COMPANY MANAGEMENT AND ADMINISTRATION

Module - 4

Contents

Director

Meaning & Definition of Director Appointment, Powers (Rights) & Disqualification of Director Duties & Removal of Director Appointment, Powers & Duties of MD
Appointment & Rights of CS Responsibilities & Duties of CS Position of CS Rights & Duties of Manager

Managing Director

Company Secretary

Manager

Meaning & Definition- Director

Section 2 (13) defines a director as Any person occupying the position of director, by whatever name called. Director is a person, who is responsible for directing, governing and controlling the policy or management of a company. A director may be defined as a person having control over the direction, conduct, management & superintendence of the affairs of the company.

Qualification of Directors

Only individuals can become directors Companies Act has not laid down any Academic, professional or Technical qualification for directors. But individuals will have to hold the qualification shares decided by AOA In general, it is noticed that at least 1 share has to be held by every directors. It should be held within 2 months from the appointment of director. Nominal value of qualification share cannot be more than Rs. 5000

Disqualification of Directors

Following person are not eligible for being appointed as directors of any company:
A

person found by the court to be unsound mind. An undischarged insolvent A person who has applied to be adjudged an insolvent A person who has been convicted of an offence involving moral turpitude and sentenced to imprisonment for not less than 6 months & period of 5 years has not elapsed from the date of expiry of the sentence.

person who has failed to pay calls for 6 months from the date when the calls fell due. A person who has been qualified by an order of the court to act as directors of a company on the ground of fraud in connection with another company. A person who is already a director of a company which has not filed the annual accounts & returns foe any continuous 3 years

Appointment of Director

By the promoters of the company

First Directors of Company Subsequent Directors

By the subscribers to the MOA & AOA of the company (Sec 254, 266) By the company in a general meeting (Sec 256, 261) By the Board of Directors (Sec 260-262, 313)

In a Casual Vacancy As additional Director As an alternate Director

By the Central Government (Sec 408) By the principle of proportional representation (Sec 265) By the third parties

No. of Directors in a Company

As per Companies Act, minimum no. of Directors:

Every

public company must have minimum three (3) Directors Evert private company must have minimum two (2) Directors

The act has not laid down any limit over the maximum number of Directors. Companies, by making necessary provisions in the Articles, can fix a limit over the maximum number of Directors.

No. of Directorship

As per Indian Companies Act (2000), a person can become a director of fifteen (15) companies at a time and not more. The directorships of private companies, unlimited companies, non-profit associations are excluded.

Restriction on Appointment of Directors

Unless he has given his consent in writing to act as director and his consent has been dully filed with the registrar
Signed

the MOA for his qualification shares; or Taken his qualification shares and paid or agreed to pay for them; or Signed and filed with registrar an affidavit stating that his qualification shares are registered in his name.

These restrictions do not apply to:

A

company without share capital A private company A private company now converted into a public company A company which has issued prospectus after the expiry of one year from the date on which it was entitled to commence a business.

Powers of Director

Statutory Powers
Powers

to be exercised by BOD only and cannot be delegated to any other managerial personnel Powers to be exercised by the BOD but can be delegated to other managerial personnel Powers can be exercised by the BOD only with the consent of the shareholders

Managerial Powers

Powers to be exercised by BOD only

To make calls on shares To issue debentures To fill the casual vacancy To sanction contracts in which some directors are interested To appoint a person as a managing director To forfeit shares To invest in shares & debentures of any other company

Powers to be exercised by BOD & can be Delegated to others

To borrow money To invest the funds of company To make loans

Powers to be exercised by BOD only with consent of shareholders

To issue bonus shares To sell or lease the assets of the company To declare dividends

Managerial Powers

To establish the general objectives of a company To formulate the policies of the company To determine the organisational structure of a company To appoint senior managerial personnel To direct control & supervise overall activities of a company To enter into contract To issue securities To recommend dividends at annual general meeting

Duties of Directors

To determine the amount of minimum subscription. To see that all money received from application for shares is deposited in a schedule bank until it is returned to the applicants or until the CBC is obtained. To forward a copy of the statutory report to every member of the company at least 21 days before the date on which the statutory meeting is held. To call an extraordinary meeting of the company. To approve the balance sheet & Profit and Loss

To prepare & place at the annual general meeting an annual report of the company along with the balance sheet and P&L account To pay dividends only out of divisible profits of the company. To frame the policies, to determine the plans & to take decisions regarding objectives of a company To maintain proper flow of work, responsibility & accountability To appoint senior managerial

Remuneration of Directors

The remuneration of a director including MD or whole-time director must be fixed by:

The

articles, or A resolution of the company in general meeting, or A special resolution, if so required by the articles.

Sec 198 lay down that the overall remuneration payable to a public company & subsidiary private company to its managerial personnel in respect of any financial year should not exceed 11% of the net profit of the company.

The fee received by a director for attending Board meeting shall not be considered for computing maximum remuneration. If there are inadequate profits, the act empowers the company to pay upto a maximum of Rs. 50000 with the approval of Central Govt. The remuneration paid to the part-time directors should exceed 1% of the net profit, if the company has a MD/Manager/Whole-time directors. And 3 % of net profit in any other cases.

