Directors #
Directors are appointed by the shareholders with the powers and duties to manage the business of the company subject, however, to the restrictions imposed by the articles and by the statutory provisions. In that capacity, directors are the agent for the company, but not of-course for the shareholders. However, directors cannot make some profit by employing such a position in the company without the knowledge and consent of the company.
The conducts of the directors are supposed to be governed by the articles of association of the company. The articles of association, though not themselves a contract between the company and the directors, but it must be regarded as showing the terms upon which, on the one hand the directors agree to act as such, and on the other, the company agrees to pay them, if so provided, the remuneration. The position of directors, to some extent conform to that of the trustees in that they make calls, issue and allot shares of the company and also approve transfer of shares. Directors may be and are shareholders, but the duties they are entrusted with, can not be in conflict with their interests in the company. They are not the servants of the company and as such, not entitled to any remuneration as a matter of right unless the articles (as is usual) provide for it and fix the amount. Where the articles are silent, a general meeting may vote the directors remuneration. Once the office of remuneration is accepted by a director, he takes the status of a servant of the company to the extent of this new position with his status in directorship remaining unchanged. It seems, therefore, that directors are more in a fiduciary position with respect to the company concerned. Unless defined properly in the articles, a director can not be compelled to devote in the affairs of the company, nor can he be prevented from becoming the director of a rival company.
First & subsequent appointment: #
Directors are appointed by:
a) Subscribers to the memorandum
b) Shareholders in general meeting
c) Board of Directors
d) Government, and
e) Third parties
Where the directors have not been named in the articles and subject to the provision (if any) for appointment of directors therein, the subscribers of the memorandum of association shall be deemed to be the first directors of the company until the directors are appointed in a general meeting [sec. 91(1)(a)]. Any casual vacancy among them may be filled up by the directors subject to the provisions of section 91(1)(c). Where the articles provide, as in reg. 69 of schedule- 1, that the number of directors shall be determined by majority of the subscribers of the memorandum, they should forthwith proceed to fix the number of, and to appoint, the directors, because the names of the directors or proposed directors are to be given in the prospectus (schedule-III), or in the statement in lieu of prospectus (schedule-IV). This may be done either at a meeting of the subscribers called for this purpose or by a statement under their signature.
Generally speaking, directors are appointed by the shareholders in general meeting. But it is not always true that directors actually represent the various groups of shareholders. Vested quarters group together and keep lobbying which hampers the interests of minority shareholders at large at the behest of the majority. So the spirit of the provision that directors will be appointed by shareholders is mostly defeated. It is the majority shareholders or in other words the sponsors who actually select the directors.
Provisions as to appointment #
There are certain mandatory provisions which must be observed while appointment of directors in the case of public limited companies. For private companies, it is usual that the articles provide the mode of appointment of the directors. But they have to look for the provisions applicable both for the public as well as private companies. The provisions for appointment of directors in public limited companies are:
| Section | Provision |
|---|---|
| Sec. 90 | 1. Every public company and a private company which is a subsidiary of a public company shall have at least three directors. 2. Every private company other than a private company mentioned in sub-section (1) shall have at least two director. |
| Sec. 90(3) | Only natural persons can be appointed directors. |
| Sec. 91(1)(b) | The directors shall be appointed by the members in general meeting. |
| Sec. 91(1)(c) | Casual vacancy may, however, be filled up by the directors. The duration of office of a director shall be liable to determination at any time by retirement in rotation. |
| Sec. 91(2) | A consent in writing by persons to act as directors must be filed with the registrar. |
| Sec. 92(1)(a) | The duration of office of a director shall be liable to determination at any time by retirement in rotation. |
| Sec. 92(1)(b) | A contract of directors to take qualification shares must be filed with the registrar or sign the memorandum of association by taking qualification shares. |
| Sec. 93 | A signed consent to act as director should accompany the proposal for directorship to the company. |
| Sec. 101 | A director away from Bangladesh for a consecutive period of at least three months may appoint his alternate director if so authorized by the article or by a resolution of the general meeting. |
| Sec. 115(1) | A register of directors shall be maintained in which shall be entered all individual particulars of directors including their any other directorship. |
| Sec. 115(2) | A return is to be filed with the registrar within fourteen days of appointment of directors. Every subsequent changes in the directorship must be supported by like returns within a period of fourteen days of such changes. |
Powers of directors #
A company is an entity, distinct alike from its shareholders and directors. Some of its powers may, according to its articles, be exercised by directors and certain others may be reserved for the shareholders in general meeting. If powers of management are vested in directors, they and they alone can exercise those powers. The only way in which the general body of shareholders can control the exercise of powers vested by the articles in the directors, is by altering those provisions of their articles, or if opportunity arises under the articles, by refusing to re-elect the directors of whose activities they disapprove. They cannot themselves usurp the powers which by the articles are vested in the directors any more than the directors can usurp the powers vested by the articles in the general body of shareholders.
