Term Paper on company management

8/9/2019 Term Paper on company management

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UNIVERSITY

Term Paper of Business and corporate law

Topic- Company Management

Submitted to-: Submitted by-:

Mr. Sumit Goel Prashant Kumar Yadav

Roll no RS1904B56

Regis. No. - 10907634

Course- M.B.A (Regular)


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Table of Content-:

Directors

Definition [Sec.2(13)]

Number of Directors

Appointment of Directors

Position of Directors

Duties of Directors

Liabilities of Directors

Independent Directors

Managing Director

Manager

Article on company management


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Directors

A company in the eyes of the law is an artificial person. It has no physical existence. It has

neither soul nor a body of its own. As such, it cannot act in its own person.

The Director are the brain of a company. They occupy a position in the structure of the

company. They are in fact the mainspring of the company.

Definition [sec. 2 (13)]

Director includes any person occupying the position of director, by whatever name called. The

important factor to determine whether a person is or is not a director is to refer to the nature of

the office and its duties. It does not matter by what name he is called. Any person in accordancewith whose direction or instructions, the board of directors of a company is accustomed to act is

deemed to be a director if the board acts on advice given by him in a professional capacity.

Number of directors

Every public company shall have at least three directors and every othercompany at least two

directors. [ sec . 252(1)].

However a public company having-

(a) A paid up capital of Rs. 5 crore or more;

(b) One thousand or more small shareholders;


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May have one director elected by such small shareholder in the manner as may be prescribed.

Small shareholder means a shareholder holding shares of nominal value of Rs. 20,000 or less

in a public company to which Sec. 252 (1) applies [Proviso to Sec. 252(1) as introduced by

the companies (Amendment) act. 2000].

Appointment of Directors

1. First directors (Sec. 254 and clause 64 of table A)- (a) the articles of a company usually

name the first directors by their respective names or prescribe the method of appointing them.

(b) If the first directors are not named in the Article, the number of directors and the names of the

directors shall be determined in writing by the subscribers of the memorandum or a majority of

them (clause 64 of table A)

(c) If the first directors are not appointed in the above manner, the subscribers of the

memorandum who are individuals become director of the company. They shall hold office until

directors are duly appointed in the first annual general meeting (Sec. 254).

2.Appointment of directors by the company (Sec. 255 to 257, 263 and 264).- in the case of

public company or private company which is a subsidiary of a public company , at least 2/3rd of

the total no. of directors shall be liable to retire by rotation. Such director are called rotational

directors and shall be appointed by the shareholders in general meeting.

3. Appointment of directors by directors (Sec. 260, 262 and 313).- the board of director of a

company may appoint directors, any additional directors appointed by the director shall hold

office only up to the date of the next annual meeting of the company. The maximum strength

fixed for the board by the [ patrakola tea co., Re, A.I.R (1967) cal. 406 ].


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4. Appointment of directors by third parties.-The Article under certain circumstances give

power to the debenture-holders or the other creditors, e. g., a banking company and financial

company , who have advanced loans to the company to appoint their nominees to the board. The

number of directors so appointed shall not exceed 1/3rd total no. of directors, and they are not

liable to retire by rotation.

5. Appointment by proportional representation (Sec. 265).-the article of company may

provide for the appointment of not less than 2/3 rd of the total no. of directors o a public company

or of a private company whichis subsidiary of a public company according to the principle of

proportional representation .The proportional representation may be by a single transferable vote

or by a system of cumulative voting or otherwise. The appointment shall be made once in three

year and interim casual vacancies shall be filled in the manner as provided in the article.

6. Appointment of directors by the central Government (Sec. 408).- Sec 408 empowers the

central government to appoint such no. of directors on the board of the company as the company

Law board may, by order in writing , specify as necessary to effectively safeguard the interest of

the company or its shareholder or the public interest. The appointment will be for a period of

exceeding 3 years on any occasion.

Position of Directors

It is very difficult to pinpoint the exact legal position of the directors of a company. They have

been described by various names, sometimes as agents, sometimes as trustees, and sometimes as

managing partner of the company.

