Company Management

COMPANY MANAGEMENT

Director DefinedDirector includes any person occupying the position of director, by whatever name called.Only individuals can be director.Every public company shall have at least three directors every private company at least two directors.Increase in number of directors to be sanctioned by Central Government if total exceeds twelve (Sec.259)

APPOINTMENT OF DIRECTORSFirst directors named in articles.Directors appointed by the company.Retirement by rotation.Appointment of directors by directors.Appointment of directors by third parties.Appointment by proportional representation.Appointment of directors by Central Government.

POSITION OF DIRECTORSDirectors as agents.Directors as employees.Directors as officers.Directors as trustees.Trustees of the companys money and property.Trustees of the powers entrusted to them.

DISQUALIFICATION OF DIRECTORSA person of unsound mind An un-discharged insolvent.A person who has applied to be adjudicated as an insolvent and his application is pending.A person who has been convicted by Court of any offence involving moral turpitude for six months and a period of five years as not elapsed.

A person whose calls where in arrears for more than six months.A person who is disqualified by court u/s.203.A person who is already a director of a public company which has not filed annual returns/accounts for three consecutive years or failed to repay deposits, redeemed debentures or pay dividend for one year or more.

VACATION OF OFFICE AND REMOVAL OF DIRECTORSVacation of Office (Sec 283):-Fails to obtain qualification shares within 2 months of his appointment or ceases to hold thereafter.Adjudged to be of unsound mind.Applies to be adjudged as an insolventAdjudged as insolventConvicted by court for any offence involving moral turpitude for a period not less than 6 monthsHas calls in arrears for more than 6 months

Absents himself from 3 consecutive board meetings or for 3 months whichever is longer without leave of absenceHe or his firm or any private company of which he is a director accepts loan or any guarantee or security without central government approvalFails to make disclosure of his disinterest in any contractBecomes disqualified by an order of court on the ground of conviction of an offence in promotion, formation or management or found guilty of fraud or misfeasance in relation to winding upHe is removed by the company by ordinary resolutionCeases to hold office or employment in the holding company

Removal of Directors

By share holders (Sec 284)By central government (Sec 388-B to 388-E)Removal by company law board (Sec 402)

MANAGERIAL REMUNERATIONOverall maximum managerial remuneration not to exceed 11% of net profits of the company(Sec.198)Rules for payment of remuneration to directors.Shall be determined in accordance with the provisions of Sec.198 and 309, either by the articles or by a resolutions passed by the company in general meeting.Non executive director may received remuneration by way of fee for each meeting.

A whole time director or a managing director may be paid either by way of monthly salary or at a percentage of the net profits of the company or by both the ways.Shall not exceed 5% for one director or 10% if more than one of the net profits without Central Government approval.A part time director may be paid remuneration by way of periodical payments with approval of central government or by way of commission if authorized by a special resolution which shall be in force for a maximum period of five years.

The remuneration to part time directors shall not exceed 1% of the net profits, if the company has a managing director or whole time director and 3% of the profit in any other case.

The above rules shall not apply to a private company unless it is a subsidiary of a public company.

MEETINGS OF DIRECTORSNumber of meetings four in a year and once in three months.Notice of meetings to be given in writing to every director for the time being in India at his usual address.Quorum for meeting to be 1/3 of the total strength or two directors whichever is higher.Quorum to be uninterested directors.

POWERS OF DIRECTORSGeneral powers of the Board (Sec.291):Entitle to exercise all powers and to do all such acts and things as the company is authorised to do.Restrictions:- Shall not do any act which is to be done by the company in general meeting and shall exercise its powers subject to the provisions of company's act or Memorandum.

Powers to be exercised only at Board meetings (Sec.292):To make calls on share holders in respect of money unpaid on their shares.Issue debentures.Borrow moneys otherwise than on debentures (public deposits, etc.)Invest the funds of the company and Make loans. The board may, by a resolution, delicate the last three powers to a committee of directors or the manager or any other principal officer subject to specific limits.

