Unit 2
INDIAN COMPANIES ACT – 2013 PART -2
- Definition: Member [Section 2(55)]
Member in relation to a company means:
i) The subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company and on its
registration, shall be entered as member in its register of member.
ii) Every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company.
iii) Every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository.
- Register of Members [Section 37(88]
Every company shall keep and maintain the following registers in such from and in such manner as may be prescribed namely:
(a) register of member indicating separately for each class of equity and preference shares held by each member residing in or outside India;
(b) register of debenture holders; and
(c) register of any other security holders.
2. Every register maintained shall include an index of the names.
3. The register and index of beneficial owner is maintained by a depository.
4. A company may, if so authorised by its articles keep in any country outside India, "foreign register" containing the names and particulars of the members, debenture holders, other security holders or beneficial owners residing outside India.
5. If a company does not maintain a register of members or debenture holders or other security holders or fails to maintain them in accordance with the provisions, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees and where the failure is a confusing one, with the father fine which may extend to one thousand rupees for every day, after the first during which the failure continues.
Shareholders are also known as the members of a company. Under the Companies Act, 2013, any person can become a member and a person could mean an individual, body corporate or an association.
The company law does not prescribe any disqualification, which would debar a person from becoming a shareholder of a company.
It appears that any person who is competent to enter into a valid contract (as per the Contract Act, 1872) can become a member of a company. Subscribing for shares is a contract between the company and the shareholder.
However, the MOA & AOA may restrain certain persons from acquiring membership in a company. In the absence of any express provision about the capacity of a person, the provisions of the Contract Act will apply.
With regards to the certain special categories of persons, the judiciary has laid down some principles for acquiring membership in a company.
They are as follows:
A company may become a member of another company if it is authorized by its MOA or AOA, or if it takes the shares of another company by way of a Compromise or Arrangement.
A company cannot, however, buy its shares. Also, subject to some exceptions i.e., a company cannot buy shares of its holding company.
LLP registration is a way to create a legal organization that can hold assets and properties on its name. It can become a shareholder of a company by agreeing to the MOA of the company or by the subsequent purchase of shares in the company.
A HUF is considered as a person but not a juristic person for all purposes. Shares of a company can be registered in the name of Karta (head of HUF). Hence, an HUF can become a member of a company.
A partnership firm cannot become a shareholder of a company, since it is not a legal person having a separate entity from that of partners. Partners can be registered as joint holders in which case each of them becomes a member.
The shares of a company can be held jointly by two or more persons. As per Companies Act, 2013 in the case of a public company every joint shareholder is counted as a separate member but in the case of a private company, joint holders are treated as a single member.
A society registered under the Society Registration Act, I860, can hold shares in a company in its own name if it is so authorized by its MOA & AOA.
An insolvent may be a member of the company although the beneficial interest in his shares will be with the Official Receiver. He does not cease to be a member of becoming insolvent unless provided otherwise by the articles of association.
A minor or lunatic, being incompetent to enter into a contract cannot become a member of a company. But a guardian can become a shareholder on behalf of the minor. If directors, in ignorance of the fact of minority, allot shares to a minor, and enter his name on the register of members, the company can reject the allotment and remove his name from the register, when the fact of applicant’s minority comes to its information.
The minor can also repudiate the allotment of shares at any time during his minority. In either case, the company will repay to minor all money received from him for the allotted shares, and whether or not the minor should restore to the company the benefits he might have derived from the shares would be for the court to decide given the facts and circumstances of each case.
A foreign national or non-resident Indian can become a member of an Indian company subject to Foreign Direct Investment regulations and FEMA guidelines.
Any of the SGs or the CGs can become a shareholder of a company through the President of India or the Governor of a state. The Act states that either President or Governor could nominate any person to be present at any meeting of the company.
The person selected could be considered as a shareholder of a company entitled to exercise rights and powers in the same manner the President of India or Governor of the State would have discharged as a shareholder.
A person may become a member or shareholder of the company in any one of the following ways:
1. By subscribing to the Memorandum of Association: The subscriber to the Memorandum of a company are deemed to have agreed to become a member of the company and on the registration of the company their names are entered as members on the register of members
2. By agreeing to take qualification Shares: According to the section 266 directors of the company on delivering to registrar a written undertaking to take their qualification shares and to pay for them become the members of the company and they are in same position as if they were subscribers to the Memorandum.