1. Directors as agents - a company as an article person, acts through directors who are

elected representatives of the shareholders. They are, in the eyes of the law, agents of the

company for which they act, and the general principal and agent regulate in most respects

the relationship between the company and its directors.

2. Directors as employees- although the directors of a company are its agents, they are

not employees or servant of the company. For being entitled to privileges and benefits


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which are grated under the companies act to the employees. But there is nothing to

prevent a director from being a servant of the company under a special contract of service

which he may enter in to with the company.

3. Directors as officers- a director, is an officer of the company [Sec. 2(30)]. As such

they are liable to certain penalties if the provisions of the companies Act are not strictly

complied with.

4. Director as trustees- directors are treated as trustees-

(a) Of the company s money and properties; and

(b) Of the powers entrusted to them.

Powers of Directors

1.General power of the board (Sec. 291)- the board of directors of a company is

entitled to exercise all such powers and to do all such acts and things as the company is

authorized to exercise and do. This means the powers of the board of directors are co-

extensive with those of the company.

2.Powers to be exercised at board meetings(Sec.292)- the board of a directors of

a company shall exercise the following power on behalf of the company means of

resolutions passed at the board which would have been valid if that regulations passed at

the meetings of the board , the power to-

(a) Make calls on shareholders in respect of money unpaid on their shares;

(b) Issue debentures;

(c) Borrow money otherwise than on debentures (say, through, public deposits);

(d) Invest the fund of the company; and

(e) Make loans.


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3.Powers to be exercised with the approval of company in general

meetings (Sec. 293)- the board of directors of a company, or of a private company

which is a subsidiary of a public company, shall exercise the following powers only with

the company in general meetings;

(a) To sell, lease or otherwise dispose of the whole, or substantially the whole , or

substantially the whole, of the undertaking of the company.

(b) To remit or give time for repayment of any debt due to the company by a director

excepts in the case of renewal or continuance of an advance made by a banking

company to its director in the ordinary course of business.

(c) To invest the amount of compensation received by the company in respect of the

compulsory acquisition of any undertaking or property of the company.

Duties of Directors

The statutory duties of directors have been discussed at appropriate places. Again, there are

certain duties of a general nature of the following type:

1. Fiduciary duties, and

2. Duties of care, skill and diligence.

1. Fiduciary duties- As fiduciaries, the directors must-

(a) Exercise their powers honestly and bona fide for the company as a whole; and

(b) Not place them in a position in which there is a conflict between their personal

interests. They must not make any secret profit out of their position. If they do,

they have to account for it to the company.


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2. Duties of care, skill and diligence- directors should carry out their duties with

reasonable care and exercise such degree of skill and diligence as is reasonably

expected of persons of their knowledge and status. He is not bound to bring any

special qualifications to his office

Standard of care- the standard of care, skill, and diligence depends upon the

nature of the care depending upon:

(a) The type and nature of work;

(b) General usages and customs in that type of business;

(c) Division of power between directors and other officers; and

(d) Whether director work gratuitously or remuneratively.

3. Other duties of directors- the other duties of directors are:

(a) To attend board meetings ,

(b) Not to delegate his functions except to the extent authorized by the act or the

constitution of the company,

(c) To disclose the interest.

Liabilities of Directors

The liabilities of directors may be discussed under the following four heads:

1. Liabilities to third parties- Liability of director to third parties may

arise in connection with the issue of prospectus which does not contain the


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particular required by the companies act or which contains material

misrepresentation.

2. Liabilities to the company- directors are personally liable to the

company in respect of ultra virus acts and it is not necessary to prove fraud

in such cases, e.g., when they pay dividend out of capital or when they

dissipate the fund of the company in ultra virus transactions. they are liable

jointly and severally and inter se, they have a right to rateable contribution

3. Liabilities for breach of statutory duties there are numerous

statutory duties of director which they must carry out. Most of these duties

relate to maintenance of proper accounts, filling of returns or observance

of certain statutory formalities. If they fail in perform these duties, they

render themselves liable to penalties.

4. Liability for act of his co-directors- a director is not liable for the

act of his co-directors provided he has no knowledge and he is not a party.

His co-directors are not his servants or agents who can by their acts

impose liability on them.

