Board of Directors

The management of a Company

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The need for Directors
• A company even though in the eyes of law is considered to be an artificial person, it can act only through human agency, so there is a need for directors. • The relationship between the company and its director is merely the relationship between a principal and an agent. • The persons who are in charge of the management of affairs of a company are collectively called Board of Directors.

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Who are the Directors?
• The person who occupies the position of director and the one who does the functions of a director is called a director (even though the company may have some other name to that person or position). • Functions of a Director:
▫ Direction ▫ Conduct ▫ Management and ▫ Superintendence (Only a human person can be a Director and no corporate body or association or firm can be.)

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Director Identification Number (DIN)
• According to sec 253 of Companies (amendment) Act, 2006:
▫ All Directors should have a DIN. ▫ Fresh appointment and re-appointment must be done only on the basis of DIN. ▫ DIN is generated by the Central Government.

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Number of Directors
• Minimum: 3 in case of Public Company and 2 in case of Private Company • Maximum: It is decided in the ‘Articles of Association’, written during the commencement of the company. • A public company with 5 crores or more paid up capital and more than one thousand ‘small shareholders’ can elect a Director. • No one can increase the number of directors beyond the limit in the ‘Articles of Association’ except the Central Government.

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Appointment of Directors
• Directors are appointed by Shareholders in general meeting. • In case of Public Co. or Private Co. which is a subsidiary to a Public Co., 2/3rd of total number of Directors must retire by rotation.

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• The remaining 1/3rd are permanent directors. • 1/3rd of the rotational directors must retire at every annual general meeting. • The company can re-appoint the retired director or appoint a new member. • A new director is elected only when that person has applied for the position of director 14 days earlier to the meeting and has deposited Rs.500/-. • A person thus elected must give his consent in writing within 30 days of appointment to the Registrar.

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• When some additional directors are appointed by directors for the purpose of better management, they can hold office only till the next annual general meeting. • Sometimes the articles can provide that a director can be appointed by debenture holders and other creditors, and it should not exceed 1/3rd of the total number. • 2/3rd of the directors are appointed by the method of proportional representation.

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Proportional Representation
• It is done once in 3 years. • It ensures representation from the minority shareholders: 1/7th of the shareholders can appoint 1/7th of the Directors. • Suppose there are 1000 votes cast for 4 seats according to the quota:(1000/4+1)+1= 201 votes. • A shareholder has 4 votes for each share thus a person gets 40 votes if s/he has 10 shares. • Thus a minority group may also be able to obtain a director on the board.

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Roles of a Director
• Directors as Agents: Acts on Co’s behalf, they are not personally liable for Co’s contracts. • Directors as Employees: In certain situations a director can act as an employee of the Co. for better management. • Directors as Officers: They act as officers to ensure that the rules are followed correctly. • Directors as Trustees: They are trustees of the company’s money and property and the power entrusted to them.

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• Number of Directorships: A person cannot hold office as a director at the same time in more than 15 companies. • Share qualification: At least 1 share of the company should be held by the Director to show his/her personal interest. And the maximum number is decided in the ‘Articles of Association’. • Removal: A director can be removed by Shareholders or by Central Government or by National Company law Tribunal.

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Remuneration
• The overall managerial remuneration should not exceed 11% of the company’s net profits (paid only when there is adequate profits). • The remuneration is paid for the services in the form of
▫ fees for attending meetings ▫ monthly payments (should not exceed 5% of net profits for 1 director, or should not exceed 10% in case of more than one directors) ▫ Commissions (through special resolution)

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Independent Directors
• According to Clause 49 of the SEBI Listing Agreement: 50% of the board strength must be independent directors, if the chairman is an executive director; if he is not, the board is expected to have at least 1/3rd of its members as independent directors. • Who is an Independent Director?
▫ A director is not independent if s/he is related to the promoters or persons occupying management positions. ▫ An Independent Director should not be controlled by the shareholders or creditors.

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• Functions of independent Directors:
▫ The independent directors are expected to function on behalf of the shareholders and investors to protect their interests. Their duties fall under two broad categories: the duty of loyalty to the shareholders and the duty of taking utmost care in approving any proposals of the management of a firm.

• Now the government is rethinking in increasing the fiduciary functions of IDs

Thank you

- Joe Ebiston