3. By transfer of shares: Shares in a company are movable property and are transferable in the same way as provided in the Articles of the company. Thus one person possesses the right to transfer his shares to another person. On the registration of transfer the transferee becomes the member of the company.
4. By application and allotment of shares: A person may become a member of a company by an application for shares to the formal acceptance by the company. On valid allotment, the name of the shareholder is entered in the register of members
5. By succession: On the basis of the succession certificate the legal heirs of the deceased member/shareholder get the right to be a member of the company. The company on this basis enters their name in the register of members.
6. By estoppel or acquiescence: A person who knowingly permits entering his name in the register of members, becomes a member by estoppel or acquiescence.
- Certain illustrative rights of a shareholder are:
To elect directors and thus to participate in the management through them.
To vote on resolutions at the meetings of the company.
To enjoy profits of the company in the shape of dividends.
To apply to the court in case of oppression.
To apply to the court in case of mismanagement. To apply to the court in case for winding up of the company.
To share in the surplus on winding up.
To call an extraordinary general meeting.
- The principal rights which the share may carry are-
1. The right to dividend if, while the company is a going concern, al dividend is duly declared.
2. The right to vote at the meeting of members.
3. The right in the winding up of the company after the payment of debts to receive a proportionate part of the capital or participate in the distribution of assets of the company.
The principal duty of a shareholder, as far as the company is concerned, is to pay what is due on the share, i.e., disregarding any premium or discount, the nominal amount of the shares. The monies payable on the share have to be paid by the shareholder when a call for the payment is made upon him by the company, or the dates fixed for payment by the terms of issue.
- Apart from these principal rights and duties, others of ancillary character are carried by a share, e.g. the following rights of the shareholder:
(a) To receive notice of general meetings unless the articles otherwise provide;
(b) To receive a copy of every balance sheet (and of the documents annexed thereto) which is to be laid before the general meeting;
(c) To receive a copy of the memorandum and the articles;
(d) To inspect and obtain copies to the minutes of general meetings;
(e) To inspect copies of directors' service contracts;
(f) To inspect the various registers to be maintained by the company without charge;
"Apart from those principal and ancillary rights which a share carries, the shareholder is further entitled to the numerous corporate and individual membership rights which are constitution of the company or the Acts themselves give him; examples of these rights are:
(a) To petition the court for the winding up of the company;
(b) To petition for the alternative remedy."
A ‘Liability’ is a state of being legally responsible for something. This term is normally used in an organization to emphasize the responsibilities of a member of the company. The following are the liabilities of the member of a company:
1. Companies limited by shares: Companies restricted by shares are the most common and may be a public company or a personal company, where the liability of members of a company is restricted to amount unpaid on the shares.
2. Companies limited by guarantee: In this type of company’s liability of members of a company is limited to a constant amount which members undertake to contribute to the assets of organization in the event of its being would up.
3. Unlimited companies: Unlimited companies are those companies without limited liability. Section 3 specifically provides that any 7 or greater persons (2 or more in case of a private company) may form an incorporated company, with or without limited liability.
• To make shares if he/she is allotted as per the Act.
• To pay call money or pay the due amount of shares.
• To abide by the decision of majority when they act ‘bonafide’.
• To contribute to the Asset of the company in case of winding up and when the shares are partly paid up.
The term ‘Cessation’ means ‘Termination’. Just as there’s a system to add a member of the company, there’s a process to terminate that member. Terminating a member of the company can result in removal from the ‘Register of Members’.
Membership of a person is terminated, i.e. a person can cease to be a member by one of the following modes:
1. Transfer of shares to another person (this is usual mode).
2. Death of member and his heir/legal representative become a member or he sell shares to third person (Transmission of shares).
3. Member is adjudged insolvent and shares are transmitted in name of Official Receiver/Official Assignee. Till shares are registered i name of official assignee/receiver or third party, the insolvent continues to be member.
4. Surrender of shares, which is accepted by company as short cut forfeiture.
5. Forfeiture of shares.
6. Company exercising lien on shares and selling them.
7. Buy back of shares by company
8. Redemption of Preference Shares
9. Rectification of Register, if ordered by NCLT
10. Compulsory sale of shares, if ordered by NCLT in proceedings of oppression and mismanagement.
11. Resignation from Membership: This would normally apply in case of guarantee companies, where members may not hold any shares. A subscriber to memorandum or a director who has given undertaking to take qualification shares, cannot cease to be a member by simple resignation. He will have to subscribe to the shares as specified while subscribing to the memorandum. Later, he can transfer the shares and cease to be a member.