If the directors act outside their powers, but within those of the company, the shareholders can ratify their action by ordinary resolution and make such act of directors as valid. But the directors in no way can act ultra vires the company or its articles.
A company cannot, however, take the control of its affairs out of the hands of the directors and give powers to a committee except in the manner as arranged in the articles. The directors are the only persons who are authorized to deal with the matters of the company as assigned to them and their decision cannot be overruled by members in general meeting unless it is proved beyond doubt that the directors have acted against the interest of the company. When the shareholders know that their directors have been exceeding their legal and vested-in powers and take no step in the matters, but allow the things done to remain unimpeached for years, they must be taken to have retrospectively sanctioned what has been done. The acts of an individual director, moving in his private capacity, can not bind the Board, unless the Board has so authorized or expressly ratified his conduct. There is no specific section in the Act enumerating the powers of directors. However, Section 107 restricts the powers of the directors of a public limited company to the extent that they cannot, without the expressed consent of the shareholders in a general meeting, sell or dispose of the undertaking, nor can they remit any debt due by a director.
Duties of directors #
The control and management of the company is vested entirely on the directors. It is, however, important to draw line of limits of management activities by the directors and by the management staffs. The manner in which the works of a company is to be distributed between the Board of directors and the managers and managing staff, is a business matter to be decided on business lines. The longer the business carried on by the company, the more numerous and more important the matters, they must of necessity be left to the managers, executives and other members of the management staff.
In ascertaining the scope of duties of directors it is necessary to consider (a) the nature of business of the company and (b) the working manners of business. Directors are not infallible, but here, the attitude of directors should be (c) supportive in the situation and (d) consistent with the articles of association of the company. The directors, in discharging their duties towards the company, should be attentive to the following:
-
act honestly and bonafide
-
exercise a reasonable degree of skill and diligence
-
be cautious and careful about company’s interests
-
though their continuous attention is not expected, but they need to be mindful at-least in Board meetings, and
-
act within the scope of the articles.
The directors should take specific care about the following important aspects of their duties towards the company:
a) Not to make any secret profit.
b) Avoid direct or indirect personal involvement in any transaction of the company.
c) Not to conflict company’s interest with that of his own.
d) Not to enter into a contract, the benefits whereunder would otherwise have accrued to the company.
Although, the directors must of necessity trust the officials of the company to discharge properly and honestly the responsibilities allocated to them, they can not be expected to be shirked by leaving everything to others. The directors are to take note of it that when everything goes the right way, it is a smooth situation for everybody. But when there is some wrong somewhere, it is not open to any director to plead that he had no real control of the affairs or that he was just a mere figurehead and that he did not willfully permit the fault or default. Therefore, the directors cannot just think relieved by keeping aloof.
Regulations 72 to 76 in schedule I contain some of the powers and duties of directors.
Directors statutory and management liabilities
As provided in regulations 75 and 76, the directors are liable to comply with the provisions of the Act, particularly :
a) registration of the particulars of mortgages and charges,
b) maintaining register of directors and filing copies to the registrar,
c) sending annual list of members and summary of share capital to the registrar,
d) notifying registrar about changes in capital structure,
e) sending copies of special resolutions to the registrar,
f) maintaining minute books of directors and shareholders, and
g) maintaining directors attendance book.
