term paper on company management
TRANSCRIPT
-
8/9/2019 Term Paper on company management
1/14
LOVELY PROFESSIONAL
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)
-
8/9/2019 Term Paper on company management
2/14
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
-
8/9/2019 Term Paper on company management
3/14
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;
-
8/9/2019 Term Paper on company management
4/14
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 ].
-
8/9/2019 Term Paper on company management
5/14
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
-
8/9/2019 Term Paper on company management
6/14
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.
-
8/9/2019 Term Paper on company management
7/14
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.
-
8/9/2019 Term Paper on company management
8/14
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
-
8/9/2019 Term Paper on company management
9/14
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.
-
8/9/2019 Term Paper on company management
10/14
. 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
companies, affiliated companies, major shareowner, or person holding controlling power of the
company, unless having vacated from said tenure for not less than two years before appointment
-
8/9/2019 Term Paper on company management
11/14
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
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 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
-
8/9/2019 Term Paper on company management
12/14
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.
-
8/9/2019 Term Paper on company management
13/14
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.
-
8/9/2019 Term Paper on company management
14/14
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.
http://www.investopedia.com/terms/p/publiccompany.asphttp://www.investopedia.com/terms/s/shareholder.asphttp://www.investopedia.com/terms/a/agencytheory.asphttp://www.investopedia.com/terms/b/boardofdirectors.asphttp://www.investopedia.com/terms/b/boardofdirectors.asphttp://www.investopedia.com/terms/s/shareholder.asphttp://www.investopedia.com/terms/a/agencytheory.asphttp://www.investopedia.com/terms/b/boardofdirectors.asphttp://www.investopedia.com/terms/p/publiccompany.asp