12. Expulsion of member, if permitted by articles.
- Expulsion/Removal of a Member
Articles of company is a contract between company and members. Subject to provisions of Companies Act, the company and its members are bound by Articles. - Naresh Chandra Sanyal v. Calcutta Stock Exchange (1971) 1SCC 50 = 41 Comp. Cas. 51 (SC). There is no specific provision in Companies Act prohibiting expulsion removal of a member.
In any case, expulsion can be only on reasonable grounds and after fa compensation to member. Expulsion cannot be confiscatory in nature. Moreover, in case of listed company, the company is bound by listing agreement and hence such expulsion will not be permissible in a listed company, as fully paid up shares of a listed company are required to be free from all lien.
- This provision applies only to liability of deceased shareholder and not to rights of the successors of the deceased.
- Voting by Joint holders: Regulation 52 of Model Articles of Association 'Table-F of the 2013 Act provides that in the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders.
- Nomination form or share transfer forms prescribed also envisage shares in joint names.
- In case of joint shareholders, the cheque or warrant of dividend should be sent to the holder first named in the register of members.
- Any one of the joint shareholders can give effective receipt of any dividend, bonuses or other monies payable in respect of such shares.
Upto 3 names are generally permitted by the company as per listing agreement with stock exchange. Notice of meeting should be sent to first named person. Bonus shares and rights are, however, issued in the name of all joint holders.
Joint holder is also a member: Every person who agrees in writing to become a member of company and whose name is entered in register of members is a member of the company. Thus, all joint holders are members. In case of joint holding, all members attending will be counted for quorum.
I. Definition: - As per Section 2(34) of Companies Act 2013 Director means a director appointed to the Board of a Company.
II. Responsibility: - The board of directors of a company is primarily responsible for:
- determining the company’s strategic objectives and policies;
- monitoring progress towards achieving the objectives and policies;
- appointing senior management;
- accounting for the company’s activities to relevant parties, e.g. shareholders.
III. Minimum Directors Required in Company: -
i. One Person Company: - One Director.
ii. Private Limited Company: - Two Directors.
iii. Public Limited Company: - Three Directors.
Maximum 15 directors can be appointed in any format of Company (OPC, Public, Private). Bypassing Special Resolution Company can increase the number of Directors beyond 15. Out of appointed directors one director should be resident in India for more than 182 days in previous calendar year.
1. Residential Director: - As per Section 149(3) of Companies Act,2013 every company shall at one director who has stayed in India for a total Period of not less than 182 days in the Previous calendar year.
2. Independent Director: - As per section 149(6) an independent director in relation to a company, means a director other than a Managing Director, Whole Time Director or Nominee Director. Companies which have to appoint Independent Director:- As per Rule 4 of Companies (Appointment and Qualification of Directors) Rules,2013 the following class of companies have to appoint at least two independent directors:-
- Public Companies having Paid-up Share Capital-Rs.10 Crores or More;
- Public Companies having Turnover- Rs.100 Crores or More;
- Public Companies have total outstanding loans, debenture and deposits of Rs. 50 Crores or More.
3. Small Shareholders Directors: - A Listed Company may have one director elected by small shareholders. May appoint upon notice of not less than 1000 Shareholders or 1/10th of the total shareholders, whichever is lower have a small shareholder director which elected form small shareholder.
4. Women Director: - As per Section 149 (1) (a) second proviso requires certain categories of companies to have at Least One Woman director on the board. Such companies are any listed company, and any public company having-
- Paid Up Capital of Rs. 100 crore or more, or
- Turnover of Rs. 300 crore or more.
5. Additional Directors: Any Individual can be appointed as Additional Directors by a company under section 161(1) of the New Act.
6. Alternate Directors: - As per Section 161(2) A company May appoint, if the articles confer such power on company or a resolution is passed (if a Director is absent from India for at least three months).
- An alternate Director cannot hold the office longer than the term of the Director in whose place he has been appointed.
- Additionally, he will have to vacate the office, if and when the original Director returns to India.
- Any alteration in the term of office made during the absence of the original Director will apply to the original Director and not to the Alternate Director.
7. Shadow Director: - A person, who is not appointed to the Board, but on whose directions the Board is accustomed to act, is liable as a Director of the company, unless he or she is giving advice in his or her professional capacity.
