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Difference between section 255 and 256 of the companies act

Dintakurthi Tirumala (CA FINAL) (15989 Points)

23 August 2011

Can anybody explain the difference between section 255 & 256 of the companies act. I am very confisuing with these sections and i could not get clarity and not understanding of these.

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kartheekkangati (Company Secretary) (40 Points)
Replied 23 August 2011

section255: Directors of a private company may be appointed by a single resolution, but it it not so in case of public company where each director is to be appointed by a seperae resolution..

section 256: Directors of a private company are not required to retire by rotaion, but in case of public company at least 2/3rd of the directors must retire by rotation at each general meeting.

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Rajagopalakrishnan R (PARTNER) (1417 Points)
Replied 23 August 2011

I can understand your confusion. I had the same problem 24 years back when i was a student.

1. Section 255 and 256 are applicable only to public companies ( and Private Cos which are susidiaries of Public companies) One small limb of 255 is applicable for all companies

2. Section 255 lays down that out of the total strength of the Board of Directors at least 2/3rds shall be directors who are liable to retire by rotation. I.e If there are 12 directors as per articles of association, at least 8 of them must be liable to retire by rotation. 4 directors can be permanent or life time directors if the company wants so. The section goes on to provide that all directors i.e those liable to retire by rotation and permanent directors - and also directors of Private Cos ( not being subsidiaries ) shall normally be appointed only in the general meeting. Exemptions are private companies may appoint directors in their Articles Of Assn.

3. Section 256 lays down the manner in which the retirement by rotation is to be implemented as follows

a. 1/3rd the total directors liable to retire by rotation shall retire ever year. ( This is the confusing part. ) note not 1/3rd of all directors but 1/3rd of directors liable to retire by rotation as per section 255. This 1/3rd shall be determined by identifying first the number required to retire (rounded to nearst number) and then identifying who are the longest serving in office. Equal length of service to be resolved by draw of lots. Eg. if the number of directors liable to retire at this years AGM is 3 and 4 directors are serving from same date, then one shall be eliminated by draw of lots. Obviously next year he would be the oldest serving director and automatically be liable for retirement by rotation

Hope this clears up ur mind on 255/256

b. rest of 256 is only procedural and describes step by step the way in which a retiring director may be reappointed

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