Role and Responsibilities of Board of Directors
- 2. Defining Director Sec 2(13) of the companies act defines a directors as follows: “ A 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, if he performs the functions of a director”
- 3. Duties & Responsibilities of Directors: the directors have certain duties to discharge. These are: Fiduciary Duties Duties of care, skill & diligence Duties to attend board meetings Duties not to delegate their functions except to the extent authorized by the act or the constitution of the company and to disclose his or her interest
- 4. Qualifications of Directors: A director must be, Be an individual Be competent to enter into a contract Hold a share qualification if so required by the AOA
- 5. The following persons are disqualified for the appointment as directors:. A person of unsound mind An undischarged insolvent or one whose petition for declaring himself so is pending in a court A person has been convicted by a court for any offence involving turpitude A person whose calls in respect of shares of the company held for more than six months have been in arrears Disqualifications of Directors:
- 6. A person who is disqualified for appointment as director by an order of the court on grounds of fraud in relation to the company Directors can be removed from office by A) The shareholders B) The central ( Federal) Govt. C) The company Law Board Disqualifications of Directors:
- 7. Board of Directors The board of directors of a company, which includes all the directors elected by shareholders to represent their interests, is vested with the powers of the management The board has extensive powers to manage the company, delegate its power and authority to executives and carry on all activities to promote the interests of the company and its shareholders subject to certain restrictions imposed by public authorities
- 8. Power of the board Board of directors shall exercise the following powers: Make calls on shareholders in respect of money unpaid on their shares Issue debentures Borrow money otherwise( for e.g. through public deposits) Invest the funds of the company Make loans
- 9. The board of directors also can exercise certain other powers as listed below with the consent of the company in general meeting, as in the case of an amalgamation scheme: To sell, lease or otherwise dispose of the whole or substantially the whole, of the undertaking of the company To remit or give time for repayment of any debt due to the company by a director except in the case of renewal or continuance of an advance made by the banking company to its director in the ordinary course of business
- 10. To borrow in excess of capital To contribute to charitable and other funds not relating to the business of the company or the welfare of its employees beyond a specified amount To invest compensation amounts received on compulsory acquisition of any of company properties To appoint a sole selling agent
- 11. Liabilities of Directors Directors of a company may be held liable under the following situations: Directors of a company may be liable to third parties in connection with the issue of prospectus, which does not contain the particulars required under the companies act or which contains material misrepresentations Directors may also incur personal liability under the act A) on their failure to repay application money if minimum subscription has not been subscribed
- 12. Liabilities of Directors B) on an irregular allotment of shares to an allot tee ( and likewise to the company) if loss or damage is sustained C)On their failure to repay application money if the application of securities to be dealt in on a recognized stock exchange is not made or refused D) On failure by the company to pay a bill of exchange, hundi, promissory note, cheque or order for money or goods wherein the name of the company is not mentioned in legible characters
- 13. Directors Liability to the company Ultra Vires acts: Directors are personally liable to the company in matters of illegal acts Negligence: A director may be held liable for negligence in the exercise of his or her duties Breach of trust: they are liable to company for any material loss on account of the breach trust Misfeasance: Directors are liable to the company for misfeasance, that is, willful misconduct
- 14. Responsibilities of Directors An efficient and independent board should be conscious of protecting the interests of all stakeholders and not be concerned too much with the current price of stock Another important function of the director is to set priorities and to ensure that these are acted upon A director is also expected to have the courage of conviction to disagree Directors have great responsibility in the matter of employment and dismissal of the CEO
- 15. One of the toughest challenges confronted by boards arises while approving acquisitions An efficient board should be able to anticipate business events that would spell success or lead to disaster if proper measures are not adopted in time The directors have a duty to act bona fide for the benefits of the as a whole Responsibilities of Directors