Introduction:
Any company be it public, private a start-up or a proprietorship ( one-man company) is governed by a certain set of people. These person(s) are responsible for administration, day to day functioning, financial management, human resources and growth of the company. Also, they are the legal representatives of the company in case of any lawsuit. Thus, these set of people also draft the policies and bylaws for executing these responsibilities and giving the company its work ethics. Thus, this set of people are called the Directors or the Board of Directors Moreover, in order to bring uniformity, ease of business, ensure smooth functioning and putting reasonable restrictions on the companies the government puts certain laws and legal compliances in place. These companies have to work and draft their policies in adherence to such rules and laws. The idea is to create a head that is responsible enough to make business last and grow longer in an ethical manner.
Thus the board of directors is a group of people responsible for the functioning and management of the company. Under the companies act a director is someone who has been officially appointed to the board [1], while the board of directors is simply board is defined as a collective body of directors.[2] These board members or directors are responsible for the following-
- Putting together dividend policies
- Developing policy options
- Senior executive hiring and firing (especially the CEO)
- Establishing executive compensation
- Providing assistance to executives and their teams
- Keeping firm assets in good shape
- Creating broad company objectives
- Assuring that the organisation has the tools it requires for effective management.
The structure and composition, powers and responsibilities of the directors of the board are determined by the bylaws of the company. These bylaws are created and mutually accepted by the board. Generally, there is no specified number of directors that a company can have, however under section 149(1) sub-clause a and b[3],
- A public company must have a minimum of 3 directors
- A private company must have a minimum of 2 directors
- A one-person company can have only 1 director;
Further there the act specifies a cap of 15 directors at max in any company however it can be increased from 15 with a special resolution. Further section 149(1) also mandates having at least one woman director. The board has to conduct frequent meetings for the proper and smooth functioning of the company.
Meeting of the Board of Directors
Board meetings are the highest-level meetings, with board members or their representatives in attendance. Since a corporation is merely a legal organisation, it is unable to act or make choices. The board of directors acts as the company’s agents, taking actions and making decisions. Thus, board meetings must be held at regular intervals in order for the organization’s operations and administration to run smoothly. Section 173 of the Companies Act, 2013 stipulates that the first board meeting of a Public Limited Company must be convened within the first 30 days after the company’s establishment date. A minimum of four board meetings must be held over the course of a year. Furthermore, no more than 120 days must pass between meetings.[4] Similarly for small businesses or one-person businesses must hold at least two meetings, one in each half of the financial year. In addition, there must be at least 90 days between the two meetings.
Notice for the Meeting
Notice of Board Meeting is a document that is sent to all of the company’s directors. The members are informed about the meeting’s location, date, time, and agenda through this paper. Companies of all sizes are expected to give notice at least seven days before the meeting. Furthermore, the decision of the meetings must be communicated to directors who were unable to attend. If the person in charge of notifying fails to do so, he may face prosecution. When directors are aware, only then they are assumed to be in compliance with the law.[5]
Quorum and Participation
The quorum for a Board Meeting is the minimal number of Board members required to hold a lawful meeting. The minimum number of board members required for a meeting is 1/3rd of the total number of directors, according to Section 174 of the Companies Act, 2013.
A minimum of two directors must be present in any case. The restrictions of Section 174, on the other hand, do not apply to a one-person company. The directors are not required to be physically present at every meeting; instead, they can participate via video or voice conferencing. However, there may be some issues that cannot be handled via video conferencing other audio-visual means, in which case the central government may prohibit their usage. In addition, a director can only be absent if the chairman permits it.
Procedure
For efficient operation, all meetings held in businesses must adhere to a set of well-defined norms and procedures. There may be some differences, but the overall procedure remains the same. There are a few steps that must be followed mandatorily –
Notification
The board of directors and any other interested parties must be notified of the meeting in advance to secure their attendance. Depending on the situation, it might be long-term or short-term.
Contents of the Notice
The notice must specify the location, date, and time of the meeting, as well as a brief explanation of the topic to be discussed. The convener must sign it and include the date of issuance.
