Directors: Appointment, power, duties and liabilities

Winding up of company: meaning, modes

Companies Act 1956

Sec 2(13) of companies act of 1956

Defines a director as ‘any person occupying the position

of a director, by whatever name called’

In general, a person is said to be occupying a position of

a director, if he has been charged with the responsibility

of directing, conducting and controlling the affairs of a

company

Disqualification of directors

A person with unsound mind

An un discharged insolvent

Person who has applied to be adjudicated as an insolvent and

his application is pending before court of law

Person convicted by court for moral turpitude

Person disqualified by order of an court to act as director

A person who failed to pay call money, on his shares for six

months from date the call became due

Disqualifications……………a person who is already a director of a public company

which,—

(i) has not filed the annual accounts and annual returnsfor any continuous three financial yearscommencing on and after the first day of April,1999; or

(ii) has failed to repay its deposit or interest thereon ondue date or redeem its debentures on due date or paydividend and such failure continues for one year ormore.

Qualification Of Director Under the act, only individuals can become directors

There is no academic, technical qualifications for a director

Section 270 of act, requires a director to hold qualification shares in

the company, and it should be fixed by the articles of company

The nominal or face value of the qualification shares of director

fixed by articles should not exceed rs 5000.

The qualification shares must be acquired by a person elected as a

director within 2 months of his appointment

As per section 149 , director appointed by promoters of a newly

incorporated firm, director must pay for qualification shares before

certificate to commence business is obtained

Contd…..

For the purpose of the calculation of the qualification shares,only shares included in the share certificate in the name ofdirector are taken into account, share warrants in his nameshouldn’t be taken into account.

Qualification shares held by director should be disclosed inthe prospectus

With in two months of his appointment, he should file withthe registrar a declaration specifying the qualification sharesheld by him

Consequences of failure to acquire

qualification shares

He ceases to be a director automatically, soon after theprescribed period (2 MONTHS)

Even after expiry of the stipulated period, if he continuesto act as a director, he will be fined for period he wasacting as a director.

He can be restrained from acting as a director ofcompany by an order of injunction issued by ancompetent court

Different Ways of Appointment Of

Directors

By the promoters of company

By the subscribers to memorandum of association

By deeming the subscribers to the memorandum as the

first directors

By the company in general meetings

By the board of directors

By third parties

By the principle of proportional representation

By the central government

Kinds of directorship

Whole-time Directorship

A person cannot be appointed as a whole-time director

in more than one company.

Part-time Directorship

Not more than 15 companies excluding the directorships

of, private companies [other than subsidiaries or holding

companies of public company(ies)].

Contd………….

i. unlimited companies,

i. associations not carrying on business for profit or which prohibit payment of a dividend, and

ii. alternate directorships (i.e., he is appointed to act as a director only during the absence or incapacity of some other director).

Duties of DIRECTORS

1. Fiduciary duty (relationship of legal and ethical trust)

Exercise powers honestly and bona fide for the benefit of the

company

They must not make any secret profit out of their positions

2. Duties of care, skill and diligence

Directors should carry out their duties with reasonable care

and skill, diligence

Standard of care: depending upon nature of work, division of

power, customs and remunerations

Other duties

To attend board meetings

Not to delegate his functions except to the extent

authorized by the act or constitution of company

To disclose his interest

POWERS OF DIRECTORS

General powers of board

Powers to be exercised at board meetings

Powers to be exercised with the approval of company in

general meetings

Political contributions

Liabilities of directors

Liability to third party

Liability to company

Liability to breach of statutory duties

Liability of acts of his co-directors

De facto and De jure liability

REMOVAL OF DIRECTORS

Directors can be removed by

1. Share holders

2. Central government

3. Company law board

WINDING UP OF COMPANY

The legal process by which a joint stock company is broughtto an end, that is completely closed down, is calledliquidation

In other words, Liquidation is a process by which a businessof company is wound up

And in the course of winding up, its assets are realized,liabilities are paid off and the surplus if any, is distributedamong the members in accordance with their rights

Modes of winding up

Compulsory winding up or winding up by order of the

tribunal

Voluntary winding up

Winding up subject to the supervision of the tribunal

Circumstances leading to Compulsory

winding up

If the company has passed a special resolution that it should be

wound up by tribunal

If a public company has failed to hold statutory meeting or file

statutory report to registrar of companies

If it has not commenced business within year of its

incorporation

If the number of members has fallen below seven in case of

public company and below 2 in Pvt. Ltd.

If the company is unable to pay debts

If the tribunal is of the opinion that it is just and equitable that

the company should be wound up

Voluntary winding up

Winding up which is brought about voluntarily without

interference of the tribunal of companies through any order,

but winded up voluntarily by members of company or by the

creditors

Voluntary winding up is of 2 types:

Members voluntary winding up

Creditors voluntary winding up

Circumstances of voluntary winding up

When company is solvent, and winding up decision isbrought in by members.

When the period for which the company has beenformed has expired and company has passed ordinaryresolution

When the event on happening of which the companyshould wound up has occurred and company has passedordinary resolution

When a company has passed a resolution that it shouldwound up voluntarily

Winding up subject to supervision If a member or creditor puts an application for supervision of

tribunal, after company has passed special resolution forvoluntary winding up, tribunal can entertain the same andpass such order to protect interest of, company, membersand creditors.

Tribunal can exercise full control over winding up ofcompany

Can appoint new liquidator in the place of existing liquidator

Can put restrictions on existing liquidator

Or appoint additional liquidator to act on behalf of tribunal,along with existing liquidator

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