8. Nominee Directors: - They can be appointed by certain shareholders, third parties through contracts, lending public financial institutions or banks, or by the Central Government in case of oppression or mismanagement.
9. Difference Between Executive and Non-Executive Director:- An Executive Director can be either a Whole-time Director of the company (i.e., one who devotes his whole time of working hours to the company and has a significant personal interest in the company as his source of income), or a Managing Director (i.e., one who is employed by the company as such and has substantial powers of management over the affairs of the company subject to the superintendence, direction and control of the Board). In contrast, a non-executive Director is a Director who is neither a Whole-time Director nor a Managing Director.
The Act has a dedicated provision which is Section 162 that underlines the reasons for which a person may not appoint as a director. There is no such provision regarding the qualification under the Act. However, requirements can be listed as below:
- The person must have completed the age of eighteen or above.
- Nationality can be that of Indian or otherwise.
- The person should have his own Digital Signature Certificate (DSC) through which Director’s Identification Number (DIN) shall be obtained.
- The person has to furnish a written declaration expressing his consent to act in the position of Director and he is not a person who falls under the category of disqualified members.
- There is no academic qualification that needs to be held by the person who is desirous of obtaining the directorship of a company.
In the case of Saraswathi Vilasam Shanmugha Nandha Nidhi Ltd. v. V.S. Daiva Sigamami Mudaliar, the Madras High Court has stated that “There is nothing in any provisions of the Companies Act which precludes a company from prescribing additional qualifications for directorship if the articles so provide. There is nothing unreasonable in having a non-statutory minimum age-limit for Directors with a view to justify confidence in mature judgment”
Rule 5 of The Companies (Appointment and Qualification of Directors) Rules, 2014 states the qualification of the Independent Director as follows
“An independent director shall possess appropriate skills, experience, and knowledge in one or more fields of finance, law, management, sales, marking, administration, research, corporate governance, technical operations, or other disciplines related to the company’s business.”
Section The relevant provision of the law that deals with the disqualification of directors are Section 152, 164, 165, and 188 of the Act and The Companies (Appointment and Qualification of Directors) Rules, 2014.
The grounds for Disqualification are mentioned as below:
1. Under Section 164 (1)
- Person will not hold eligibility for a directorship in the company if he has been declared to be a person with unsound mind by a competent court.
- Person is insolvent and has undischarged liabilities or has a pending application in the court to be adjudged as insolvent.
- The court has adjudged the person to be guilty of a crime involving moral turpitude. The sentence for the same being more than six months, the eligibility shall be withheld subject to passing of five years from such sentence. In the case of Durga Singh v. State of Punjab[11], the Punjab High Court elaborated on the meaning of moral turpitude and stated that “moral turpitude is anything done contrary to justice, honesty, principle or good morals, an act of baseness, vileness or depravity in the private and social duties which a man owes to his fellow men or society in general contrary to accepted and customary rule of right and duty between man and man”
- If the sentence of his crime exceeds that of seven years. he shall be deemed ineligible for the post of director in any company.
- An order warranting the disqualification of the person is ruled by a competent court and during the application of such order, the person cannot become a director.
- The person has failed to pay the amount due on his shares and a period of half a year has gone by without his paying the due.
- The person has been involved in a related party transaction in the past five years.
- The person cannot be appointed as a director unless he is allotted a Director’s Identification Number (DIN).
2. Under Section 164 (2)
- The person shall not be eligible for re-appointment in the company or any other company if such company has failed to furnish the returns or statement of finance consecutively for a period of three years or as stated in Section 164(2)(b) “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”
3. Other Disqualifications
- Section 165 of the Act prohibits persons from holding the position of a director in more than twenty companies.
- If the e-form DIR-3 KYC of the person who is a director is not filed, the directorship of such person will be disqualified.
- If the e-form ACTIVE is not filed by the prescribed company, then the Directors of such company will be categorized as Director of ACTIVE non-compliant company.
- Rule 7(8) of the Rules states that “No person shall hold the position of small shareholders’ director in more than two companies at the same time”. The second company must not be such that it is in a position to cause conflict with the first company or is a competitor of the first company.
DIN is a unique Director identification number allotted by the Central Government to any person intending to be a Director or an existing director of a company.
It is an 8-digit unique identification number which has a lifetime validity. Through DIN, important points of the directors are maintained in a database.