However, since the overall management of the company lies with the directors, they may shift the above liabilities on the shoulders of the Company Secretary and only monitor whether the responsibilities are properly discharged. But as the shareholder leave all the business of the company in the hands of the directors, it is highly incumbent on them that they act with utmost care and attention for the affairs of the company.
Directors hold in trust the funds provided by the shareholders and are, as such, liable for mismanagement and misapplication of the company funds. However, a director is not responsible for the fraud or misconduct of his co-directors or the employees of the company. Directors are not responsible for declaring a dividend even if it so stands that the declaration was unwise. But they will be liable if the dividend is paid out of the capital of the company.
Qualification shares
These are the shares which must be held by each director as a condition for acting as directors under the articles of association. Unless the articles expressly require it otherwise, a director need not hold more than one share as his qualification share.
Regulation 71, which has been made mandatory under the new Act, reads: ’the qualification of a director shall be the holding of at least one share in the company, and it shall be his duty to comply with the provisions of section 97 of the Companies Act 1994’. However, where the articles require more than one share as qualification shares, it may be amended to enable persons with expertise to be directors without any significant share holding. But if so provided in the articles of association of the company, it is the duty of every director, as in sec. 97(1), to hold the specified share qualification. The current maximum limit set for share qualification is shares worth of Tk * 0.1, 0 . An amplification of the sub-section (1) of section 97 gives the following:
- The articles of association may provide and define the qualification shares.
- If so provided, every director shall take the qualification shares.
- The qualification shares should be acquired within sixty days or such shorter time as fixed in articles after appointment as directors.
- In default a director will cease to be a director.
- If an unqualified person acts as a director he will be liable to a fine of Tk. 200 for every day of default.
Subject to the provisions in the articles of association, a director representing interest holding shares of the requisite value may not hold share qualification in his own name. But in such a case he will remain a director so long as his nominator retains the qualification shares.
Shares need not be taken from the company. It may be bought from the open market or even from a friend or any individual. The qualification of a director will not be lost if he pledges his shares as mortgage somewhere.
Addition to the Board and casual vacancy
The Act prescribed three as the minimum number of directors for a public limited company. There is no limit set as the maximum which is generally fixed by the articles. Within the maximum limit the directors may add to their number. But that is a mid-term appointment and the director so appointed must retire at the immediate following general meeting. He is however, eligible for re-election at the meeting.
There may be a vacancy caused suddenly in the Board due to death, resignation or for other reasons. The existing directors may also fill up this casual vacancy by appointing a director thereto. In this case section 91(1)(c) provides that the person so appointed shall be subject to retirement at the same time as if he became a director on the day on which the director in whose place he is appointed was last elected a director.
The appointment of director as an addition to the Board or in casual vacancy with consequential provisions must be there in the articles of association of the company.
Rotation of directors
The directors of public limited companies are liable to retirement and re-election at the general meetings. At the first general meeting all the directors will retire. Not less than one third of the total number of directors of public companies will retire at every successive general meetings [sec. 91(2)]. The director to retire at every general meeting should be those most senior in office. However, the managing director will be excluded from the count of one third to retire (reg. 73). The directors to retire will be eligible for re-election. As to rotation of directors regulations 79 through 82 of schedule-I of the Act will have effect. The aspects of vacation of office of directors (as given below) may also be consulted.
Vacation of office
Section 108 provides that the office of a director shall be vacated if -
a) he fails to obtain within the time limit specified in sub-section (1) of section 97, or at any time thereafter ceases to hold the share qualification, if any necessary for his appointment, or
b) he is found to be of unsound mind by a court of competent jurisdiction, or
c) he is adjudged an insolvent, or
d) he fails to pay calls made on shares held by him within six months from the date of such calls being made, or
e) he or any firm of which he is a partner or any private company of which he is a director, without the sanction of the company in general meeting accepts or holds any office of profit under the company other than that of a managing director or manager or a legal or technical adviser or a banker, or
f) he absents himself from three consecutive meetings of the directors or from all meetings of the directors for a continuous period of three months, whichever is the longer, without leave of absence from the Board of directors, or
g) he or any firm of which he is a partner or any private company of which he is a director, accepts a loan or guarantee from the company in contravention of section 103, or
h) he acts in contravention of section 105.