Vacation of office by director

The directors of the company shall vacate his office under the following circumstances:
When

he fails to acquire qualification shares within 2 months of his appointment When he is found to be of unsound mind by competent court. When he is declared insolvent by a court. When he apply to the court to be adjudged insolvent When he is convicted and sentenced to imprisonment for not less than 6 months.

When he fails to pay calls for a period of six months from the date when it fell due. When he absent himself from 3 consecutive meetings of the board or from all meetings of the board for a continuous period of 3 months whichever is longer, without obtaining leave of absence from the board When he accepts a loan from the company without the approval of Central Govt When he doesnt disclose the nature of his interest in any contract at the board meetings.

When he is disqualified by the court When he is removed by the court before the expiry of his period of office. When the period for which he was appointed has expired. When he holds an office of profit in the company.

These provisions are applicable to both public & private companies.

Removal of Directors

A director may be removed before the expiry of his term of appointment by:
Shareholders

The

Central Government The Court

Shareholders Procedures [Sec284]

A special notice of 14 days is required to be given to the company to move an ordinary resolution to remove the directors & to appoint another director. On receipt of notice, the company must inform all the members of the proposed resolution. It must also send a copy of the notice. The concerned director can make a representation against the removal in the company meeting. He can also speak at the meeting against his removal.

At the meeting, 2 ordinary resolutions will have to passed-one for the removal of the director and another resolution for the filling up of the vacancy. The new director will hold office till the date his processor would have held.

Removal by the Central Government [Sec-388]

The Central Govt may order the removal of a director if an adverse finding has been made by the Company Law Board against him. CG can remove them on the grounds of cases such as fraud, persistent negligence, default in carrying out his obligations or managing the business in a way that cause damage to the business or defraud its creditors.

Removal by the Company Law Board

The Company Law Board on receiving application for prevention of oppression of the mismanagement, may enquire into the matter & on enquiry, if it finds that relief ought to ne granted, it may by an order, remove the directors in question.

MANAGING DIRECTOR

Managing Director

The directors of the company do not attend the office of the company everyday and hence they appoint a person amongst the directors for the purpose of carrying out their policy decisions taken at the board meetings. This person is called as Managing Director or Whole-time Director of a company. In other words, the director who will devote his whole time to the affairs of a company, who takes the responsibility of managing day-to-day business activities of a company, on behalf of the Board of Directors, he may be called a Managing Director.

Definitions:
The

Companies Act, has defined a managing director in sec 2(26) as A director who by a company in the general meeting or by its Board of Directors or by virtue of its memorandum or articles of association is entrusted with substantial powers of management which should not otherwise be exercisable by him & includes a director occupying the position of a director, by whatever name called Managing Director.

The MD must be an individual He is one of the members of BOD He exercises his powers and supervision, control and direction of the BOD of a company. In companies act 1988, it is made compulsory that every public company having share capital or such sum of 5 crores, must have a managing director or a whole-time director or a manager.

Qualification

The qualification prescribed for MD is same as it is prescribed for the directors, i.e., qualification shares.

Appointment of MD

By an agreement with a company By the resolution passed at the general meeting By the Board of Directors Under the MOA or AOA

In practice, it is usual for the BOD to be given the powers by the AOA to appoint one of themselves as MD.

Restriction on Appointment of MD

The approval of Central Govt. is required for appointment or re-appointment of MD A person cannot be appointed as MD for a term exceeding 5 years at a time. A person cannot be appointed as MD of more than 2 public companies at a time. The remuneration of MD may be paid by the way of monthly payment or at a specified percentage of the net profit of the company.

The Central Govt. approval is required for any increase directly or indirectly in the remuneration payable to the MD If a company has a managing director then it cannot have a manager. The rule regarding the retirement of directors by rotation is not applicable to the MD.

Term of office & Number of Managing Directorship:

The term of office of the MD cannot exceed 5 years at a time, but he can be reappointed as such for a further period of 5 years.

Number of Managing Directorship:

A managing director cannot act as such for more than 2 companied at the same time.

Remuneration to MD

A MD May be paid remuneration either by monthly payment or by the specified percentage of net profit of the company The company can also pay him partly in one way and partly in the other. Such remuneration cannot exceed 5 % of net profit for one such director If the company has more than one such director, the total remuneration payable to them together shouldnt exceed 10% of net profit MD shall not be paid the sitting fees for attending meetings of the BOD or of committees. The MD is not entitled to receive any remuneration or commission from any subsidiary of the managed company.

Dis-qualification of MS

A person who is an undischarged insolvent or who has at any time been adjudged insolvent Who suspends or has at any time suspended payment to his creditors Who is or has at any time been convicted by a court of an offence involving moral turpitude.

Powers of MD

To act as a link between the Board of Directors and the managerial staff. To look after the management and the administration of a company. To appoint the company employees To make appointment of senior executives To sign contracts on behalf of a company To decide about the investment of funds of a company To receive remuneration from a company.