Quorum[6]
The person in charge of notifying the meeting must make certain that the meeting has been pre-notified to the necessary quorum, which must be present at the meeting as required by the Act. Throughout the meeting, the quorum must be maintained.[7]
Chairman[8]
A chairperson is required to preside over every meeting. In most cases, the meeting is chaired by the chairman of the Board of Directors. [9] He is in charge of starting and ending the discussion of motions in the meeting. It is his obligation to guarantee that the meeting runs smoothly. The chairman can also be chosen by a simple majority vote.
Resolutions
The decisions made at each meeting are referred to as resolutions. There are particular procedures and rules that must be followed when they are considered and voted on. These are divided into several sections.[10]
Voting
There may be issues on which there is no broad agreement, and voting will be required. The chairperson may call the topics (if uncertain) for voting after a thorough debate. The Companies Act of 2013specifies the requirements for voting in various meetings. The chairman is in charge of the voting procedure.[11]
Adjournment and Minutes
After careful consideration and discussion, the meeting is adjourned and then disbanded, with members dispersing. These discussions must be recorded in an official company document called minutes of the meeting, which provides a summary of each meeting. As stated in the Companies Act of 2013, every relevant element of the meeting must be presented. [xxv][12]
Report
Firms must prepare a report of the meeting, similar to an AGM, detailing the meeting’s proceedings. The registrar must get a copy of the document.[13]
Committee Meetings
Committees are a subset of the board, with authority derived from the board’s assigned authorities.
The Board of Directors may delegate certain matters to committees established for that purpose under Section 177 of the Companies Act, 2013.[14] In areas where more concentrated, specialised, and technically oriented discussions are required, committees are formed to improve board effectiveness and efficiency. Broadly there are 4 types of committees
- Audit committee
- Nomination and Remuneration Committee
- Stakeholders Relationship Committee
- Corporate Social Responsibility Committee
Audit Committee
[15]Every company which is a Listed Public Company and a Public Companies having a Paid-up share capital of 10 crore rupees or more, and a turnover of Rs. 100 Crore or more are required to have an audit committee. Furthermore, an Audit Committee is necessary for all public companies with outstanding loans, debentures, and deposits totalling more than 50 crore rupees. As per the Companies Act, an audit committee is composed of –
- Minimum 3 directors with a majority of Independent Director.
- Members including the Chairman of the Audit Committee should be able to read and understand financial statements.
However, as per clause 49 of listing agreements, an audit committee is composed of
- Minimum of 3 Directors of which 2/3rd are independent Directors.
- All members should be financially literate and at least 1 member shall have accounting or related financial management expertise.
[16]Functions of the Audit Committee
- The Audit Committee’s role is to recommend the appointment, salary, and terms of the Company’s auditor;
- To create a policy for a Vigil Mechanism.;
- To request auditors’ comments on the internal control system.;
- The chairman of the Committee should be present at the Annual General Meeting to answer the shareholder’s question.;
- To discuss any issues concerning the Company’s internal and statutory auditors, as well as the management.
Nomination and Remuneration Committee[17]
As per the Companies Act, The Nomination and Remuneration Committee will be made up of the Boards of Directors of the following companies.
1. Every publicly traded company.
2. The Companies in the Following Groups
All public companies with a paid-up share capital of Rs. 10 crores or more; or all public companies with a turnover of Rs. 100 crores or more; or all public corporations with outstanding loans, debentures, and deposits totalling more than Rs. 50 crores.
According to the Companies Act of 2013, the composition of the Nomination and Remuneration Committee requires a minimum of three non-executive directors, two of whom must be independent, and an independent director will serve as Chairperson.
Functions of Nomination and Remuneration Committee
- Recommendation of directors’ success plans.
- To go over the components of the pay package as well as the structure of the remuneration package.
- Changes to the salary package, terms of appointment, severance cost, requirements, and termination rules and processes should be reviewed.
- To make recommendations for the shortlisted candidates who are qualified to be directors and for senior management positions.
- The committee has the authority to obtain information on any employee, and management has been instructed to cooperate.
- The Committee may attend the General Meeting to respond to shareholder questions.
Stakeholders’ Relationship Committee [18]
A corporation that has 1000 shareholders, debenture holders, deposit holders, or any other security holders at any time during a financial year is defined by Section 178 of the Companies Act, 2013. According to SEBI listing criteria, it is composed of at least three directors, at least one of whom must be an independent director, and at least two-thirds of the committee must be independent directors in the event of a listed business with outstanding SR equity shares. The Committee’s chairperson will be a non-executive director, and other members will be chosen by the Board.