So the office of a director will stand vacated on happening of any event as provided in section 108 and in the articles (or as in section 94 or regulation 78). If however, for any reason the first or the adjourned meeting of the company does not proceed validly to fill up the places of the vacating directors (on rotation), they will continue in office. In such a case there is no vacancy to which a successor can be elected (reg. 83).
There is one more limitation in accepting the office of directors. According to SEC no member of any stock exchange can accept the appointment of director in any company which is listed in that stock exchange.
Appointment of persons other than retiring directors
A person who is not a retiring director may also be eligible for appointment as director. In that event the person interested is required to give notice in writing to a public company or a private company, which is subsidiary of a public company, at-least fourteen days before the day of the general meeting where election of directors is supposed to be held signifying his candidature as a director. Any member may also give such notice about his intention to propose him as a candidate for that office. But such a provision should be there in the articles of association of the company. The company will, in turn, notify the shareholders about this fact.
Leave of absence
It may so happen that a director is unable to attend the meeting of the directors and is absent in the Board meeting. But a long and continuous absence may debar him to remain a director. Where the articles provide that a director’s office will be vacated on his absenting himself from the Board meeting for a certain period, the expression ‘absenting himself’ will mean being absent voluntarily or deliberately. If the director has reasonable ground to be absent, then he does not automatically vacate his office of director. Reasonable grounds may be illness, accident, detention or such other ground beyond the control of the director. In such a situation the Board will grant him leave of absence’ from attending meetings which will protect his position as a director. The Board cannot, however, arbitrarily refuse to grant leave of absence when applied for. Before making a record that the office of a director has fallen vacant due to absence, it is desirable that the absentee director is given an opportunity to explain the cause of his absence from Board meetings.
Collective action #
The directors must act together unitedly and collectively. The shareholders are entitled to the collective knowledge and wisdom of the directors in the management of affairs of the company. But the directors need to be validly appointed. Acts done as directors by persons who have not been validly elected do not bind the company and the shareholders. The directors must act together as a Board. It is not sufficient to procure a separate authority of a sufficient number of directors to constitute a quorum. For example, if four directors out of the total nine, where three is a quorum, meet together pre-appointed, at an evening party and decide upon an issue, it will not and in no way bind the Board or the company. The casual meeting of a few directors can not be considered as a valid Board
Chairman of the Board #
The directors and their meetings are headed by a chairman. Provisions for such a chairman should be there in the articles and any appointment outside the provisions of articles is void and can not be ratified by a tacit confirmation. The article should also mention whether the chairman will have a casting vote. Without an express provision in this regard, a resolution carried by his second and casting vote will be inoperative. The directors may appoint a permanent chairman who will preside over the meetings of both the directors and the members. Regulation 54 in schedule - I provides that the directors may elect a chairman from amongst them who will preside over all the general meetings. One new feature in this regulation is the provision that chairman and managing director should not be the same person. The duration of chairman’s office will be determined by the directors (reg. 91). But if no such chairman is elected, or if at any meeting the chairman is not present within thirty minutes after the time appointed for holding the same, the directors present may choose one of their member to be the chairman of the meeting (reg. 55). The mere appointment of a permanent director will not make him a permanent chairman, who must be expressly appointed to have a valid effect.
The chairman of the Board is of great importance for a company. A Board meeting is not properly constituted unless the proper person is in the chair. The fate of a meeting is dependent almost entirely on the successful conduct of the same by its chairman. Not only that the chairman’s role is confined within the limits of a meeting. A chairman is also important in the length and breadth of the corporate profile. He plays authoritative role in the selection of members of the Board and senior executives of the company. Although no other functions, apart from conducting meetings, have been entrusted to him by law, yet in practice he exercises great influence on the company’s present operations and future plans.
