares
"Latest knowingly contravene the provisions as to allotment
"Failure to repay application money for shares if application for these
to be dealt in the stock exchange is not made or refused (Section 40)
"Fraudulent trading by the company

B. Criminal Liability
L Section 34- Filing of prospectus containing untrue statements
Scction 74- Inviting deposits in contravention of the rules, or
manner or conditions- seven years imprisonment and fine not less
than Rs. 25 lakhs
Section 26- Issuing false advertisement inviting of deposits- 3
years imprisonment and Rs 50,000 fine
Section 36- Fraudulently inducing persons to invest money
imprisonment up to 10 years or fine
Scction l64- Undischarged insolvent acting as director
imprisonment or fine or both
vi. Section 127- Default in distributing dividend- 2 years imprisonment and
fine not less than rupees 1,000 per day of default

vii. Section 129- Failure to lay Balance Sheet cxcept at AGM- imprisonment
up to Iycar or fine up to Rs. 50,000 or both

viii. Section 222- Improper issue of shares- imprisonment up to 6 month or

fine of Rs. Ilakh and maximum 25 lakh

ix. Section 243- Acting as director after removal by Court- imprisonment up

to 6 months or fine up to rupees 5 lakhs or both

Directors with Unlimited liability

The liability of directors is limited to the extent of shares held by

them. The Companies Act however provides for statutory exception to
the rule

-Section 322 provides that a limited company may make the liability of
any or all of its directors unlimited, if it is so provided by the
memorandum

Whether liability of the director is unlimited, the member who

proposes a person for appointment as director at to his proposal, a
statement that the liability of the directors shall be unlimited

Managing Director
Section 2(54) defines a Managing Director as

"a director who by virtue of agreement with the company or a resolution

passed by the company in general meeting or by its Board of Directors
.is entrusted with substantial powers of management of the affairs of the
company and includes a director occupying the position of managing
director, by whatever name called".
 Appointment Of Managing Director

" Agreement with the company

Resolution passed in general meeting
Resolution passed by its Board of Directors

Every such appointment shall be made cit her

With the approval of central government
" In accordance with schedule V

Whole Time Director

According to Sec2(94) "whole-time director includes a director in the

whole- time employment of the company".

A company can simultaneous employ

Two or more than two whole time directors
" Managing directors and whole- time directors
Whole time directors and manager

Manager
As per Section 2(53

"Manager means an individual who subject to the superintendence.

control and direction of the Board of Directors, has the management
of the whole or substantially the whole, of the affairs of a company
and includes a director or any other person occupying the position of
a managcr, by whatever under a contract of service or not."
 Company Seeretary
Secretary means one entrusted with secrets. It is derived from the Latin word
'Secretarius 'which means a confidential writer.
Definition
Section 2(24)- Sccretary means a Company Secretary within the meaning of sec2(1)
the Company Secretaries Act 1980 and includes any other individual possessing the
prescribed qualifications and appointed to perfom the duties which may be
performed by a secretary under this Act and any other ministerial or administrative
dutics.

Importance
Business cxccutive is dependent on secretary
Secretariat runs the show
Full time oflicer

Qualifications Of ACompany Secretary

Any individual who possesses the qualification of a membership of the
Institute of Company Secretaries of India, constituted under the Companies
Secretary Act,1980 as a whole time secretary. to perform the duties of a key
Managerial Person and Secretary under the Companies Act.

Other qualifications
Sound cducation
T Proficiency in language
Knowledge of organization
Knowledge of Accountancy and Taxation
Knowledge of Mercantile Law, Economics, Banking and Finance
Impressive personality

Rights And Powers OfA Company Secretary

L Right to supervise
IL Right to sign documents
Right to issue share certificate
Perform acts on behalf of the directors
Right to be indemnified by the company for any loss suffered by
him while discharging official duties.
Duties Of ACompany Secretary
A. Statutory Duties
1)Under the companies Act
Sign documents
Allotment of Registrar
Give notice for increase in share capital
Deliver share certificate
"Make available trust deed
Registration of mortgages
" Sign annual return
Send notice of general meeting

"File certain resolutions and agreements

Prepare minutes
"Make available inspection of books
Give notice of every meetings to BOD
"Sign every Balance Sheet and Profit and Loss account in the case of
non-banking companies
Maintain statutory books

(2) Under the Income Tax Act

Deduction of tax from salaries
Deduction of tax from dividend
File Income Tax retum

(3)Under Stamp Act

(4)Under other Acts

B. General Duties
(1)Duties to the directors
(2)Duties to the shareholders and the public

Liabilities of a Company
Statutory liabilities
Contractual liabilities