COMPANY LAW –II

ANUPAM KISHORE SINHA

LEGAL ASPECTS OF BUSINESS

 DEFINITION OF CONTROL

Section 2(27) of the Act defines control. Includes the right:

1. To appoint majority of directors; or
2. To control the management or policy decisions exercisable by a person or
persons, individually or collectively, including by virtue of their
shareholding or management rights or shareholders agreements or voting
agreements or in any other manner.
 DEMOCRACY IN A COMPANY

1. A group of individuals is elected by the general body of shareholders of a

company to take decisions on the shareholders’ behalf. The group is known as
Board of Directors;
2. The head of this group of elected members is given a special position known as
“Chairperson” / “Chairman” and the remaining ones are known as Directors.
3. From their election until their vacation from their position, they are governed by
the rules stated in the AoA.
4. The Board is the Head of the Company. It decides all the activities of the
company and they bear primary responsibility for their actions before the law.
The Board appoints all the officers of the company – CEO, COO, CFO.
 BOARD OF DIRECTORS

1. Section 2(10) – BoD – collective body of the directors of the company.

2. Section 149 – Every company shall have a BoD consisting of individuals
as directors.
3. 15 < Directors > 3 – Public Company
4. Private Company – at least two
5. One person company – at least one.
 BOARD OF DIRECTORS

• Directors act as agents of the company;

• Take decisions in all matters of administration and management of the
company;
• Conduct board meetings;
• Constitution of committee such as audit, finance and personnel; &
• Conduct Annual General Meeting (AGM) of shareholders.
 BOARD MEETINGS

• First board meeting within 30 days;

• Four board meetings every year by each company
• Gap between two meetings – not more than 120 days;
• Board meeting through video-conferencing, audio visual or physical means
• Minimum 7 days’ notice
• Quorom –2 or 1/3rd whichever is more
 POWERS OF BOARD

1. All resolutions to be taken at Board Meetings;

2. Approval of Financial Statements and Board Report
3. Issue of shares and debentures for raising of capital
4. Decision to commence a new business
5. Appoint internal auditors
6. Appointment / Removal of Key Managerial Personnel (KMP)
7. To sell investments held by the company constituting more than 5% of share
capital
8. To accept public deposits and related matters.
 DISCLOSURES BY THE BOARD

• Annual Returns – As per Section 92, companies are required to prepare an

annual return containing the particulars of the entire financial year relating
to all the business activities, particulars of holdings, subsidiaries and
associate companies and also details of promoters, directors, key
management personnel;
• Report to shareholders – Section 134(3) contains number of meetings of the
Board, particulars of loans, guarantees of investments, the state of
company’s affairs, particulars of contracts / arrangements with related
parties.
 DIRECTOR

• As per Section 2(34), “Director” means a director appointed to the Board of

a Company;
• Section 152(1) – If no provision is made in the AoA, the subscriber to the
MoA would be the first directors of the company until the directors are duly
appointed. In case of one person company, an individual being member
shall be deemed to be its first director until the directors are duly appointed.
• Subject to the provisions of this Act, a director of a company shall act in
accordance with the articles of the company.
 DUTIES OF A DIRECTOR

• Section 166 inter alia lays down the duties:

• To act in good faith to promote the objects of the company;
• To act diligently and to exercise the objects of the company;
• Not to involve in any conflict of interest with the company;
• Not to gain undue for oneself or for one’s relatives or partners or associates
Any violation of the above attracts a penal procedure and is punishable with
fine not less than Rs. 1 Lakh up to Rs. 5 Lakhs
 DISQUALIFICATION OF A DIRECTOR

1. He is of unsound mind and stands so declared by a competent court;

2. Undischarged insolvent;
3. Has applied to be adjudicated as insolvent and the application is pending;
4. Has been convicted by a court of any offence, and sentenced to an
imprisonment > 6 months
 KINDS OF DIRECTORS

1. Managing Director – A director, who by virtue of AoA or otherwise, is

entrusted with the substantial powers of management of the affairs of the
company;
2. Full Time Director – A director who is in the full-time employment of the
company;
3. Nominee Director – The Board may appoint any person as a director
nominated by any institution
4. Independent Director – An independent director means a director other
than a MD, FTD or a nominee director. Every listed company shall have
at least one-third of the total no. of directors as independent directors.
 KEY MANAGERIAL PERSONNEL

1. KMP means:-
1. CEO or MD or the Manager
2. Company Secretary
3. The whole-time or full time director
4. CFO
5. Such other officer as may be prescribed
Listed company and public company having paid-up share capital of Rs. 10 crore or
more are mandated to have KMPs
Manager means an individual who, subject to the superintendence, control and
direction of BoD, has the management of the whole of the affairs of a company an
dincludes a director or any other person occupying the position of a manager,
whether under a contract of service of not.
 OFFICER WHO IS IN DEFAULT

1. Officer who is in default means any of the following persons:-

1. KMP
2. The whole-time or full time director
3. Where there is no KMP, such director or directors as specified by the Board
4. Every director who is aware of a violation by virtue of receipt of any proceedings or
participation without objecting to same or where the violation has taken place with
his consent or connivance.
 INDEPENDENT DIRECTOR

• Liability – A non executive director, not being promoter or KMP shall be

held liable only in respect of such acts of omissions and commissions by a
company which had occurred with his knowledge, attributable through
Board processes and with his consent or connivance or where he had not
acted diligently.
• Disclosure of independence
• Not entitled to any stock option and may receive remuneration by way of
fee
• Term of Office – five consecutive years
 LISTING AGREEMENT

• Listing Agreement is the basic document which is executed between companies

and the Stock Exchange when companies are listed on the stock exchange.
• The main purposes of the listing agreement are to ensure that companies are
following practices of sound corporate governance.
• The Listing Agreement comprises of 54 clauses stating corporate governance,
which listed companies have to follow, failing which companies have to face
disciplinary actions, suspension, and delisting of securities.
• The companies also have to make certain disclosures and act as per the clauses of
the agreement.
•
 QUESTIONS / DISCUSSION

QUESTIONS / DISCUSSION

QUESTIONS / DISCUSSION