The strength of the chairman is the chairman himself. His powers as the chairman of the Board are not vested in him by any law but by convention and by virtue of the position the chairman occupies. His authority lies in his capacity, ability, knowledge, learning, judicial approach, patience, impartiality, leadership, fairness, farsightedness and firm determination which make him all powerful in the board and by that count, in the company. Without these qualities he is just a mere figurehead.
Managing Director #
The Companies Act 1994, in section 2(1) (m) defines a managing director. It stipulates that a managing director means a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of directors or by virtue of its memorandum or articles of association, is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called. It is further provided that a managing director shall exercise his powers subject to the superintendence, control and direction of its Board of directors. But at the same breath, it excludes from the purview of his substantial powers the administrative acts of a routine nature, when so authorised by the Board, such as the power to affix the common seal of the company on any document or to 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 to direct registration of transfer of any share.
As per the above definition and for obvious reasons, a managing director has to be a director before he can be appointed managing director. He is a member of the general body of directors entrusted with special powers and duties. He is, like are all other directors, not a servant of the company, rather is an agent of the company to carry on its business. But the directors can not appoint one of themselves to the office of managing director and delegate their powers and duties to him unless they are expressly empowered by an article or by a resolution of the company. Such a delegation or appointment must be made unanimously at a meeting where proper quorum is present excluding the interested directors. When, for various reasons, it is felt and desired that a managing director should be appointed, but the existing directors are unable, owing to their internal frictions and factions, to make the appointment as per provisions of the articles, the company in general meeting can make the appointment. Regulation 73 deals with appointment of managing director.
The new Companies Act, however, in sections 109 and 110 has set certain limits in the appointment of managing director. These are:
1. a person cannot be appointed managing director of a public company if he is the same in any other company,
2. none can be so appointed without consent of the general meeting,
3. government approval will be necessary to appoint one as managing director for more than two companies,
4. a managing director cannot be appointed for a term of more than five years at a time,
5. the tenure of appointment may be renewed after every five years but nothing can be done without consent of the general meeting.
Furthermore, regulation 54 provides that the managing director cannot simultaneously be appointed chairman of the company. These rules and regulations are, so to say, nothing but unnecessary infringement in the fundamental rights of the shareholders in that, it is they to decide who to be the chairman or managing director of their company or how to choose the incumbent or how long will be the tenure of his office.
Executive Director #
There are cases where the day-to-day affairs of the company are supervised not by the managing director, but instead the responsibility is entrusted to another official, conventionally known as the executive director. While the managing director is the chief executive officer of the company, the executive director may be called the chief operating officer of the company. He may or may not be a member of the Board.
The Companies Act has not defined the position of executive director or the whole time director. The executive director is in the whole-time employment of the company. Although the executive director may not be a member of the Board but he is essentially a part of the top policy making body of the company. Unlike the Board members (i.e. the other ordinary directors) the executive director has to devote his entire time and attention to the business and affairs of the company and cannot necessarily assume or accept the same position in any other organization at the same time. This, however, excludes companies within the same group.
Reporting functionally to the managing director and online matters, to the Board, the executive director, where there is one, is overall incharge of the affairs of the company. The departmental managers report primarily to him and through him to the managing director. The executive director is appointed by a resolution of the Board. Such a resolution should, conventionally be unanimous. It is to be made clear here that the office of the executive director cannot be equated to that of the managing director. Unlike the managing director of a company, an executive director or a whole-time director is not entrusted by the company with substantial powers of management of business and affairs of the company. The powers, duties and responsibilities of an executive director are governed strictly by the terms and conditions of his employment and subject to close supervision of the managing director and the Board.
Nominated director #
A director is elected on the strength of his qualification shares possessed either at the time of his election, or which is acquired subsequently. But it is not always that a director should hold shares in his own name. When a shareholder who, by virtue of his share qualification, decides to put forward a person instead of himself, for the office of a director, that person on election is called a nominated director.
The body corporate which is a member of another company may nominate a director in that other company. But such a director will continue to remain a director so long as his nominator retains the qualification shares. The articles sometimes give a right to financial institutions, banks or debentureholders etc. to nominate directors on the Board with a view to ensuring that the funds lent by them are used for the purpose for which they were borrowed. Generally such nominated directors are non-retiring.