The Committee is required by regulation to convene at least once a year. Attendance at the Company’s general meetings is required of the chairperson or, in his absence, any other member of the committee authorised by him in this capacity.
Functions[19]
The Committee will deal with complaints about share transfers, non-receipt of annual reports, and non-receipt of declared dividends, as well as authorise the issuance of new/duplicate certificates and new certificates on split/consolidation/renewal, among other things. transfer/transmission approval, dematerialization
Committee on Corporate Social Responsibility (CSR)
The concept of CSR evolved from fact that a corporate is often treaty as a separate legal entity having its own rights and duties. further these corporate to make profits, use environmental and human resources without any check or responsibility of returning back the favours or restoring any damage done. Also, since these companies make humongous profits, they are very capable of taking responsibility for eradicating social issues. The whole purpose has an underlying globally accepted idea that “ what goes around comes around and one reaps what it sows hence it is the responsibility of everyone to not cause anyone any harm and to return to society what it takes to grow”[20]. It was observed that many businesses were rampantly exploiting natural and human resources to maximise profits, and evade legal compliances. Hence the government came up with the idea of making big companies responsible for society and making them bound to pay back society.
[21]According to Section 135 of the Companies Act, 2013, and the Companies(CSR Policy) Rules, 2014, every firm with a net worth of Rs.500 crores or more, a revenue of Rs.1000 crores or more, or a net profit of Rs.5 crore or more must have a Corporate Social Responsibility Committee.[22]According to the rules of the Companies Act and CSR rules, in the event of a publicly traded company, there should be at least three directors, one of whom should be an independent director.
Conclusion
The board of directors in any company is like the union cabinet of any government of any country who are responsible for the lawful and progressive functioning of the company. The whole responsibility of the management of any company is on the shoulders of the board. Since the board bears such huge accountability, the law mandates for every crucial step to be taken by the board to adhere to its duties. Added to that, by way of allied rules and regulations the law often facilitates the companies in the execution of their duties. Moreover, by providing such comprehensive laws, in a way the government empowers the employees as well. This is because if any employee is facing any violation of his/her right, or notices any breach by the company which hampers the productivity of the employee or any unfair/ unjust treatment then he/she is capable of complaining and getting the issues resolved. Similarly, even the creditors are empowered by the given set of rules which are to be followed by the board of the companies. The idea is to ensure efficiency, mutually gained profits/ benefits in an ethical manner so as to make business fruitful for people, society and the economy in the long run.
References:
Bare Acts
- The Companies Act 2013
Journal Articles/Blogs
- Diganth Raj Sehgal, “Meetings under Company Law”, ipleader
- General meeting- kinds of company meeting, Legal service India
- Kanika Maheshwari,Audit Committee- Section 177 | Companies Act, 2013 & Rules,taxguru
- Sweat Makwana, Nomination and remuneration committee, Tax guru
- Akaansha Negi, Different Types of Committees under Companies Act, 2013, Tax guru
- Sakshi Sethi,Meetings under Company Act, 2013,lawtimesjournal
Other Sources:
[1] Section 2(34), companies act 2013
[2] Section 2(10) companies act 2013
[3]Companies act 2013
[4] Section 173, Companies act 2013
[5]A. Chettiar v. Kaleeswarar Mills Ltd[1956], AIR 1957 Mad 309
[6]Section 103 of Companies Act, 2013
[7]Diganth Raj Sehgal, “Meetings under Company Law”, ipleader
[8]Section 104 of Companies Act, 2013
[9]General meeting- kinds of company meeting, Legal service India
[10]Section 114-117 of Companies Act, 2013
[11] Section 105-110 of Companies Act, 2013
[12]Section 118 of Companies Act, 2013
[13]Section 122 of Companies Act, 2013
[14] Section 177 of Companies Act 2013
[15] Section 177, rule 6 and 7 Companies act 2013
[16]Sakshi Sethi, Meetings under Company Act, 2013,lawtimesjournal
[17] Section 178, Companies act
[18] ibid
[19] ibid
[20] Nikunj keyal, “Corporate Social Responsibility”, legalserviceindia
[21] Section 135, Companies act
[22] CSR policy, 2014
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