Board of directors - Powers & Restrictions
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The board of directors of a company has the authority to exercise all powers and perform all acts that the company is authorized to exercise and perform. However, the board is subject to restrictions imposed by law or the company's memorandum and articles of association. Certain important powers of the board, such as borrowing money, must be exercised through board resolutions. The company can further restrict the board's powers through shareholder resolutions. Special shareholder resolutions are required for matters like selling all or substantially all of the company's assets or borrowing money beyond certain limits. The board is also limited in the amounts it can contribute to political parties.
Board of directors - Powers & Restrictions
- 1. BOARD OF DIRECTORS- POWERS & RESTRICTIONS PREPARED BY, ANIT ITOOP VATTOLY ROLL NO:17
- 2. POWER OF BOARD OF DIRECTORS (SECTION 179) • The Board of Directors of a company shall be entitled to exercise all powers, and to do all acts and things, as the company is authorised to exercise and do. The Board shall be subject to restrictions imposed under this Act or in Memorandum or Articles or any regulation of the Company. The Board shall not exercise any power which is required to be exercised by the company in general meeting. • No regulation made by the company in general meeting shall invalidate any act of the Board done prior to these regulations come into existence and effect.
- 3. • Powers to be exercise in Board Meeting (Section 179, Sub – Section 3): • The Board shall exercise following powers only by means of resolution passed in its meeting: • (a) to make calls on shareholders in respect of money unpaid on their shares; • (b) to authorise buy-back of securities under section 68; • (c) to issue securities, including debentures, whether in or outside India; • (d) to borrow money; • (e) to invest the funds of the company; • (f) to grant loans or give guarantee or provide security in respect of loans; • (g) to approve financial statement and the Board’s report; • (h) to diversify the business of the company; • (i) to approve amalgamation, merger or reconstruction; • (j) to take over a company or acquire a controlling or substantial stake in another company; • (k) any other matter which may be prescribed.
- 4. RESTRICTIONS ON BOARD OF DIRECTORS • Company to restrict power of Board (Section 179, Sub – Section 4): • The company in general meeting has power to impose restrictions and conditions on the exercise by the Board of any of the powers specified in this section. • Restrictions on Power of Board (Section 180): • The Board of Directors may exercise particular powers only with the consent of the company given by way of special resolution passed in general meeting of the company. • These are: • To sell, lease or otherwise dispose of the whole, or substantially the whole, of the undertaking of the company, or where the company owns more than one undertaking, of the whole, or substantially the whole, of any such undertaking • To remit, or give time for the re-payment of, any debt due by a director except in the case or renewal or continuance of any advance made by a banking company to its director in the ordinary course of business
- 5. • To invest, otherwise than in trust securities, the amount of compensation received by the company in respect of compulsory acquisition of any such undertaking as is referred to in clause (a), or of any premises or properties used for any such undertaking and without which it cannot be carried on or can be carried on only with difficulty or only after a considerable time • To borrow moneys, where the moneys to be borrowed together with the moneys already borrowed by the company, (apart from temporary loans obtained from the company's bankers in the ordinary course of business) will exceed the aggregate of the paid-up capital of the company and its free reserves • To contribute, to charitable and other funds not directly relating to the business of the company or the welfare of its employees, any amounts the aggregate of which will, in any financial year, exceed fifty thousand rupees, or five per cent of its average net profits during the three financial years immediately preceding, whichever is greater.
- 6. To sell, lease or otherwise dispose of the undertaking (Section 180, Sub – section 1, clause a, and sub – section 3, 4): • The Consent of Company in General meeting by way of special resolution is required to sell, lease or otherwise dispose of the whole or substantially whole of the undertaking of the company. Where, the company owns more than one undertaking, than sell, lease or otherwise dispose of the whole or substantially the whole of any of such undertakings require such consent. • “Undertaking” shall mean an undertaking in which the investment of the company exceeds twenty per cent of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which generates twenty per cent of the total income of the company during the previous financial year. • The expression “substantially the whole of the undertaking” in any financial year shall mean twenty per cent or more of the value of the undertaking as per the audited balance sheet of the preceding financial year.
- 7. • To borrow money (Section 180, Sub – section 1, clause c, and Sub – section 2): • The Consent of Company in General meeting by way of special resolution is required to money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business. • The expression “temporary loans” means loans repayable on demand or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the issue of other short-term loans of a seasonal character, but does not include loans raised for the purpose of financial expenditure of a capital nature. • Every special resolution passed by the company in general meeting shall specify the total amount up to which monies may be borrowed by the Board of Directors. • No debt incurred by the company in excess of the limit imposed by clause (c) of sub-section (1) shall be valid or effectual, unless the lender proves that he advanced the loan in good faith and without knowledge that the limit imposed by that clause had been exceeded.
- 8. • Limit on Political Contribution (Section 182, Sub – section 1) • A company, other than a Government company and a company which has been in existence for less than three financial years may contribute any amount directly or indirectly to any political party. The aggregate of the amount which may be so contributed by the company in any financial year shall not exceed seven and a half per cent of its average net profits during the three immediately preceding financial years. No such contribution shall be made by a company unless a resolution authorising the making of such contribution is passed at a meeting of the Board of Directors and such resolution shall be deemed to be justification in law for the making and the acceptance of the contribution authorised by it.
- 9. THANK YOU