DIN is specific to a person, which means even if he is a director in 2 or more companies, he has to reap only 1 DIN. And if he leaves a company and joins some other, the same DIN would work in the other company as well.
No person shall be appointed as Director unless he has DIN - section 152(3) of the 2013 Act.
Section 153 of the 2013 Act-every Director must apply for obtaining DIN.
Section 154 of the 2013 Act - Central Government will allot DIN to an applicant in prescribed manner within one month.
Section 155 of the 2013 Act - a person cannot have more than one DIN.
Obtaining duplicate DIN is an offence punishable under section 159 of the 2013 Act.
Section 156 of the 2013 Act-every director to inform his DIN to company within one month from receipt of number from Central Government. Section 157 of the 2013 Act-every company to intimate DIN to ROC within 15 days of receipt of information from the director.
The director must quote his DIN in every return and information under Companies Act-section 158 of the 2013 Act.
Section 159 of the 2013 Act- penalty for contravention of these provisions which can be upto 50,000 plus 5,000 for every day during which the offence continues. Alternatively, imprisonment upto 6 months can be imposed.
If a person has obtained DPIN under LLP Act, it will have accepted as DIN Every director is required to intimate his DIN to all companies where he is director - sections 152 (4) and 156 of the 2013 Act.
Not furnishing the DIN to company is an offence punishable under section 159 of the 2013 Act and it may involve imprisonment also.
- Definition of Director Identification Number - Director Identification Number' (DIN) means an identification number allotted by the Central Government to any individual, intending to be appointed as director or to any existing director of a company, for the purpose of his identification as a director of a company, provided that the Director Identification Number (DIN) obtained by the individuals prior to the notification of these rules shall be the DIN for the purpose of the Companies Act, 2013,. Provided further that "Director identification Number" (DIN) includes the Designated Partnership Identification Number (DPIN) issued under section 7 of the Limited Liability Partnership Act, 2008 (6 of 2009) and the rules made thereunder Rule 2(1)(e) of Companies (Specification of Definitions Details) Rules, 2014.
- Procedure for Obtaining DIN
Application for obtaining DIN should be filed electronically in form DIR 3. Following scanned copies shall be attached to the allocation - (i) photograph (ii) proof of identity (iii) proof of residence (iv) certification by applicant in form DIR. 4 and (v) specimen signature duly verified.
Form DIR. 3 is to be signed digitally using his or own signature. It should be verified by (a) practising CA, CS and CMA or (b) company secretary/ MD/ Director of company in which applicant is to be appointed as director - Rule 9 of the Companies (Appointment and Qualification of Directors) Rules, 2014.
- Fees Payable: Fee payable with application for DIN (Director Identification Number) is 500- see para Il (1) (vi) of Companies (Registration of Offices and Fees) Rules, 2014.
- Procedure for approval of DIN: Provisional DIN will be generated automatically. However, it cannot be used unless confirmed by Central Government. Central Government will verify and communicate approval by post or electronically within one month. If application is defective or incomplete, intimation shall be given on website and by e-mail, directing applicant to rectify application within 15 days. If not rectified, Central Government shall reject the application. In such case, the provisional DIN generated by system will lapse and free will be forfeited. DIN once allotted is lifetime and will not be allotted to any other person - Rule 10 of the Companies (Appointment and Qualification of Directors) Rules, 2014.
- Cancellation or surrender or deactivation of DIN: Central Government or Regional Director, Noida can cancel or deactivate DIN in following cases(a) duplicate DIN (b) DIN obtained in wrongful or fraudulent manner (c) death of individual (d) person declared of unsound mind by competent court (e) if he has been adjudicated as insolvent (f) Deactivation on application from person in form DIN 5 that he has never used that DIN - Rule 11 of Companies (Appointment and Qualification of Directors) Rules, i 2014.
Application to surrender DIN shall be in form DIR.5.
It Legal Position of a Director: As agent, sometimes as trustees and sometimes as managing partners.
In Imperial Hydropathic Hotel Co. w. Hampson (1881) 23 Ch. D1, Bowen LI. observed as follows: Directors are described sometimes as agents, sometimes as trustees and sometimes as managing partners but each of these expressions is used not as exhaustive of their powers and responsibilities but as indicating useful points of view from which they may for the moment and for particular purpose be considered."
