Course Name: Company Law and Corporate Governance

Course Code: BBH435

Credits: 4
UNIT III – Company Management and Meetings 12 Hrs
Introduction - Meaning, Definition, Rights and Duties of managerial personnel -
Appointment of key managerial personnel - Directors - Types of directors - Position, Powers,
Duties and Liability of Directors, Appointment, Removal and disqualification of Directors -
Types of Committees - Managerial Remuneration - Auditor – Role, Appointment and
Rotation - Company Meetings - Meetings of Board of Directors – Meetings of Shareholders –
Statutory Meeting – Annual General Meeting – Extraordinary General

Meaning and definition:

The term ‘personnel’ refers to a group of people working together, instead of one
person. The Key Managerial Personnel are the decision makers.
They are accountable for the smooth functioning of company operations.
According to Section 2(51) of the Companies Act 2013, Key Managerial Personnel in
a Company are:
-Chief executive Officer (CEO) OR the Managing Director.
-Chief Financial Officer (CFO).
–Company Secretary (CS).
-Whole-Time Director.
Accounting Standard 18(AS-18) states that Key Managerial Personnel (KMP) are
people who have authority and responsibility for planning, directing and controlling
the activities of the reporting enterprise.
The primary responsibilities and functions of the KMP are:
The KMPs are responsible for taking crucial company decisions and managing the
employees.
They are also liable when the company does not follow the mandatory compliances
laid down by the Act.
As per Section 170 of the Act, the details about the securities held by the KMPs in the
company or its subsidiaries must be disclosed and recorded in the Register.
The KMPs have the right to state their opinion, especially in the Audit Committee
meetings, but they do not have a voting right.

Types of directors:
Chief Executive Officer/Managing Director

The managing director or chief executive officer is responsible for running the whole
company.

Also, the managing director has authority over all operations and has the most power in a
managerial hierarchy.

He is also responsible for innovating and growing the company to a larger scale.

In many countries, a managing director is also called a Chief Executive Officer (CEO).

Company Secretary

A company secretary is a senior level employee in a company who is responsible for the
looking after the efficient administration of the company.

The company secretary takes care of all the compliances with statutory and regulatory
requirements.

He also ensures that the targets and instructions of the board are successfully implemented.

However, in some countries, a company secretary is also called a corporate secretary.

Whole Time Director

A Whole Time Director is simply a director who devotes the whole of his working hours to
the company.

He is different from independent directors in the sense that he has a significant stake in the
company and is part of the daily operation.

A managing director may also be a whole time director.

Chief Financial Officer

Chief Financial Officer (CFO) is a senior level executive responsible for handling the financial
status of the company.

The CFO keeps tabs on cash flow operations, does financial planning, and creates
contingency plans for possible financial crises.

Section 203 of the Act provides that certain classes of companies must appoint the KMP,
which includes the Managing Director or manager or Chief Executive Officer, company
secretary and Chief Financial Officer.

The company must appoint a whole-time director if it does not have a Chief Executive
Officer, manager or Managing Director.

Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules,

2014 provides the class of companies that must appoint the whole-time KMP, which are as
follows:

Every listed company

A public company having a paid-up share capital of Rs.10 crore or more

 Further, a private company having a paid-up share capital of Rs.10 crore or more must
appoint a whole-time company secretary.

Appointment of key managerial personnel

Every whole-time KMP is appointed through a resolution of the board containing the
conditions and terms of appointment, including remuneration.

A whole-time KMP must not simultaneously hold office in more than one company except its
subsidiary company.

The board is responsible for filling the vacancies in the post of KMP within six months of the
vacancy.

A company can appoint or re-appoint a person as its managing director, whole-time director
or manager for a maximum of five years.

Penalty for Non-Appointment of KMP

The KMPs of the company are essential persons who look after the management and affairs
of a company.

The companies specified under Rule 8 of the Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014, must mandatorily appoint KMP for the company
management, or they will have to pay a penalty as provided under the Act.

When a company does not appoint KMP as provided in the Act, the company will be liable to
pay a penalty of Rs.5 lakh, and every director and KMP, if any, of the company in default will
be liable to a penalty of Rs.50,000.

A further penalty of Rs.1,000 per day but not exceeding Rs.5 lakh will be imposed after the
first day, during which such default continues.

Persons Who Cannot Be Appointed as KMP

The Act states that a company cannot continue the employment or appoint a managing
director, whole-time director or manager when such person:

Has attained 70 years or is below 21 years

Has been convicted as an insolvent

Has suspended payment to the creditors at any time

Has been convicted for an offence by a court and sentenced to more than six months period

A Director is the person appointed to the Board of a Company. Director is responsible

for management of the Company of which he is a director.