Independent Director

The Companies Act, 1956 makes it mandatory that the Board of Directors of a public company

have 50% representation by independent directors and the company is a listed company then

1/3rd of the total number of directors are required to be independent directors, this is also

envisaged in Clause 49of the listing agreement. However, in practice few companies are able to

meet this criteria not because of non-availability of responsible people to act as independent

directors but more because people do not want to get implicated in all sorts of limitation, moreparticularly criminal litigation even though they are not involved in the day to day activities of

the company, neither are they the officer-in-charge of the transaction for which they are being

implicated independent directors if chairman of the board of director is executive and if chairman

is non executive then board must comprise of 1/3rd independent directors of its total strength as

per the Clause 49 of the Listing Agreement.


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. A corporate director who has no material relationship with the company in which he or she

serves as director. For example, an independent director cannot be employed or have a family

member employed by the company. Independent Directors are often required by institutional

lenders and rating agencies for financings of assets, because Independent Directors provide

protection to the lenders.

Qualifications of independent directors of the company comply with the regulatory requirement

of the Capital Market Supervisory Board.

1. owning not more than one percent of all shares with voting right of the company, principal

company, subsidiary companies, affiliated companies, major shareowners or persons with

controlling power of the company, which shall include share owning by related persons of that

independent director2. Not being or having ever been a director with involvement in the company(s management, a

hired worker, a regular employee, an advisor with regular monthly payroll, or a person with

controlling power of the company, the principal company, subsidiary companies, affiliated

companies, subsidiary companies in the same link, a major shareowner, or a person with

controlling power of the company, unless having vacated from said tenure for not less than two

years before appointment as an independent director. The prohibited attributes, as referred to

above, shall not include the cases where the independent director previously served as an advisor

to a government agency, which is the major shareowner or person holding controlling power of

the company.

3. Not holding blood relationship or relationship under legal registration as father, mother,

spouse, sibling and offspring, including spouse of offspring of an executive, major shareowner,

person holding controlling power, or person proposed as an executive or person holding

controlling power of the company or subsidiary companies.

4. Not holding business relationship with the company, principal company, subsidiary

companies, affiliated companies, major shareowner, or person holding controlling power of the

company, which may hinder the exertion of his/her independent discretion, and not being or

having ever been a shareowner, with significant implication, or person holding controlling power

of the person holding business relationship with the company, principal company, subsidiary


company, unless having vacated from said tenure for not less than two years before appointment


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as an independent director. Business relationship as in first paragraph shall include the normal

course of trading transaction for business undertaking, lease or grant of lease of immovable asset,

transactions relating to asset or service, or grant or receipt of financial assistance through

acceptance or grant of loans, guaranty, grant of asset as guaranty for loans, including other

similar behavior, thus making the person applying for permission or a contract party liable

to payment of debt to another party, from 3 percent of net tangible assets of the person applying

for permission, or from Baht 20 million or over, whichever is lower. The calculation of debt

burdens as referred to above shall comply with the valuation of connected transaction in

compliance with the notification of the Capital Market Supervisory Board on the criteria of the

connected transaction, with the respective differences having been considered (mutatis

mutandis). However the consideration of the said debt burdens shall include the dab burden

incurred within one year before having business relationship with the same person.

5. Not being or having ever been an auditor of the company, principal company, subsidiary


company, and not being a shareowner, with significant implication, person with controlling

power or partner of the auditing company where the auditors of the company, principal company,

subsidiary companies, affiliated companies, major shareowner, or person holding controlling

power of the company are working for, unless having vacated from the said tenure for not less

than two years before appointment as an independent director.

6. Not being or having ever been a professional service provider, including a legal advisor or a

financial advisor, with remuneration in excess of Baht 2 million per annum from the company,

principal company, subsidiary companies, affiliated companies, major shareowner, or person

holding controlling power of the company, and not being a shareowner, with significant

implication, person with controlling power or partner of the said professional service provider,

unless having vacated from the said tenure for not less than two years before appointment as an

independent director.

7. Not being a director appointed as a representative of the Board of Directors, a major

shareowner or a shareowner being a connected person of the major shareowner of the company.

