DIRECTORS OF A COMPANY. — SPCC STD 12 Commerce — Question

1. Introduction : For the management of a company, shareholders appoint directors as their representative. Directors have been assigned various powers, so that they can manage the company in a successful and efficient manner. They can use this power for every activity of a company. Here, the question arises, that how they acquire this power ? The answer is (1) Through Companies Act (2) Through Memorandum of Association (3) Through Articles of Association they acquires the power.

It is to be noted specially that, no director has any power individually under the companies act. All the powers are to be used collectively by Board of Directors.

The Board of Directors takes decision by passing the resolution through majority Generally dispute does not arise among the directors because they are fewer in number. For fundamental decisions unanimity is necessary.

2. Powers enjoyed by Directors:

(1) Powers assigned by the Companies Act to Directors:

(A) By Passing a Resolution : The Board of Directors passes a resolution in the meeting and acquires the following powers.

(1) To issue and to allot shares of the company.

(2) To make calls on shares in respect to partly paid shares.

(3) To authorize for buy back of securities.

(4) To issue debenture and other securities in India or in foreign countries.

(5) To borrow money from outside on behalf of the company.

(6) To invest funds of the company.

(7) To declare interim devidend.

(8) To determine proportion of dividend on the basis of profit earned by company.

(9) To appoint alternate director and additional directors on temporary basis.

(1O)To grant loans, to give guarantee for loan or to provide security for loan.

(11)To approve financial statement and report to the board of directors.

(12)To expand business of the company.

(13)To approve the scheme of amalgamation, reconstruction or merger.

(14)To takeover a company or acquire a control on other companies.

(15)Any other matter which may be prescribed.

(B) By Passing special Resolution: For the following powers Board of Director has to take consent in general meeting by passing a special resolution:

(1) To sell or dispose off the whole company or to dispose of extra units of the company. (2) To lease the company to lease any part of the company.

(3) To invest in trust securities, the amount of compensation received, by it as a result of any merger or amalgamation.

(4) To borrow money from the bank in excess of the aggregate of its paid up share capital and free reserve.

(5) To give time for the payment of any debt or write off debts of a director.

3. Authority acquired by Memorandom of Associaton : Directors acquire some of their authority through the company’s Memorandum of Association. They cannot function beyond this power. If directors act beyond these power, such acts are considered to be ultra vires. Such acts cannot be rectified even by passing the resolution by all the shareholders unanimously. For such acts directors are held personally responsible.
4. Authority acquired by Articles of Association : To manage a company there is a provisions in the companies Act regarding Articles of Association. Most of the adminstrative power of the director is acquired through the Articles of Association. But if directors act beyond the limits of their power such acts are considered to be “Interavires”. The shareholders can free the directors from such liability by rectifying such acts through passing resolution.

Any shareholder, not individually but collectively can regulate the power of directors by passing resolution in general meeting for altering the Articles of Association increase or decrease the powers of Board of Directors.