1) Meaning of 'Director' Section 2(13) of the Companies Act, 1956 defined a term director and states that 'director' includes any person occupying the position of director, by whatever name called. In the ordinary sense a director is someone who administers, controls or directs something, especially a member of a commercial company; one who supervises, controls or manages; a person elected by the shareholders of a company to direct company's policies; person appointed or elected according to law, authorised to manage and direct the affairs of a company. TYPES OF DIRECTORS Ordinary Directors Ordinary directors are also referred to as simple directors who attends Board meeting of a company and participate in the matters put before the Board. These directors are neither whole time directors nor managing directors. Managing Director Managing Director is a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of directors or, by virtue of its Memorandum or Articles of Association, is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called. Whole-time/Executive Directors Whole-time Director or Executive Director includes a director in the whole-time employment of the company. Additional Directors Additional Directors are appointed by the Board between the two annual general meetings subject to the provisions of the Articles of Association of a company. Additional directors shall hold office only up to the date of the next annual general meeting of the company. Number of the directors and additional directors together shall not exceed the maximum strength fixed for the Board by the Articles. Alternate Director An Alternate Director is a person appointed by the Board if so authorised by the Articles or by a resolution passed by the company in the general meeting to act for a director called "the original director" during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held. Generally, the alternate directors are appointed for a person who is Non-resident Indian or for foreign collaborators of a company. Professional Directors Any director possessing professional qualifications and do not have any pecuniary interest in the company are called as "Professional Directors". In big size companies, sometimes the Board appoints professionals of different fields as directors to utilise their expertise in the management of the company. Nominee Directors The banks and financial institutions which grant financial assistance to a company generally impose a condition as to appointment of their representative on the Board of the concerned company. These nominated persons are called as nominee directors. Independent Directors Independent director as per Clause 49 of the Listing agreement shall mean non-executive director of the company who— (a) apart from receiving director's remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior
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management or its holding company, its subsidiaries and associates which may affect the independence of the director; (b) is not related to promoters or persons occupying management positions at the Board level or at one level below the Board; (c) has not been an executive of the company in the immediately preceding three financial years; (d) is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following:— (i) the statutory audit firm or the internal audit firm that is associated with the company; (ii) the legal firm(s) and consulting firm(s) that have a material association with the company. (e) is not a material supplier, service provider or customer or a lessor or lessee of the company which may effect the independence of the director; and (f) is not a substantial shareholder of the company, i.e. owning two percent or more of the block of voting shares. 2) The two types of resolutions are: Ordinary Resolution Special resolution Ordinary Resolutions: A resolution that is not extraordinary, special or an elective resolution, like approval of accounts, which require only simple or ordinary majority to be passed, may or may not be required any notice of their proposal. Few particulars which require passing of ordinary resolution at the Annual General Meeting or Extra-Ordinary General Meeting are as below: Appointment of Statutory Auditors and fixing their remuneration u/s 224(1) Alteration of Share capital of the company u/s 94 Appointment of Additional Directors u/s 260 Appointment of Managerial Personnel and fixing their remuneration u/s 269 and SCH XIII Consideration of accounts, balance sheets and reports of Board of Directors and auditors u/s 210 and u/s 215 Declaration of Dividend u/s 205 Appointment of Directors in place of those retiring Special Resolutions: Any extraordinary resolution in relation to an important decision, such as for altering the terms of memorandum or articles of association, or making some other key or fundamental changes in the company. In other words, it shall be a special resolutions when: The intention to propose the resolution as a special resolutions has been duly specified in the notice calling the general meeting or other intimation given to the members of the resolutions, The notice required under this Act has been duly given of the general meeting, The votes cast in favour of the resolutions (whether on a show of hands ,or on a poll, as the case may be) by the members who are being entitled to do so, Vote in person, or by proxy (where proxies are allowed) are not less than three times (i.e., 75%) the number of votes against the resolutions by members so entitled and voting. Few particulars which require passing of special resolutions at the Extra-Ordinary General Meeting are as below: Shifting of Registered office from one state to another state u/s 17 Alteration of Articles of Association u/s 31 Increase in Authorized Share Capital and consequently alteration of Articles of Association u/s 94 2
Purchase of company’s Own shares or Specifies securities u/s 77A(2)