In Forest of Deam Coal Mining Co., In re [(1878) 10 Ch. D. 450], it w observed, it does not matter much what you call them so long as y understand what their true position is, which is that they are commercial men, managing a trading concern for the benefit of themselves and a other shareholders in it'.
Directors are entrusted with collective responsibility of managing an director affairs of the company. They are professional men appointed b shareholders. A director is not an employee of the company. It is not possible to correctly describe his relationship with the company. Directors as described sometimes as agents, sometimes trustees and sometimes a managing partners. They have some attributes of each of them, but they are neither trustees, nor agents nor managing partners in full sense of the term.
- DUTIES AND RIGHTS OF A DIRECTOR
- Duties of Director Towards Company
Following duties of directors have been specified in section 166 of the 2013 Act.
Director to act according to Articles: Subject to the provisions of this Act a director of a company shall act in accordance with the articles of the company - Section 166(1) of the 2013 Act.
Director to act in good faith and in interest of all stakeholders: A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interest of the company, its employees, the shareholders, the community and for the protection of environment - Section 166(2) of the 2013 Act.
Exercise due diligence, care and independence: A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgement -Section 166(3) of the 2013 Act.
No conflict of interest with company: A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company Section 166(4) of the 2013 Act.
No undue gains or advantages: A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates. If such director is found guilty of making any undue gains, he shall be liable to pay an amount equal to that gain to the company - Section 166(7) of the 2013 Act.
Not to assign his office: A director of a company shall not assign his office and any assignment so made shall be Void-Section 166(6) of the 2013 Act.
Punishment for not discharging the duties: If a director of the company contravenes the provisions of this section, such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees - Section 166(7) of the 2013 Act.
It is generally agreed that directors owe three duties to the corporation they serve
(a) Obedience i.e. ultra vires corporate activities should be avoided. They will be personally liable if they engage in ultra vires activities.
(b) Diligence: They will exercise degree of care which ordinarily prudent men would exercise under similar circumstances in the conduct of their own affairs.
(c) Loyalty: A director must refrain from engaging in his own personal activities in such a manner as to injure or take advantage of his corporation. He should not make secret or private profits out of his official positions. If he does so, he should give it to the corporation.
- Following are the duties of an individual director:
- Attend Board meetings whenever reasonably possible.
- Filing consent to act as director in public company.
- Duty to disclose interest in contracts or arrangement with their company and to abstain at voting in Board meeting, if he is interested in a contract or arrangement.
- Duty to disclose particulars as required to be entered in Register of Directors under sections 303 and 307.
- Not to engage in insider trading based on information which he may get in his capacity as a director.
Duty of Reasonable Care
A director should take reasonable care in performance of his duties. He should exercise skill and care that an average prudent man should possess. i He need not be expert in any particular field or in the activities of their company. He is not expected to have any extraordinary skill or knowledge. The he should use his knowledge and expertise for the benefit of the company. He indeed.ae exhibit any greater degree of scale then may be expected from his knowledge and experience.
A meeting is a gathering of two or greater people that has been convened for the purpose of achieving a common purpose through verbal interaction, such as sharing information or reaching agreement.
Meetings may manifest face-to-face or virtually, as mediated by communications technology, such as a telephone conference call, a skyped conference call or a videoconference. One Merriam-Webster dictionary defines a meeting as "an act or process of coming together" - for example "as [...] an assembly for a frequent purpose.
MEANING AND DEFINATION:
The tern meeting is derived from Latin Word ‘Mata.’ Mata means ‘face to face’. Oxford dictionary the term ‘meeting’ is define as “An assembly of number of people for entertainment, discussion or the like”. OR
“Meeting is an official gathering of two or more people to discuss on certain lawful matters and to arrival on certain decision”
This definition indicates the following points:
1. Minimum two persons are critical to form and conduct a meeting.
2. Time and place is predetermined.
3. Meetings are held to discuss the matters of common interest.
NEED OF MEETING:
- To determine policies and programmes.
- To prepare future plans.
- To supply opportunity to members to come together and discuss about working of the company.
- To discuss the problems faced by organization and to locate solution.
- To take action against members in default.
- To declare dividend
- To appoint directors and auditors.
- To overview the progress made by company.
1. Annual General Meetings
An annual general meeting (AGM) is a mandatory yearly gathering of a company's interested shareholders. At an AGM, the directors of the company current an annual report containing information for shareholders about the company's performance and strategy.
Shareholders with voting rights vote on modern issues, such as appointments to the company's board of directors, executive compensation, dividend payments, and the selection of auditors.