8. Not undertaking a business with similar nature or significant competition with the business of

the person applying for permission or a subsidiary companies, or not being a major partner of a

partnership, or a director with involvement in management, a hired worker, an employee, an


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advisor with regular payroll, or owning shares more than 1 percent of all shares with voting right

of other companies with similar business

undertaking or significant competition with the business of the person applying for permission or

subsidiary companies.

9. Not having any other characteristics that prevent the exertion of independent opinion

concerning the company(s business undertaking. In cases where the Capital Market Supervisory

Board announces any changes in the qualifications of the independent directors, the company(s

independent directors shall have qualifications in accordance with such changes. After having

been appointed as an independent director, with attributes as in the First to Eighth Paragraphs, an

independent director may be assigned by the Board of Directors to take part in the collective

decision making process of the company, principal company, subsidiary companies, affiliated

companies, subsidiary company in the same link, major shareowner, or person holding

controlling power of the company.

Managing Director

A managing director means a director who is entrusted with substantial powers of management

which not otherwise be exercisable by him. These powers may be conferred upon him by virtue

of an agreement with the company in general meeting or by its board of directors or by virtue of

its Memorandum or Articles of Association.

The term managing directors includes a director occupying the position of a managing director,

by whatever name called. But the power to do administrative act of a routine nature when so

authorized by the board such as the power to affix the common seal of a company to any

document or the draw and endorse any cheque on the account of the company in any bank or to

draw and endorse any negotiable instrument or to sign any share certificate or the direct

registration of transfer of any share, shall not be deemed to be included within substantial power

of management.


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MANAGER

MANAGER, according to Sec.2(24), means an individual who has the management of the whole

or substantially the whole of the affairs of the company. He is subject to the superintendence,

control and direction of the board of directors, Manager includes a director or any other person

occupying the position of a manager , by whatever name called, and whether under a contract of

service or not.

Provisions of the Act regarding manager

1. Firm or body corporate not be appointed manager (Sec. 384)-nocompany shall employ a firm, or a body corporate or association as its manager.

2. Certain persons not to be appointed managers (Sec. 385)-no

company shall appoint or employ any person as its managers who-

(a) Is an undischarged insolvent, or has at any time within the proceeding 5 years

been adjusted an insolvent ;

(b) Suspend or has at any time within the preceding 5 year suspended, payment to his

creditors or make or has at any time within the preceding 5 year made, a

composition with them;

(c) Is, or has at any time within the preceding 5 year been, convicted by a court in

India of an offence involving moral turpitude

3. Remuneration of manager (Sec. 387)-The manager of a company may,

subject to the overall limit of managerial remuneration ,receive remuneration either by the

way of specified percentage of the net profits of the company . except with the approval

of the central government, such remuneration shall not exceed in the aggregate 5 percent

of the net profits of the company.


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4. Increase in remuneration to require approval of central government.

5. Office of manager not to be assigned.

6. Manager not to be appointed for more than 5 year at a time.

Article on Company Management

Evaluating A Company's ManagementMost investors realize that it's important for a company to have a good management team. The

problem is that evaluating management is difficult - so many aspects of the job are intangible. It's

clear that investors can't always be sure of a company by only poring over financial statements.

Fallouts such as Enron, Worldcom and Imclone have demonstrated the importance ofemphasizing the qualitative aspects of a company. There is no magic formula for evaluating

management, but there are factors to which you should pay attention. In this article we'll discusssome of these signs.

The Job of Management

A strong management is the backbone of any successful company. This is not to say that

employees are not also important, but it is management that ultimately makes the strategic

decisions. You can think of management as the captain of a ship. While not physically drivingthe boat, he or she directs others to look after all the factors that ensure a safe trip.

Theoretically, the management of apublicly traded company is in charge of creating value forshareholders. Management is to have the business smarts to run a company in the interest of theowners. Of course, it is unrealistic to believe that management only thinks about the

shareholders. Managers are people too and are, like anybody else, looking for personal gain.

Problems arise when the interests of the managers are different from the interests of theshareholders. The theory behind the tendency for this to occur is called agency theory. It says

that conflict will occur unless the compensation of management is tied together somehow with

the interests of shareholders. Don't be naive by thinking that theboard of directorswill alwayscome to the shareholders' rescue.
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