Powers to be exercised with the approval of the company in general meeting(Sec.293)-(in case of public company or a subsidiary of public company):To sell, lease or otherwise dispose of the whole, or substantially whole, of the undertaking of the company.To remit or give time for repayment of any debt due to the company by a director except in case of a banking company.To invest (excluding trust securities) the amount to compensation received in respect of compulsory acquisition of any undertaking or property of the company.

To borrow moneys in excess of paid up capital and free resource.Excluding temporary loans raised from banks.To contribute to charitable or other funds not relating to the business of the company in excess of Rs.50,000/- in any financial year.

DUTIES OF DIRECTORSFiduciary duties:Exercise the powers honestly and bonafide for the benefit of the company as a whole.Not place themselves in position in which there is a conflict of interest.Must not make any secret profit out of their position.

Duties of care, skill and diligence:To 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. Not bound to bring any special qualifications to their office. Standard of care depends upon type and nature of work, division of powers between directors and other officers, general usage and customs and whether directors work freely or remuneratively. Case law in re: City Equitable Fire Insurance co. ltd.

Other duties:To attend board meetings not to delicate functions except to the extent authorised by the Act or Articles of the company.To disclose his interest.

LIABILITIES OF DIRECTORSLiability to third parties:When prospectus not containing the particulars required by the Companies Act or which contains material misrepresentation.On the failure to repay application money.On irregular allotment of shares.On dishonour of bills, cheques etc. which are signed without mentioning the companys name.

Liability to the Company:Ultra vires acts.To negligence Breach of trust Misfeasance

Liability for breach of statutory duties

Liability for acts of his co-directors.

MANAGING DIRECTORIs a director who is entrusted with substantial powers of management and includes a director who occupies the position of Managing Director, by whatever name called.Certain companies to appoint Managing or whole time Director or a Manager compulsorily.Appoint subject to conditions specified in Schedule XIII.

Prior approval of Central Government unless appointment is in accordance with Schedule XIII.Disqualifications of Managing Director (Sec.267).No.of Managing Directorships not to exceed two without Central Governments permission.Term of office not to exceed five years at a time in case of public limited company.

WINDING UP.Winding up or liquidation of a company is the last stage of its life. It means a proceeding by which a company is dissolved.Modes of winding up:-Winding up by the court, i.e., compulsory winding up [secs 433-483].Voluntary winding up by members or by creditors [secs 484-521].Winding up subject to Supervision of Court.

WINDING UP BY THE COURTGrounds for compulsory winding up [sec 433].Special resolution of the company.Default in delivering the statutory report to the Registrar or in holding the statutory meeting.Failure to commence, or suspension of, business.Reduction in membership.Inability to pay its debts.Just and equitable.

When the management is carried on in such a way that the minority is disregarded or oppressed.Where there is a deadlock in the management of the company.Where public interest is likely to be prejudiced.Where the company was formed for fraudulent and illegal business.Where the company is a mere bubble and does not carry on any business or has no property.

JUST AND EQUITABLEWhen substratum of a company is gone. Substratum of a company disappears:When the very basis for the survival of the company is gone.When the main object of the company has substantially failed or become impracticable.When the company is carrying on its business at a loss and there is no reasonable hope that profit can be made.When the existing on probable assets of the company are insufficient to meet its existing liabilities.

Company is unable to pay its debts when:-Demand for payment neglected.Decreed debt unsatisfied.Commercial insolvency.

PETITION [SEC.439]Petition by the company.Petition by any creditor or creditors.Petition by any contributory or contributories.Petition by all or any of the prior parties whether together or separately.Petition by registrar.Petition by the Central Government.

CONSEQUENCES OF WINDING UP ORDERIntimation to Official Liquidator and Registrar.Copy of winding order to be filed with the Registrar.Order for winding up deemed to be notice of discharge.Suits stayed.Power of the Court.Effect of winding up order.Official Liquidator to be liquidator.