Alternate director #
A director may appoint somebody in his stead to act as his alternate director if such an arrangement is provided in the articles of association of the company or is authorized by the company in general meeting. Section 101 of the Act mentioned the following in this connection:
To appoint an alternate, the director is supposed to be :
a) away from the meeting place,
b) away for at least three months, and
c) such appointment should be approved by the Board.
The appointment of an alternate or substitute director will stand automatically terminated when the appointing director returns to the place where Board meeting normally takes place. Also on resignation, retirement or on other reasons when the director appointing an alternate director ceases to hold office, his alternate will vacate office at once.
Director as an adviser #
The company is steered through by the directors. In that responsibility directors are expected to put best of their knowledge and expertise for the progress of the company. If however, a director has the faculty of an expert, he can be engaged in that capacity as well. It means that a director can be appointed separately as an advisor such as a legal or tax advisor. But a director cannot be appointed the auditor of the company. In the capacity of a professional expert the fees of a director may be fixed up separately. The provision for such an appointment and fixation of the fees or other tariff should be there in the articles and, as is usual, be made by a resolution of the Board.
Professional director #
A professional director is comparatively a new arrival in the corporate scene. There are certain gifted individuals who, because of their long and successful standing in the business or corporate environment, has gained considerable experience and expertise in the corporate management. Their retirement from active service or business does not necessarily make them completely withdrawn. Companies often take them in the Board so as to gain from their extensive experience in a particular field. The idea to induct experienced individuals in the Board is relatively of recent birth and may originate from the thought that their association may help improve any given situation and steer a company through some exigencies. Board room experts are of the view that contribution of the Board towards the company would improve by the addition of professional directors.
Employee director #
The Board may often include employee directors or departmental directors such as marketing director, finance director, personnel director etc. The dual office of employee-cum-director enjoins upon a company to comply with the provisions of section 104 of the Act which provides that no director shall without the consent of the company in general meeting hold any office of profit under the company except that of managing director or manager or a legal or technical adviser or a banker. Any office or place shall be deemed to be an office or place of profit under the company in case the office or place is held by a director and the director holding it obtains from the company anything by way of remuneration over and above the remuneration to which he is entitled as such director, whether as salary, fees, commission, perquisites etc. The director will retain only one of the two unless the general meeting resolves otherwise.
Such a director has to play dual role. As director he is a member of the Board and has to act as an agent of the company and as a trustee of its funds and properties. On the other hand as the departmental chief he has to apprise the Board about all developments that may take place in his area. As a departmental director he is more equipped to assess the exact situation prevailing in the department concerned and helps the Board in taking appropriate decision required to promote the efficiency of the concerned department and thereby the company as a whole.
Directors committee #
If provided in the articles, the directors may often delegate some of their powers and functions to any committee with specific task to handle. Committee is the smaller body of the Board and may comprise of one or more members. The directors may delegate their powers to different committees. These committees may be standing or permanent committee like management committee, budget committee, recruitment committee etc.; or adhoc committee such as project committee, tender committee, inquiry committee etc. There are instances that such a committee often includes non-directors also so as to assist the directors. The committees may meet together, elect their respective chairman and transact their specific business according to their convenience and report to the Board of directors. But whatever they may be entrusted with, those must be within the scope of articles of the company. There are, however, limitations that not all business of the Board can be shifted to committees, for example directors’ or auditors’ reports cannot be approved by any committee. Regulations 92, 93, 94 and 95 deal with committee of directors.
Register of directors #
A company is obliged to maintain register of its directors, managers and managing agents at its registered office. Section 115 spells out the area of details of directors that is required to be recorded in this register. A return is also provided for this purpose to be filed with the Registrar. The time limit set out for filing such a return is fourteen days from the appointment of first directors or of a change
therein. Other important points included in this section are the provision for inspection of the register and a fine of Taka five hundred for refusal to inspection and failure to submit the return.
