Chp 10 Management Of Company

1. Management of a Company 1. WHO MANAGE THE COMPANY ? • One of the important features of a company is that there is separation of ownership from management. • The shareholders do not directly manage. Instead, they elect some persons from among themselves as their representative to act on behalf of the company. Such persons are known as directors. • The power to manage however is not entrusted to any single director but to all the directors, collectively called the Board of Directors.

2.Organs of company management •

a) The Shareholders.

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b) The Board of Directors, who frame the business policies of the company and are responsible for overall management, supervision and control.

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c) The Chief Executive, who may be a Managing Director (MD) or a Manager (M) responsible for day-to-day administration of the company

For the assistance of the chief executive there may be • Whole- Time Directors (WTD) and other departmental managers such as finance manager, production manager, personnel manager and company secretary.

3.Choice of Managerial Personnel • A company can appoint either one of -

Managing Director or Manager (sec 197 A ) • A public company or a private company which is a subsidiary of a public company having a paid up share capital of Rs 5crores or more must have atleast one of the three categories viz, MD , WTD, or M. sec 269(1)

4. Number of Directors • I) Minimum a) A public company must have at least three directors. b) A private company must have at least two directors.

• ii) Maximum a) The Companies Act does not fix any maximum number. Where the maximum fixed by articles is less than12,the number can be increased to 12 without Central Government approval.

5. Who can be a Director ? • Any person can be a director, if he satisfies the following conditions: i) He must be an individual (i.e., natural person) sec. 253 ii) He must hold qualification shares if the articles so provide. iii) He must not suffer from any of the statutory disqualifications (mentioned in S.274) •

WHO CANNOT BE A DIRECTOR ? sec. 274

6. How Directors are appointed ? APPOINTMENT OF DIRECTORS

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First Directors

Subsequent Directors

* By Articles

* By Company in General Meeting S.255

* By Subscribers to the Memorandum. S 254

* By Board of Directors S.260,262,313 * By Central Government S.408 * By Third parties.(Nominee directors) * By Principle of Proportional Representation. S.265 * By Small shareholders. S.252

7. Appointment of MD or WT Director • A MD, WTD can be appointed by the Board of Directors and will further need approval in general meeting • by an ordinary resolution if it is for MD (S.269(2) or • by a special resolution if it is for WTD (S.314(1). • Further, in case of public companies, the appointment of MD/WTD needs approval from Central Government if the appointment is not made in accordance with the conditions specified in Schedule XIII . • If the appointment is as per the conditions mentioned in Schedule XIII then no approval of Central Government is necessary .

8. Powers of Directors(sec 291 to 293) Powers of Directors

__________________|_________________ | Statutory Powers

1. Powers exercisable only at meetings of the Board 2. Powers exercisble only with the consent of the company, in general meeting. 3. General (Residue) Powers.

| Managerial Powers

1. Power of superintendence control and direction of affairs of the company.

9. When Directors cease to hold office. • 1. When he resigns from his office; or • 2. When he retires by rotation; or • 3. When he vacates his office; • 4. When he is removed from his office I) By shareholders in general meeting ii) By Central Government. iii) By Court.

10. Directors Remuneration • Section 198 lays down the overall limits of remuneration payable to the managerial personnel. •

Section 309 fixes limits in respect of individual directors or directors acting as a Board.

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Under section 198 managerial remuneration must not exceed 11 per cent of the net profits of any financial year.

• Under section 309, a simple director cannot be paid more than one per cent of the net profits of the company, if the company has a managing or a whole time director or a manager. • In any other case, it cannot exceed three per cent of the net profits.

Directors Remuneration (Cont.) • A whole time director or a managing director may ordinarily be paid subject to a ceiling of five per cent of the net profits and • if there is more than one such director, ten per cent for all of them together. • This can be exceeded with the permission of the Central Government.

Directors Remuneration (Cont.) • In case of loss making companies, Schedule XIII places further limitations on the1 remuneration payable to MD, WTD,M. • Monetary ceilings have been placed varying with the effective capital of the company concerned.

Directors Remuneration (Cont.) • However, the company in general meeting may, with the approval of the Central Government, authorise the payment of higher remuneration than stipulated under section 309 or Schedule XIII. • However, no approval of the Central Government is required if the increase in remuneration is in accordance with the conditions specified in Schedule XIII