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LAB/U3 Topic 5 Companies Directors: Appointment, Power

Appointment

SECTION 152 OF THE COMPANIES ACT, 2013 – APPOINTMENT OF DIRECTOR

An individual who is appointed or elected as the member of the board of Directors of a Company, who, along with the other directors, has the responsibility for determining and implementing the policies of the company.

Director is an individual who directs, manages, oversees or controls the affairs of the Company.

A director is a person who is appointed to perform the duties and functions of a company in accordance with the provisions of The Company Act, 2013.

As per Section 149(1): Every Company shall have a Board of Directors consisting of Individuals as director.

They play a very important role in managing the business and other affairs of Company. Appointment of Directors is very crucial for the growth and management of Company.

APPOINTMENT OF DIRECTORS UNDER COMPANIES ACT 2013: 

TYPE OF COMPANY APPOINTMENT MADE
Public Company or a Private Company subsidiary of a public company 1. 2/3 of the total Directors appointed by the shareholders.

 

2.Remaining 1/3 appointment is made as per Articles and failing which, shareholders shall appoint the remaining.

Private Company which is not a subsidiary of a public company 1. Articles prescribe manner of appointment of any or all the Directors.

 

2. In case, Articles are silent, Directors must be appointed by the shareholders

 *Nominee Directors can be appointed by a third party or by the Central Government in the case of oppression or mismanagement.

REQUIREMENT OF A COMPANY TO HAVE BOARD OF DIRECTORS: 

Private Limited Company Minimum Two Directors
Public Limited Company Minimum Three Directors
one person Company Minimum One Director

 * A company may appoint more than (15) fifteen Directors after passing a special resolution.

*Further, every Company should have one Resident Director (i.e. a person who has lived at least 182 days in India during the financial year)

Director’s appointment is covered under section 152 of Companies Act, 2013, along with Rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014.

QUALIFICATIONS FOR DIRECTORS:

According to The Companies Act no qualifications for being the Director of any company is prescribed. The Companies Act does, however, limit the specified share qualification of Directors which can be prescribed by a public company or a private company that is a subsidiary of a public company, to be five thousand rupees (Rs. 5,000/-).

New Categories of Director

 Resident Director:

 This is one of the most important changes made in the new regime, particularly in respect of the appointment of Directors under section 149 of the Companies Act, 2013. It states that every Company should have at least one resident Director i.e. a person who has stayed in India for not less than 182 days in the previous calendar year.

Woman Director

Now the legislature has made mandatory for certain class of the company to appoint women as director. As per section 149, prescribes for the certain class of the company their women strength in the board should not be less than 1/3. Such companies either listed company and any public company having-

  1. Paid up capital of Rs. 100 cr. or more, or
  2. Turnover of Rs. 300 cr. or more.

Foreign National as a Director under Companies Act, 2013

Under Indian Companies Act, 2013, there is no restriction to appoint a foreign national as a director in Indian Companies along with six types of Directors which are appointed in a company, i.e., Women Director, Independent Director, Small Shareholders Director, Additional Director, Alternative and Nominee Director. By complying with the Companies Act, 2013 (hereinafter referred as “The Act”) read along with the Companies (Appointment and Qualifications of Directors) Rules, 2014 (hereinafter referred as “The Rules”)

Restrictions on number of Directorships

The Companies Act prevents a Director from being a Director, at the same time, in more than fifteen (15) companies. For the purposes of establishing this maximum number of companies in which a person can be a Director, the following companies are excluded:

A “pure” private company;

An association not carrying on its business for profit, or one that prohibits the payment of any dividends; and

A company in which he or she is only appointed as an Alternate Director.

Failure of the Director to comply with these regulations will result in a fine of fifty thousand rupees (Rs. 50,000/-) for every company that he or she is a Director of, after the first fifteen (15) so determined.

Power

The directors are considered as the head and brain of a company. When the brain functions, the company is said to function. For the proper functioning, the directors should be properly entrusted with some powers. The directors generally acquire their powers from the provisions of the Articles of Association and then from the Companies Act.

  1. General Powers of a Company Director

As per Sec. 291 of the Act, the Board is entitled to exercise all such powers and to do all such acts and things as the company is authorized to do. The exceptions are the acts, which can be done by the company only in the general meetings of the members as required by law.

Specific Powers of a Company Director

A) As per Sec. 262, in the case of a public company or a private company, which is a subsidiary of a public company, the power to fill a casual vacancy of directors is to be exercised at a Board meeting.

B) As per Sec. 292, the following powers of the company shall be exercised by the Board by means of resolution passed at the meeting of the Board:

  • To make calls,
  • To issue debentures,
  • To borrow moneys by other means,
  • To invest the funds of the company, and
  • To make loans.

The last three powers cannot be delegated to the Manager or to a Committee of Directors but must be exercised only at a Board meeting.

  1. Powers of Director subject to the Consent of the Company

The directors of a public company or of a private company can exercise the following powers, which is a subsidiary of a public company only with the consent of the company in the general meeting:

  • To sell, lease or otherwise dispose of the undertaking of the company.
  • To remit or give time for repayment of any debt due to the company by a director.
  • To invest the sale proceeds of any property of the company in securities other than trust securities.
  • To borrow moneys where the moneys already borrowed (other than temporary) exceeds the total of the paid-up capital and free reserves of the company.
  • To contribute to charities and other funds not directly relating to the business of the company or to the welfare of the employees in any year in excess of Rs.50,000 or 5% of the average net profits of the three preceding financial years whichever is greater.
  1. Powers of Director subject to the Consent of the Central Government

A) As per Sec. 268, any provision relating to the appointment or reappointment of a Managing Director can be altered by the Board with the consent of the Central Government.

B) As per Sec. 295, the Board, subject to the Central Government’s consent, has the power to appoint a person for the first time as a Managing Director.

C) As per Sec. 295, the Board, only with the previous approval of the Central Government, can make any loan or give any guarantee or provide any security in connection with a loan made by any other person to:

  • Any of its directors or any director of its holding company, or
  • Any partner or relative of such director, or
  • Any firm in which any such director or relative is a partner, or
  • Any private company of which any such director is a member or director, or
  • Anybody corporate, 25% or more of whose total voting power may be exercised or controlled by any such director or two or more directors together, or
  • Anybody corporate, whose Board or Managing director or Manager is accustomed to act in accordance with the directions or instructions of any director or directors of the leading company.

Subject to the approval of the Government, the Board has the power to invest in the shares of another company in excess of the limits specified in Sec. 372.

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