Remuneration of directors #
Directors are not servants of the company and as such are not entitled to any remuneration as of right, unless the articles provide for it and fix the amount. Where the articles are silent, a general meeting may vote the directors remuneration which is in the nature of gratuity. Regulation 70 provides that the remuneration of the directors shall from time to time be determined by the company in general meeting. If a company stipulates such a provision in its articles and the directors remuneration is fixed on the basis of it, the company hits the right to a) reduce or increase the remuneration and b) discriminate between directors the remuneration so payable. But if remuneration is provided in the articles, it cannot be changed except by passing a special resolution.
Disclosure of directors fees #
The company is obliged to disclose in its annual reports the amounts paid to the directors in the form of remuneration, fees, allowances and other perquisites. The Companies Act 1994, in part - II(4) of schedule XI has emphatically narrated the requirements in this respect. Moreover the Securities and Exchange Rules 1987 has also spelled out in details the extent of such a disclosure for a public company. Clause 4 of Part - 11 for ‘requirements as to profit and loss account’ in the schedule to the rules deals with such disclosure. It should give full particulars in aggregate, of all amounts paid to the directors (including the managing director), managing agents and officers of the company.
Office of profit #
This is a term referred to in section 104 whereby any director except the managing director or legal or technical adviser, is restricted from accepting any other place or position i. e. the office of profit in the company other than his directorship. The term ‘office of profit’ inherently bears the meaning of salary and/or other benefits form the company. To be quite clear, a director is considered to occupy the position of ‘office of profit’ if he draws anything from the company by way of additional remuneration over and above his usual one as a director. This additional remuneration may be in the form of salary, fees, commission, perquisites, free accommodation or otherwise. The Board, however, by an unanimous resolution may appoint a managing director fixing his salary and other benefits (such as commission or participation in profits or partly in one way and partly in other) under an agreement with the company. Any other director cannot accept such an office of profit without the consent of the company in general meeting as provided in section 104.
Loans to directors #
Since directors are in charge of management of the company, a question may arise as to whether directors can borrow money or other pecuniary benefits from the company. Section 103(1) prohibits any loan or guarantee to any loan, to any director of the company or to a firm of which such director is a partner or to a private company of which such director is a member or director. Any contravention of this provision is punishable under sub-section (2) of this section.
However, it is important to note that the prohibition of loan will not apply to a banking company or to a non-subsidiary private company. Such exclusions point to the fact that loans to directors of a bank are contemplated as part of its business and to the directors of private company, permissible because those are somewhat in the nature of ‘indoor deals’. The new Companies Act, under the same section, has introduced certain relief for directors of public companies so far as borrowing from the company is concerned. Those are that the restrictions will not apply if: a) the loan concerned is sanctioned by a resolution of the Board, b) approved by the general meeting and c) specifically mentioned in the balance sheet of the company. At the same breath it is further provided that the loan will not exceed 50% of the paid-up value of shares held by the director taking the loan.
Contracts of directors with the company #
Can a director contract with the company of which he is a director? It is held that a director can contract with the company if such contract is voted by the Board with contracting director abstaining, he being an interested director. The Board must know, study and sanction a) any contract in which any director, their relatives and firms are interested, and b) any arrangement in which any of the directors may have a like interest. Section 105 restricts a director from entering into any contract with the company for the sale, purchase or supply of goods and materials except with the consent of the directors. It is further provided in sec. 130 that every director who is directly or indirectly interested in any contract or agreement with the company, must disclose the nature of his interest at the first meeting of directors after acquisition of his interest. He will not vote in that meeting being an interested director.
Removal of directors #
A director may be removed from office of directorship by two ways: first he may not be voted to the seat on retirement at the general meeting. In this way, though eligible, the director looses his candidature and is out of office of the Board. And in the second case, a director may be removed from the Board before expiry of his period of office by a special resolution. Section 106 paves the way for such a step. This will not, however, ordinarily apply to a nominated director or one who is a director exofficio. A company, whose directors are appointed under its articles for a definite period, has no inherent power to remove them before the expiration of the period without first altering the articles. Even a special or extraordinary resolution of the company may not be effective. It is also to be remembered that directors are appointed by the shareholders and as such directors have no authority whatever, to exclude anybody from the board by themselves.