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

The shareholders elect the directors as their representatives to manage the company. Directors have a special place in the management of the company. Due to the fact that the company is an artificial person, it is entitled to all powers according to the company. Therefore, the powers and authority of the company The governing body is entitled to perform all the powers and functions. This authority is given in three ways:

• ( I ) The Board of directors passes a resolution in the meeting and acquires the following power:

1. To issue and allot shares of the company;
2. To make calls on shareholders in respect to unpaid money
3. To authorize buy back of securities;
4. To issue debentures and other securities whether in India or outside India;
5. To borrow money on behalf of the company;
6. To invest funds of the company;
7. To declare interim dividend;
8. To determine proportion of dividend on the basis of profit earned by company.
9. To appoint alternate directors and additional directors on temporary basis;
10. To Grant loans, to give the guarantee for loan or to provide security for loan;
11. To approve financial statement and report of the board;
12. To expand business of the company;
13. To approve amalgamation, reconstruction or merger;
14. To take over a company or acquire a control on an other company;
15. Any other matter which may be prescribed.

• (2) For the following functions Board of Director has to take consent in general meeting by special resolutions :

1. To sell or dispose off the whole company or to dispose off extra units of the company
2. To lease 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 payment of any debt or write off debts of a director:

• Authority Acquired by Memorandum of Association:
  • Directors acquire some of their authority through the Memorandum of Association.
  • They cannot function beyond this power.
  • IF the directors act beyond these powers, such acts are considered to be ultra-vires.
  • Such acts cannot be subsequently rectified even by passing the resolution by all the shareholders unanimously.
  • For such acts directors are held personally liable.
• Authority Acquired by Articles of Association:
  • There is a provision in the Companies Act, Articles of Association to manage a company.
  • Most of the administrative powers of the directors is acquired through the Articles of Association.
  • It is the responsibility of a director to function according to that. But if directors act beyond the limits of their powers such acts are considered to be ultra-vires.
  • The shareholders can free the directors from such liability by rectifying such acts subsequently by passing resolution.