Directors refer to the part of the collective body known as the Board of Directors, that is
responsible for controlling, managing and directing the affairs of a company.

Directors are considered the trustees of the company’s property and money, and they also
act as the agents in transactions that are entered into by them on behalf of the company.
Directors are expected to perform their duties and obligations as rationally diligent persons
with skill, knowledge, and experience as the person carrying out functions of a director and
of that himself.

He/she plays multiple roles in the company, such as an agent, as an employee, as an officer
and as a trustee of the company.

A Director is the person appointed to the Board of a Company. Director is responsible

for management of the Company of which he is a director.

The Companies Act, 2013 ('Act') prescribes the minimum and maximum number of directors
in a company.

The minimum number of directors is as follows:

In the case of public limited companies - 3 directors

In the case of private limited companies - 2 directors

In the case of One-Person Companies - 1 director

The maximum number of directors a company can have is 15 directors.

However, a company can appoint more directors by passing a special resolution in its
general meeting.

Residential Director

As per the Act, every company needs to appoint a director who has been in India and stayed
for not less than 182 days in a previous calendar year.

Such a director will be a residential director.

Independent Director

An independent director is a member of a company's board of directors who is not affiliated

with the company, its management, or its major shareholders.

They are considered impartial and objective, bringing an external perspective to board
deliberations.

Independent directors are typically appointed to enhance corporate governance and provide
oversight on strategic decisions, ensuring transparency and accountability.

The tenure of the independent directors is five consecutive years; however, they shall be
entitled to reappointment by passing a special resolution with the disclosure in the Board’s
report.

Every listed public company must have at least one-third of a total number of directors as
independent directors.

Women Director

A company, whether be it a private company or a public company, would be required to

appoint a minimum of one woman director in case it satisfies any of the following criteria:

The company is a listed company and its securities are listed on the stock exchange.
 The paid-up capital of such a company is Rs.100 crore or more with a turnover of Rs.300
crores or more.

Executive Director

An executive director is the full-time working director of the company.

They look after the affairs of the company and have a higher responsibility towards the
company. They need to be diligent and careful in all their dealings.

Non-executive Director

A non-executive director is a non-working director and is not involved in the everyday

working of the company. They might participate in the planning or policy-making process
and challenge the executive directors to come up with decisions that are in the best interest
of the company.

While they do not hold a full-time managerial or executive position within the company,
they may have other affiliations or relationships that could potentially impact their
independence.

Managing Director

A managing director means a director entrusted with the substantial powers of management
of the company by virtue of the articles of a company, agreement with the company,
resolution passed in the company general meeting or by the board of directors.

https://www.barandbench.com/law-firms/view-point/key-managerial-personnel-norms-
under-companies-act-2013-its-applicability-on-private-companies

Who can be a Director

Managing a Business is not an easy task. Therefore there are eligibility criteria for a person
to become a Director.

Only an Individual person can become a Director of the Company. A person other than
individual is not eligible to become a director.

Furthermore, a minor individual cannot become director of Company as he is not eligible to

obtain DIN as well as cannot file a valid consent to act as director.

At least one director of Company should be Resident of India.

 Moreover the person acting as Director should be :-

of sound mind

capable to enter into a contract

not an insolvent person.

Powers and Duties of a Director

The Companies Act 2013 defines the powers and duties that a Director should take care of
while acting on behalf of the Company.

Sections 179 and 166 of Companies Act 2013 prescribes the powers and duties of a
Company Director respectively.

Powers of Directors

According to Companies Act 2013, the Board of Directors of a Company has the following

powers in the Company.

Call meetings on suo moto basis.

Issue shares, debentures, or any other instruments in respect of the Company.

Approve bonus to employees

Declare dividend in the Company

Power to grant loans or give guarantee in respect of loans

Authorize buy back of securities

Approve Amalgamation/Merger/ Takeover

Diversify the business of the Company

Borrow and invest funds for the Company

Approve Financial Statements and Board Report

Removal and disqualification of Directors

Section 164 of the Companies Act 2013 deals with disqualification of Directors. According to
the Companies Act 2013, the following conditions can be reasons for disqualifying a Director.

The Director is of unsound mind and stands so declared by a competent court.

The Director is an undischarged insolvent.

The Director has applied to be adjudicated as an insolvent and his application is pending.