DUTIES OF LIQUIDATORTo conduct the proceedings in winding up.To submit Preliminary report and Additional report.To take custody of companys property.To exercise and control of liquidators of powers.To summon meeting of creditors and contributories.To take directions from the court.To keep proper books.To get accounts audited.To file report pending liquidation.

POWERS OF LIQUIDATORPowers exercisable with the sanction of the Court.To institute or defend suits in the name of and on behalf of the company.To carry on the business of the company for beneficial winding up.To sell properties and actionable claims.To raise money on the securities of the companys assets.To do all such other things as may be necessary.

Powers exercisable without the sanction of the Court.To do all acts and execute documents under companys seal.To inspect records and returns of the company.To prove, rank and claim in the insolvency of any contributory.To draw, accept, make an endorse any bill of exchange, promissory note etc.To take out, in his official name, letters of administration to any deceased contributory.To appoint an agent.

Duty of liquidator to call creditors meeting in case of insolvency.Duty to call General meeting at the end of each year.Final meeting and dissolution.Provisions as to annual and final meeting incase of insolvency.

GENERAL POWERS OF COURTStay of winding up proceedings.To settlement of list of contributories.Payment of debts due by contributory.Power to make calls.Adjustment of rights of contributories.Delivery of property.Exclusion of creditors.Order as to costs.

Summoning of persons suspected of having property of the company.Public examination. Arrest of absconding contributory.Meeting of creditors or contributories.

VOLUNTARY WINDING UP [Secs.484 to 520]Members voluntary winding up.Declaration of solvency.Passing a special resolution.Appointment and remuneration of liquidators.Boards power to cease on appointment of a liquidator.Power to fill vacancy in office of liquidator.Notice of appointment of liquidator to be given to registrar.

Creditors voluntary winding up.Meeting of creditors.Notice of resolution to be given to Registrar.Appointment of liquidator.Appointment of committee of inspection.Liquidators remuneration.

6.Boards power to cease on appointment of liquidator.7.Power to fill vacancy in office of liquidator.8.Power of liquidator to accept shares, etc.9.Duty of liquidator to call meeting at the end of each year.10.Final meeting and dissolution.

CONSEQUENCES OF WINDING UPAs to shareholder/members.As to creditors.Where the company is solventWhere the company is insolventSecured and unsecured creditorPreferential paymentAs to servants and officers As to proceedings against the companyAs to cause

OTHER POINTSCommencement of winding upPowers of CourtStatement of affairsCommittee of inspectionDissolution of companyContributoryDefunct company

CORPORATE GOVERNANCE.Corporate governance is about maintaining an appropriate balance of accountability between three key players: the corporations owners, the directors whom the owners elect, and the managers whom the directors select. Accountability requires not only good transparency, but also an effective means to take action for poor performance or bad decisions. - Chairperson Mary.L.Schapiro SEC, USA.

Clause 49 of Listing Agreement to Indian stock exchanges came into effect from 31st December 2005 with object of improving corporate governance in listed companies.It ensure commitment to values, ethical conduct of business, transparency, statutory compliance, disclosures and effective decision making.It is about promoting corporate fairness, transparency and accountability Good Business.

COMPOSITION OF BOARD.50% of the Board should be comprised of non- executive directors.At least 1/3rd should be comprised of independent directors where chairman is a non- executive director.At least of the board should be comprised of independent directors where chairman is an executive director.

Independent director is a non- executive director who (a) does not have any material pecuniary relationship or transaction with the company. (b) not related to promoters or management etc.Non- executive directors including independent directors fees/compensation shall have prior approval of share holders in general meetings.The board shall meet at least four times a year with a maximum gap of four months.A director shall not be a member in more than 10 committees or chairman of more than five.

