Power of Directors and its Liabilities

This presentation describes the powers and liabilities of board of directors.

1. BOARD OF DIRECTORS: POWERS AND LIABILITIES PRESENTED BY: Shivam Nagpal (19DM198) Shubhali Singh (19DM208) Sonal Jain (19DM218) Thokchom Sana Ahingba (19DM228) Anuvesh Sachdeva (19250) Rudraksh Jaidka (19DM239)

2. BOARD OF DIRECTORS A company, though a legal entity in the eyes of law, is an artificial person, existing only in contemplation of law. It has no physical existence. It has neither soul nor body of its own. As such, it cannot act in its own person. It can do so only through some human agency. The persons who are in charge of the management of the activities of a company are called directors. They are collectively known as Board of Directors or the Board.

3.  Every company shall have a Board of Directors consisting of individuals as directors and shall have— ( a ) a minimum number of three directors in the case of a public company, two directors in the case of a private company, and one director in the case of a One Person Company. ( b ) a maximum of fifteen directors:             -  Provided that a company may appoint more than fifteen            directors after passing a special resolution The following class of companies are required to appoint at least One Woman Director-  ( i ) every listed company;  (ii) every other public company having –      (a) paid–up share capital of 100 crore rupees or more; or   (b) turnover of 300 crore rupees or more.

4. BOARD MEETINGS The meetings can be conveniently organized through audio-visual means of telecommunications such as video conferencing. The following are essential features of board meetings: First board meeting in 30 days Four board meetings every year by each company Gap between two meetings should not exceed 120 days Minimum 7 days notice 1/3 rd  of total strength or 2 directors whichever is higher should be present for meeting.

5. TYPES OF DIRECTORS Residential Director- Every company should appoint a director who has stayed in India for a total Period of not less than 182 days in the previous calendar year. Independent Director -According to Section 149(6) an independent director is an alternate director other than a Managing Director which is known as Whole Time Director Or Nominee Director. the following type of companies which have to appoint minimum 2 independent directors:- I} Public Companies which have Paid-up Share Capital-Rs.10    Crores or More II} Public Companies which have Turnover- Rs.100 Crores or  More III} Public Companies which have total outstanding loans, debenture, and deposits of Rs. 50 Crores or More.  Small Shareholders Directors : – Small shareholders can appoint a single director in a listed company. But this action needs a proper procedure like handing over a notice to at least 1000 Shareholders or 1/10th of the total shareholders.

6. RELATED PARTIES A related party, with reference to a company means: Director or his/her relative; Key managerial personnel or his/her relative; A firm, in which a Director, Manager or his/her relative is a Partner; Private limited company in which a Director or Manager or his/her relative is a member or Director. Public limited company in which a Director or Manager is a Director and holds along with his/her relatives, more than 2% of its paid-up share capital;

7. Related parties (cont.) Any company which is a holding, subsidiary or an associate company of such company Any company which is a subsidiary of a holding company to which it is also a subsidiary. SO, are Related Parties Transactions banned? The answer is NO, they aren’t banned as long as they are done on ARM’s Length Basis. Section 188 of Companies Act provides the conditions which must be followed.

8. FAMOUS INDIGO CASE Rahul Bhatia owns 38% of Inter Globe Aviation where as Rakesh Gangwal was having 37% of shares of the company which operates Indigo. In July, Gangwal wrote a letter  explaining concerns over RPT’s between IGE and IndiGo. Gangwal stated that these RPT’s are being carried out because his partner Rahul has usual Right over Indigo because of the share holder agreement between them. This controlling rights gave IGE group significant influence over IndiGo’s decision. Gangwal wanted SEBI to intervene and look if the laws around the RPT’s are being implemented or not . Mr. Bhatia on the other hand in reply cleared that presently RTP’s are happening only in 4 areas: 1)Simulator Training Facilities 2)Real Estate 3) General Sales Agreement  4)Crew Accommodation

9. POWERS OF DIRECTORS Statutory Powers of Directors- : Power to authorize new shares. Power to approve the financial statement and board’s report. Power to diversify the business of the company. Power to approve amalgamation, merger or reconstruction. Power to take over other company and substantial stake in other company.

10. Other Powers Power to fill casual vacancy. Power to appoint the first auditor of the company. Power to appoint additional directors. Power to declare interim dividend. Power to appoint or remove Key Managerial personnel (KMP) Power to declare solvency, where the company winds up voluntarily. Power to recommend the rate of dividend on the shares of the company.

11. Powers by resolution- : To sell or lease any asset of the company. To issue bonus shares. To appoint a sole selling agent To borrow money in excess of paid up capital and free reserves.

12. Managerial Powers of Directors- : Power to contract with the third party. Power to recommend dividend. Power to forfeit shares of the company Power to form policy and to issue instructions for the business. Power to appoint Managing Director, Manager, Secretary of the company. Power of control and supervision of work of subordinates.

13. LIABILITIES OF THE DIRECTORS Liabilities Against Company- : The directors will have to make good for any loss done to company on account of- An ultra vires act Breach of trust Negligence Mala fide acts

14. Liability towards Third Parties- : The directors will be personally liable towards third parties for- Any mis-statement in the prospectus for acting fraudulently Failure to repay application money on non receipt of minimum subscription Acting in their own name without mentioning the name of the company Any liability occurring at the time of winding up Acting beyond the powers of the company

15. Criminal liabilities of Directors- : It states that the company will be liable with a fine and imprisonment or both. Reasons are-:  Issue of Prospectus with untrue or misleading statements Filing of annual return by the company before RoC Maintenance of proper books of account by the company No advancement of loan to a director by the company Penalty for providing false evidence to authorities Penalty for providing false statement or omission of fact