Duties of MD

To act on behalf of the BOD To implement decisions of Board. To supervise, direct, control and guide the day-today affairs of the business. To assist the board of directors while taking decision, framing policies, determination of plans etc. To report the board meetings and general meetings, if necessary. To manage routine work of a company.

Distinction between Director & MD

Director

Managing Director

Director responsible for framing the policy Director do not take part in day-to-day affairs of the company Directors are appointed by shareholders of the Co. at the general meeting

MD responsible for implementing the policies MD take part in daily management of the company MD is appointed by the directors at Board Meeting

The maximum number of companies for which a person can act as director at a time is 15 Appointment of director is compulsory for all companies Director is appointed for the period of 1-3 years Directors cannot exercise their powers individually but collectively.

It is 2 companies only Whereas MD is not compulsory to be appointed by all companies. MD is appointed for the period not exceeding 5 years MD can act individually when provided special powers.

Directors are subject to retirement by rotation Directors are considered as an agent of shareholders The directors do not any office of profit but only receive a honorarium for attending the

MD is exempted from this provision MD is considered as an agent of Board of Directors. The MD holds a regular office of profit and receive a regular salary.

COMPANY SECRETARY

Introduction

The word secretary is derived from the Latin word Secretarius meaning confidential officers.

Companies act 1988 defines a Secretary as any other individual possessing the prescribed qualifications, and appointed to perform the duties which may be performed by a secretary under this act and any other ministerial or administrative duties.

Salient features of definition of CS:

An individual alone can be appointed as secretary of a company and not a firm or body corporate. The Company Secretary should possess the requisite qualifications prescribed by the Central Govt. i.e., a person should possess the membership of the Institute of Company Secretaries of India The duties of a Secretary are ministerial and administrative. A company can entrust a secretary with limited executive powers apart from routine duties.

Appointment of Secretary

The promoters of the company generally first appoints a secretary who assist them in the formation of the company by attending to all preliminary work. Such as preparation of various documents & statements required for registration of the company, arranging the meetings of the promoters, preparation of minutes, etc. He is often referred to as Protem Secretary (i.e., secretary for time being) and his name may be included in the article of the company.

The Board of Directors has the power to appoint a regular secretary by passing a resolution in its meeting. The first secretary appointed by the promoters may or may not be appointed as regular secretary by board.

The Board of Directors has the power to appoint a regular secretary by passing a resolution in its meeting. The first secretary appointed by the promoters may or may not be appointed as regular secretary by board.

Procedure to appoint a company secretary

A resolution has to be passed at the board of directors meeting, appointing a secretary on certain terms & conditions. The particulars of appointment must be filed with the Registrar within 30 days of the appointment. If the person appointed as secretary in any other company, he has to notify the other company within 20 days of his appointment. Any director interested in the appointment of secretary must disclose his intent and must not take part in the discussion or voting on the resolution. If the person appointed as a secretary is a director or a relative of director then a special resolution has to be passed at general body meeting for such an appointment.

Duties of Company Secretary

Statutory duties Duties in relation to directors Duties in relation to shareholders Duties towards organisation and office Duties in relation to the public Duties before incorporation Duties after incorporation

Statutory Duties

Maintenance of books and registers of the company Filing of the necessary returns with the Registrar of Companies Supervising the issue, allotment, transfer and forfeiture of shares and debentures Attending to meetings and recording their proceedings. Allowing inspection of books and documents when required by the statue Safe custody and proper use of the common seal of the company.

Duties in Relation to Directors

The secretary is the confidential clerk of the board. He has to look after the correspondence with the directors Convene board meeting under the direction of the MD, preparing minutes Execute the orders and instructions of the board. Advise the directors during the deliberations at the meeting regarding the provision of various Acts. He acts as guide to the board of Director. Secretary interprets the board policies. He communicates board decisions to the staff & shareholders

Duties of Relation to Shareholders

The secretary is a medium of communication between the company and shareholders.

Application

and allotment of shares. Calls on shares Forfeiture of shares Transfer and transmission of shares. Distribution of divided Notices and circulars to members Meetings of shareholders Inquiries and complaints from shareholders.

Duties towards Organisation & Office

The secretary is known as the head of the office of the company. He has to control over the departments such as shares, records, filing accounts & statistics He has to ensure that the office works with maximum efficiency He has to supervise various activities of office & coordinate the activities of the different departments. He has the overall duty to select, organise and guide personnel. He should pay attention to the terms and conditions of their service & also maintain personal contact with individual members of the staff.

Duties in Relation to the Public

He has to function as a medium of communication between the directors and the general public consisting of debenture holders, bankers, solicitors, creditors & prospective investors. He should ensure that no confidential information is divulged to the public

Duties before incorporation

He has to attend the preliminary meetings of the promoters Prepare minutes of the proceedings Guide promoters regarding the provision of companies act relating to the incorporation. Help them in preparation of various documents such as Prospectus, MOA, AOA & should arrange for their filing.

Duties after incorporation

He has to arrange for the first Board meeting & get the necessary resolution passed & Get necessary resolutions passed. He should take necessary steps in getting certificate of business commencement He should prepare for statutory report and arrange for the statutory meeting after getting the CBC He has to look after the allotment, application, & calls on shares & debentures.