3) Types of Share Capital A company, being an artificial person, cannot generate its own capital which has necessarily to be collected from several persons. These persons are known as shareholders and the amount contributed by them is called share capital. Since the number of shareholders is very very large, a separate capital account cannot be opened for each one of them. Hence, innumerable streams of capital contribution merge their identities in a common capital account called as ‘Share Capital Account’. From accounting point of view the share capital of the company can be classified as follows: Authorized Capital: Authorised capital is the amount of share capital which a company is authorised to issue by its Memorandum of Association. The company cannot raise more than the amount of capital as specified in the Memorandum of Association. It is also called Nominal or Registered capital. The authorised capital can be increased or decreased as per the procedure laid down in the Companies Act. It should be noted that the company need not issue the entire authorised capital for public subscription at a time. Depending upon its requirement, it may issue share capital but in any case, it should not be more than the amount of authorised capital. Issued Capital: It is that part of the authorised capital which is actually issued to the public for subscription including the shares allotted to vendors and the signatories to the company’s memorandum. The authorised capital which is not offered for public subscription is known as ‘unissued capital’. Unissued capital may be offered for public subscription at a later date. Subscribed Capital: It is that part of the issued capital which has been actually subscribed by the public. When the shares offered for public subscription are subscribed fully by the public the issued capital and subscribed capital would be the same. It may be noted that ultimately, the subscribed capital and issued capital are the same because if the number of share, subscribed is less than what is offered, the company allot only the number of shares for which subscription has been received. In case it is higher than what is offered, the allotment will be equal to the offer. In other words, the fact of over subscription is not reflected in the books. Called-up Capital: It is that part of the subscribed capital which has been called up on the shares. The company may decide to call the entire amount or part of the face value of the shares. For example, if the face value (also called nominal value) of a share allotted is Rs. 10 and the company has called up only Rs. 7 per share, in that scenario, the called up capital is Rs. 7 per share. The remaining Rs. 3 may be collected from its shareholders as and when needed. Paid-up Capital: It is that portion of the called up capital which has been actually received from the shareholders. When the share holders have paid all the call amount, the called-up capital is the same to the paid-up capital. If any of the shareholders has not paid amount on calls, such an amount may be called as ‘calls in arrears’. Therefore, paid-up capital is equal to the called-up capital minus call-in- arrears. Uncalled Capital: That portion of the subscribed capital which has not yet been called-up. As stated earlier, the company may collect this amount any time when it needs further funds. Reserve Capital: A company may reserve a portion of its uncalled capital to be called only in the event of winding up of the company. Such uncalled amount is called ‘Reserve Capital’ of the company. It is available only for the creditors on winding up of the company.
4) PROXY
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Section 176 of the Companies Act, 1956 deals with the provisions related to proxy. According to section 176 any member of company, entitled to attend and vote at a meeting of the company, shall be entitled to appoint any person (whether a member or not) as his/her proxy to attend and vote instead of himself at a General Meeting (GM). Member's right to appoint proxy As desired by Section 176(2) there shall appear a statement with the notice of meeting with reasonable prominence that a member entitled to attend and vote at the meeting can appoint a proxy, to attend and vote in the meeting on his/her behalf. Persons entitled to appoint proxy for the GM Following persons are allowed to appoint proxy to attend and vote at the general meetings on their behalf:— 1. Members of a company having a share capital. 2. Members of a company not having a share capital, if authorise by Articles. 3. Representatives of body corporate appointed under section 187 of the Companies Act, 1956 through a board resolution. 4. Representatives of the President and the Governors of the State appointed under section 187A. Persons disallowed to appoint proxy Following persons are disallowed by law to appoint proxy: 1. A proxy cannot appoint a proxy. However, this general rule has certain exceptions as mentioned below: a.) Representatives of body corporate u/s section 187 b.) Representatives of the President and the Governors of the State u/s section 187A 2. A member of a company not having a share capital cannot appoint a proxy. However Articles may provide otherwise. Number of proxies appointed by a member As per section 176(1)(b) unless the Articles provide otherwise, a member of a private company is not entitled to appoint more than one proxy. However, a member of a public company can appoint more than one proxy to attend and vote at a meeting. It is pertinent to mention here that only individual can be appointed as a proxy. An artificial or judicial person cannot be appointed as proxy. Any person whether he is member or not can be appointed as a proxy. In other words to be appointed as a proxy it is not necessary to be a member of the company. Validity of a proxy In order to be a valid proxy, the proxy should have been executed in a proper manner. In this regard following points should be taken care off:— 1. A proxy appointed by a representative of body corporate u/s 187A, not bearing company's seal but signed by any of its officers is invalid. So it should be under company’s official seal. 2. Proxy executed should contain the date of its execution. 3. Proxies at adjourned meeting: Proxy sent at the time of original meeting can be used in adjourned meeting also. However, in case a fresh notice is issued for adjourned meeting then lodging of fresh proxies shall be permissible. 4. Stamping of proxy: Proxy should be duly executed and it should be properly stamped. Deposit of proxy with the company Proxies to be valid must be deposited with the company or any other person authorised in this behalf not less than 48 hours before a meeting of public company or a private company which is a subsidiary of a public company. However, Articles can provide for a short period. A longer period than 48 hours cannot be prescribed. 4