The board shall lay down a code of conduct for all board members and senior management of the company.The board and senior management shall affirm compliance with the code on annual basis.

AUDIT COMMITTEEA qualified and independent audit committee shall be set up.The audit committee shall have minimum three directors as members.2/3rd of the members of audit committee shall be independent directors.All members shall be financially literate and at least one member shall have accounting or related financial management exercise.The chairman shall be an in dependent director who shall be present at the AGM.

The finance director, head of internal audit and a representative of the statutory auditor maybe present as invitees.The company secretary shall act as secretary to the committee.The committee should meet at least four times in a year.

The audit committee shall have powers which include :- investigation of any activity within its terms of reference.To seek information from any employee.To obtain outside legal or other professional advice.To secure attendance of outsiders with relevant expertise, if considered necessary.

Role of audit committee.Review of information by audit committee.

DISCLOSURES.Basis of related party transactions.Disclosure of accounting treatment.Board disclosures risk management.Proceeds from public issues, right issues, etc.Remuneration of directors.Management discussion and analysis report.

Share Holders.Share holders Grievance Committee with the Chairmanship of non executive director.CEO/CFO certification.Report on Corporate Governance. Certificate of compliance.

NON MANDATORY REQUIREMENTS Remuneration committee.Half yearly declaration of financial performance to each share holder.Training of Board members.Mechanism for evaluating non executive board members.Whistle blower policy.

THE FACTORIES ACT, 1948

The act provides for working conditions in a factory in order to ensure health, safety and welfare of workmen.Factory means any premises including the precincts thereof :-10 or more workers are working or were working in a manufacturing process during the preceding 12 months with aid of power.20 or more without aid of power.

Manufacturing process is defined by sec 2(k).Worker as per sec 2(l) means a person employed directly or through any agency a manufacturing process.Occupier as per sec 2(n) means a person who has ultimate control over the affairs of the country.

APPROVAL, LICENSING AND REGISTRATION OF FACTORIESState government empowered under sec 6 to make rules for licensing etc.Application for permission to be submitted to the Chief Inspector along with certified plans and specification for factory.Notice by occupier [sec 7].General duties of the occupier [sec 7-A]

HEALTH[secs 11to20]Cleanliness :-Factory to be kept clean and free from effluvia and dirt.Effective means of drainage.Use of disinfectants.Disposal of waste and effluentsVentilation and temperature.

Dust and fume.Artificial humidification.Overcrowding.LightingDrinking waterLatrines and urinalsSpittoons

SAFETY [secs.21 to 41]Fencing of machinery-dangerous part of every machinery to be securely fenced.Work on near machinery in motion.Examination of machinery in motion by a trained adult male worker only.Restriction on women and young persons.

Employment of young persons on dangerous machines.Restriction on young persons to work on dangerous machines.Machines dangerous for young persons to be specified by State Government.

Striking gear and devices for cutting off power.Self acting machines. Traversing part not allowed to run within a distance of 45 cms from any fixed structure.Casing of new machinery to prevent danger.Prohibition of employment of women and children near cotton-openers.

Hoists and lifts.Lifting machines, chains, ropes and lifting tackles.Revolving machinery.To have notice of safe working speed and speeds not to be exceeded.Pressure plant.

Floors, stairs and means of access.Pits, sumps and openings in floors etc. to be securely covered or fenced.Prohibition on lifting or carrying of excessive weights. Maximum weights to be lifted or carried to be prescribed.Protection of eyes.Precaution against dangerous fumes. Prohibition on entry in to any chamber, tank, pipe etc. where any gas,fume etc. is present.

Precautions regarding use of portable electric light.Precautions against explosives or inflammable dust, gas etc. Measures to prevent explosions on ignition of gas, fumes etc.Precautions in case of fire. Measures to prevent fire and its spread. Familiarity with means of escape.

Power to require specifications of defective parts or tests of stability.Safety of building and machinery.Maintenance of building.Safety officers.

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