A corporation is a legal entity without a physical existence. It relies on human directors to make decisions since it lacks a mind of its own. Directors, appointed to the company's board, use their knowledge and judgment to effectively make decisions for the corporation. Under the Companies Act, 2013, directors play a crucial role in the governance and management of a company. Here's a brief overview of their position, appointment, and powers:
Position of Directors
Agents of the Company
- Directors are appointed by shareholders to manage the company, acting as its agents.
- Decisions made by directors on behalf of the company render the company liable, not the directors personally.
Fiduciary Role as Trustees
- Directors are considered as trustees, but not in the legal sense of traditional trusteeship.
- They have a fiduciary duty towards the company, managing its assets for the benefit of shareholders.
Not Considered as Partners
- Directors are distinct from partners under the Partnership Act.
- Unlike partners, a director's liability is limited to their ownership of shares in the company.
Limited Liability as Shareholders
- Directors often hold shares in the company, but their liability is limited to their share ownership.
- Their actions are not binding on other directors as in a partnership.
Possible Employee Status
- Directors can also be employees if they work under a contract of service and receive remuneration.
Organs of the Company
- Judicial decisions consider directors as the "organs" of the company.
- The company is held liable for directors' actions, similar to how a person is responsible for the actions.
- Independent directors are also considered agents, trustees, partners, and organs of the company.
Appointment of Directors
Every company is mandated to have a Board of Directors.
- Directors must be individuals, not artificial persons.
- Public Company: Must have a minimum of 3 directors.
- Private Company: Must have a minimum of 2 directors.
- One Person Company: Requires a minimum of 1 director.
- A company can have a maximum of 15 directors by default.
- A company can appoint more than 15 directors only through a special resolution.
The process of Appointment of Directors are
Board Meeting Notice
- Conduct a board meeting, providing notice to all directors.
Decision on Managing Director
- Decide on the person for the role, considering Nomination and Remuneration Committee recommendations if applicable.
- Ensure the person is not disqualified for the appointment.
Approval of Agreement
- Approve the draft agreement between the company and the proposed managing director.
General Meeting Arrangements
- Fix the date, time, and venue for a general meeting.
- Approve the notice and explanatory statement for the general meeting.
Authorization and Filing
- Authorize the company secretary to issue the general meeting notice.
- File the board resolution (Form MGT-14) with the Registrar of Companies (ROC) within 30 days.
Listed Company Disclosures
- For listed companies, disclose the appointment to the stock exchange within 24 hours.
- Post the information on the company's website within two working days.
General Meeting Approval
- Hold a general meeting and secure shareholders' approval through a resolution.
Post-Meeting Disclosures
- For listed companies, disclose general meeting proceedings to the stock exchange within 24 hours.
- Post the information on the company's website within two working days.
Approval of Central Government (if necessary)
- If the appointment doesn't align with Schedule V, seek Central Government approval via Section 201 application.
Filing Forms with ROC
- File Form MGT-14 within 30 days of general meeting resolution.
- File Form DIR-12 for managing director particulars within 30 days of appointment.
- File Form MR-1 for managing director appointment return within 60 days of appointment.
Registers and Records
- Update director and key managerial personnel registers.
- Update the register of contracts in which directors are interested using Form MBP-4.
Qualifications of Directors
Under the Companies Act of 2013, there are no specific educational or professional qualifications mandated for directors of a company. The Act also does not enforce any compulsory qualifications for directors. In the absence of specific provisions in a company's articles of association, directors are not obligated to hold shares in the company unless voluntarily chosen. While the Act does not impose strict requirements, a company's articles may outline certain eligibility criteria, often in the form of a minor percentage of shareholding, for individuals to serve as directors.
Powers and Authority of Directors
- Call for Unpaid Money on Shares: Board has the authority to make calls for unpaid money on shares.
- Suo Moto Meetings: Can convene meetings on their own initiative.
- Issuance of Securities: Empowered to issue shares, debentures, or other financial instruments.
- Borrowing and Investments: Authorized to borrow and invest funds for the company.
- Approval of Financial Statements: Approves financial statements and the Board report.
- Bonus Approval: Holds the power to approve bonuses for employees.
- Declaration of Dividends: Decides on the declaration of dividends.
- Loan Powers: Has the authority to grant loans or provide guarantees for loans.
- Buy Back Authorization: Authorizes the buyback of securities.
- Approval of Mergers/Takeovers: Approves amalgamation, merger, or takeover of the company.
- Business Diversification: Holds the power to diversify the business operations of the company.
CAclubindia