Few general points in relation to proxy which should be kept in mind 1. Proxy does not speak at the meeting. 2. Proxy votes only on poll unless Articles provide otherwise. 3. It is duly signed (Proxy instrument) by the original member and should be under the seal, if appointer is a body corporate u/s 187. 4. Proxies are deposited 48 hours before the meeting if the Article do not provide for such deposition more than 48 hours before any general meeting. Provisions connected with Revocation of proxy Proxy can at any time be revoked by the shareholder. The acts and obligations already done in exercise of authority of proxy shall not be invalidated. The following points should be observed in that matter:— 1. Every proxy in the absence of any contract to the contrary shall be used only if, the original member is unable to attend the meeting. 2. A shareholder appointing a proxy can revoke it, before voting by the proxy. 3. The acts and obligations already done in exercise of authority of proxy shall not be invalidated unless intimation in writing of revocation has been received at the office or chairman of the meeting before the vote is given. 4. Revocation of proxy is to be communicated to the company and it shall be received by the company at its registered office before the commencement of the meeting. Proxy shall itself be revoked in case of death or insanity of the shareholder appointing the proxy. 5. In case original member appoint or executes valid proxy on a later date and same is submitted with the company within time then that would be equal to revocation of earlier proxy. 6. Presence of shareholder and proxy, both at the meeting will not have the effect of revocation of proxy. 7. Where the revocation was communicated not before the meeting but before the poll then this revocation would not be considered and the vote cast by the proxy will be valid. Rights of a member having appointed proxy The Original shareholder, who has appointed the proxy can attend the meeting and vote thereat even, if the proxy is present at the meeting and vote given by the member will have preference then the vote, if any, cast by the proxy. Right of proxies A proxy, being a representative of a member, cannot participate or speak during the proceedings of meeting unless the Articles otherwise provide. Further he cannot vote on a show of hands. However, he can vote in case of poll and he can also demand a poll. Practical aspects of proxies The following practical aspects of the proxy should be noted carefully:— 1. Appointment of more than one proxy: If the shareholder has signs two proxy forms representing the same share and hand over them to two persons then proxy bearing the later date would be valid. In case there is no date on the proxy form the same will be rejected by the company. If both the forms bear the same date then both shall be rejected by the company. 2. General and special proxy: A general proxy is in the nature of general power of attorney and is valid for attending all the general meetings of the company. A special proxy is drawn for attending meeting specified therein. Company cannot be appointed as a proxy
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A company, being an artificial person, cannot physically be present at a meeting, vote and speak or demand a poll. Only a natural person can do these. Therefore, a company cannot be appointed as a proxy. 5) Qualification of shares to be a director: The articles of the company may provide that a certain no. Of shares will have to be held by each director. Such shares are called qualification shares. Within 2 months of appointment of a director, he must obtain required number. No person shall be compelled to obtain qualification shares before his appointment as director or within a period shorter than 2 months of his appointment. The value of the qualification shares cannot exceed Rs.5000 except when the nominal value of single share exceeds that amount. Holding of share warrant does not serve the purpose of the Act. Only shares must be held. A director who fails to acquire his qualification shares within the period suffers in 2 ways: firstly, his office falls vacant and, 2ndly, he becomes liable to penalty if he continues to act as a director. The director must hold the shares in his own right. He must not take them as a present from the promoters. If he does so, he will hold such shares in trust for the company. Joint holding and holding by the firm in which he is a partner have been held to be sufficient. Shareholders may, however, insist on some other qualification. It was observed in S.V.S. Nidhi vs Daivasigamani: that to be a director the holding of shares is not a necessary sine qua non. The shareholders may well desire to have other qualifications. The matter is left entirely to the discretion and judgement of the shareholders. Hence a special resolution providing form the holding of a fixed deposit of Rs. 1000 as an additional qualification for a director is intra vires and legal. 6) Quorum (Section 174).(S) ‘Quorum’ means the minimum number of members who must be present in order to constitute a valid meeting and transact busies thereat. The quorum is generally fixed by the Articles. If the Articles of a company do not provide for a large quorum, the following rules apply: 1.) Quorum for public company-5 members personally present Quorum for other companies-2 For the purpose of quorum a person may be counted as 2 or more members if he holds shares in different capacities. 2. if within half an hour a quorum is not present, the meeting, if called upon the requisition of members, shall stand dissolved. In any other case, it shall stand adjourned to the same day, place and time in the next week. The Board of Directors may adjourn the meeting to be convened on any particular day, time and place to b fixed on the date of the meeting itself or at least before the commencement of the same in the next week. Where the Board of directors fails to do so, the meeting stands statutorily adjourned to the same day in the next week. The Articles may provide for a large quorum-The Articles cannot provide for a quorum smaller than the statutory minimum. For the purpose of quorum, only members present in person and not proxies are to be counted. When quorum should be present-Article 49(1) of Table A requires the quorum to be present at the time when the meeting proceeds to transact business. It need not be present throughout or at the time of taking vote on any resolution.
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