The Director has been convicted by a court of any offence

A company in which the Director is a part of the Board has not filed financial statements or
annual returns for any continuous period of three financial years.
 An order disqualifying the Director for appointment as a director has been passed by a court
or Tribunal and the order is in force.

The Director has been convicted of the offence dealing with related party transactions under
section 188 at any time during the last preceding five years.

The company has failed to repay the deposits accepted by it or pay interest thereon or to
redeem any debentures on the due date or pay interest due thereon or pay any dividend
declared and such failure to pay or redeem continues for one year or more.

Types of Committees

1. Audit Committee:

Applicability:

Every Listed Public Companies and Public Companies having a Paid-up share capital of 10
crore rupees or more, and a turnover of Rs. 100 Crore or more.

Minimum 3 directors with majority of Independent director

The chairman of the Audit Committee should be able to read and understand financial
statement

Function of Audit Committee:

To recommend appointment, remuneration and terms of appointment of the Auditor of the

Company.

To establish a Vigil Mechanism Policy. To call for remarks of the auditors about the internal
control system.

At the Annual General Meeting, the chairman of the Committee should be present to
answer the shareholder’s inquiry.

To discuss any issues related to internal and statutory auditors and the management of the
Company.

2. Nomination and Remuneration Committee:

Applicability:

Every Listed Public Companies and Public Companies having a Paid-up share capital of 10
crore rupees or more, and a turnover of Rs. 100 Crore or more.

Minimum 3 Non executive directors with majority of Independent director

The chairperson shall be an Independent director

Functions of Nomination and Remuneration Committee:

Recommendation of success plans for the directors.

To review the elements of the remuneration package, structure of remuneration package.

To review the changes to remuneration package, terms of appointment, severance fee,

requirement and termination policies and procedures.
The committee is authorized to seek information about any employee and the management
is directed to co-operate.

The Committee can be present at the General Meeting to answer the shareholder’s queries.

3. Stakeholders Relationship Committee:

Section 178 of Companies Act,2013 states that a company which holds 1000 numbers of
shareholders, debenture holders, deposit holders and any other security holders at any time
during a financial year

Minimum 3 directors with 1 being a Independent director

The chairperson shall be an Non executive director and it is decided by the board

As per regulation the Committee shall meet at least once in a year.

The chairperson or, in his absence any other member of the committee authorized by him in
this behalf shall attend the general meetings of the Company.

4. Corporate Social Responsibility Committee:

Section 135 of Companies Act,2013 , with Companies(CSR Policy) Rules,2014 states that
every company having :

net worth of not less than Rs.500 crores or more

or turnover of not less than Rs. 1000 crores or more Or

Net Profit of Rs.5crore or more shall constitute a Corporate Social Responsibility Committee.

In case of listed company at least 3 directors out of which 1 should be an Independent

director

Functions of Corporate Social Responsibility Committee:

To suggest and devise a CSR Policy according to the Schedule VII of Companies Act, 2013 to
the board.

To recommend the amount of expenditure of the devised policy above. To monitor the CSR
Policy of company from time to time and prepare a transparent monitoring mechanism.

Institution of a transparent monitoring mechanism for implementation of the CSR projects

or programs or activities undertaken by the company.
‘Remuneration’ means any money or its equivalent given to any person for services
rendered by him and includes the perquisites mentioned in the Income-tax Act, 1961.

Managerial remuneration in simple words is the remuneration paid to managerial

personals.

Here, managerial personals mean directors including managing director and whole-time
director, and manager.

Since, the future of the company depends on the abilities of the directors the company must
carefully consider their appointment, remuneration and other related matters.
Qualifications of an auditor

Section 141

(1) A person shall be eligible for appointment as an auditor of a company only if he is a

chartered accountant within the meaning of the Chartered Accountants Act, 1949.

(2) Where a firm including a limited liability partnership (LLP) is appointed as an auditor of a
company, only the partners who are chartered accountants shall be authorised to act and
sign on behalf of the firm. [Section 141(2)]

Appointment of the First Auditor [Sec. 139(6)]

The first auditor of a company, other than a Government company, shall be

appointed by the Board of Directors (only by BOD) within 30 days from the date of
registration (i.e., Date of Incorporation) of the company.

In the case of failure of the Board to appoint such auditor, it shall inform the
members of the company, who shall appoint within 90 days at an extraordinary
general meeting (EGM).

Term & Rotation of Auditor

 As per the section, a company should rotate auditors after specified time. It means, the
same auditor cannot continue forever.

Cooling off Period

An auditor who completed the term as discussed above i.e., Individual (one term of 5
years)/Firm (two terms of 5 years each) is NOT eligible for re-appointment as auditor for 5
years.

Example: XYZ Ltd. which is a listed company appoints Mr. R (Individual) as an auditor in its
AGM dated 29th September, 2014.

Mr. R will hold office of Auditor from the conclusion of this meeting up to conclusion of sixth
AGM i.e., AGM to be held in the year 2019.

Now as per Section 139(2), Mr. R shall not be re-appointed as Auditor in XYZ Ltd. for further
term of five years i.e., he cannot be appointed as Auditor up to year 2024.

An auditor is an authorised personnel that reviews and verifies the accuracy of financial
records and ensures that companies comply with tax norms. Their primary objective is to
protect businesses from fraud, highlight any discrepancies in accounting methods, among
other things.

The role of an auditor, in general, is no walk in the park. Having been regarded as a certified
professional, the auditor has placed himself, responsibilities to various parties and the duties that go
with it.

The auditor’s opinion basically makes or breaks the reliability of the financial statements and the
information they provide. Audited financial statements have an extremely high degree of reliability
and validity in comparison with unaudited statements

Duties of the Auditor

The duties of an auditor have been laid down by the Companies Act, 2013, provided in
Section 143. The Act explains the duties in a simplified manner, although the list given is not
exhaustive.

Prepare an Audit Report

An audit report, in simple terms, is an appraisal of a business’s financial position. The auditor
is responsible for preparing an audit report based on the financial statements of the
company. The books of accounts so examined by him should be maintained in accordance
with the relevant laws.

He must ensure that the financial statements comply with the relevant provisions of the
Companies Act 2013, relevant Accounting Standards etc.

In addition to this, it is imperative that he ensures that the entity’s financial statements
depict a true and fair view of the company’s financial position.

Make inquiries

One of the auditor’s important duties is to make inquiries, as and when he finds it necessary.
A few of the inquiries include:-
Whether loans and advances made on the basis of security are properly secured and the
terms relating to the same are fair

Whether any personal expenses (expenses not associated with the business) are charged to
the Revenue Account

Where loans and advances are made, they are shown as deposits. d. Whether the financial
statements comply with the relevant accounting standards

Company meeting

A company meeting means two or more individuals coming together to carry out a
legitimate business or to take decisions on the same

Simply put, it is crucial for companies to hold meetings for the effective functioning of the
company. These meetings hold great importance in the decision-making process.

Types of company meetings

Company meetings are majorly divided into three categories, and the three categories are
further divided into subcategories, which are again divided into some categories.

Meetings of shareholders or members

The first main type of meeting is a meeting of shareholders or members of the company. It is
further divided into two categories, namely:

General meeting, and

Class meeting.

The first category is further divided into three subcategories, each of which is discussed in
detail below.

General meeting
The general meeting is subdivided into three categories. Let us have a look at the nitty-gritty
of each of them.

Statutory meeting

A statutory meeting is a type of general meeting that must be held by every company limited
by shares and every company limited by guarantee

A statutory meeting is a mandatory gathering of stakeholders, such as shareholders or

directors, as required by law to discuss important company matters and fulfill legal
obligations regarding corporate governance and compliance.

It typically occurs after the company's incorporation but before it commences business
operations.

The statutory report typically includes information about:

the company's financial position,

directors' interests in the company's shares,

details of contracts entered into by the company,

and any other relevant matters required by law.

Which companies do not need to conduct a statutory meeting ?

The following companies do not have any obligation to conduct a statutory meeting:

Private company,

Unlimited liability company,

A company that has been deemed as a public company under Sec. 43 A.

Purpose of conducting an annual general meeting

The annual general meeting is defined under Section 96 of the Companies Act, 2013.

The main purpose of conducting an AGM is to transact the ordinary business of the
company. Ordinary business includes the following:

Consideration of financial statements and reports from the directors and auditors.

Making declarations on dividends.

Appointing a replacement of director or directors in place of those who have retired.

Appointing and setting up the amount of remuneration for the auditors of the company.

It also includes annual accounts, crucial reports, and audits.

Meetings of directors

Board of directors- Board meetings

As per Section 173 of the Companies Act, 2013, a company has to hold the meeting of board
of directors in the following manner:

The first board meeting has to be conducted within a span of thirty days from the date of
incorporation.

In addition to the above meeting, every company has to hold a minimum of four board
meetings annually, and there shall not be a gap of more than one hundred and twenty days
between consecutive two meetings.