If a company needs to resolve a problem between annual general meetings, it may call an extraordinary general meeting.
How an Annual General Meeting Works?
An annual general meeting, or annual shareholder meeting, is primarily held to allow shareholders to vote on each company issues and the selection of the company's board of directors. In large companies, this assembly is typically the only time during the year when shareholders and executives interact.
2. Extra Ordinary General Meeting
Extra Ordinary general meeting (EGM) is a meeting other than a company’s annual general meeting (AGM). An EGM is also called a special standard meeting or emergency general meeting.
An extraordinary general meeting (EGM) refers to any shareholder meeting called by a company other than it's scheduled annual meeting.
The extraordinary general meeting is utilized to deal with pressing matters that come up between annual shareholders' meetings.
EGMs are often considered for emergency measures such as resolving an immediate legal matter or the removal of a key manager.
- Understanding an Extraordinary General Meeting (EGM)
In most cases, the only time shareholders and executives meet is during a company’s annual widely wide-spread meeting, which usually occurs at a fixed date and time.
However, certain activities may require shareholders to come together on short notice to deal with an urgent matter, often concerning company management. The extraordinary generic meeting is used as a way to meet and deal with urgent matters that arise in between the annual shareholders' meetings.
An EGM would possibly be called to deal with any of the following:
- The removal of an executive.
- A legal matter.
- Any matter that cannot wait until the next shareholders meeting.
Another difference between an annual general assembly and an extraordinary general meeting is that an annual general assembly can only be held during business hours and not on a countrywide holiday, while an EGM can be carried out on any day including holidays. Also, while a company’s board can only call an AGM, an EGM can also be called by the board on the requisition of shareholders, requisitions, or tribunal.
3. Board meetings
Board meetings are meetings at the highest level, i.e. a meeting where board members or their representatives are present. A company is not an actual entity but a prison one so it cannot take actions and make decisions. The board of director’s act as agents through which the company takes actions as well as makes decisions.
Board Meetings
The board of directors is the supreme authority in a company and they have the powers to take all major actions and decisions for the company. The board is also responsible for managing the affairs of the whole company.
For the effective functioning and management, it is imperative that board meetings be held at established intervals. For this, Section 173 of Companies Act, 2013 provides –
In the case of a Public Limited Company, the first board meeting has to be held within the first 30 days, since the incorporation date. Additionally, a minimum of 4 board meetings must be held in a span of one year. Also, there cannot be a hole of more than 120 days between two meetings.
In the case of small companies or one-person company, at least two meetings must be conducted, one in each half of the financial year. Additionally, the hole between the two meetings must be at least 90 days. In a situation where the meeting is held at a short notice, at least one independent director must be attending the meeting.
- Notice of Board Meeting
- Minimum Notice period for Convening a General Meeting:
- Duration of Notice: A general meeting of a company can be called by giving not less than clear twenty-one days’ notice in writing or through electronic mode or any other prescribed manner.
- Meaning of not less than 21 days: It means notice should be of clear 2 lays i.e. date of serving of notice and date of the meeting will have to be excluded.
Once notice posted in time, it is valid ever if members receive it late. It will not affect the validity of notice of meeting.
- Meeting with shorter notice with consent of members: A general meeting can be held with shorter notice if 95% of members entitled to vote at the meeting give consent in writing or by electronic mode. Note that 95% members by number are required to give consent and not members having 95% voting rights. The fact about the required consent should be recorded in the minutes.
- Manner of giving notice of meeting to members: A document can b served upon any member by sending it to him by registered post or b delivering at his office or address by such electronic mode or other mod as may be prescribed.
In case of personal delivery, the notice is deemed to be given on the day when notice is handed over.
- Sending notice by post: Notice is deemed to have been served on person to whom notice is addressed, if notice is posted to him, by affixing stamps of requisite value at his registered address in India.
- Sending notice through electronic mode: Any communication sent by a company through its authorised and secured computer programme which is capable of producing confirmation and keeping record of such communication addressed to the person entitled to receive such communication at the last electronic mail address provided by the member.
- Notice as text or link or attachment in PDF form: A notice may be sent through e-mail as a text or as an attachment to e-mail or as notification providing electronic link or Uniform Resource Locator (URL) for accessing such notice. If notice is sent in the form of a non-editable attachment to e mail, such attachment shall be in the Portable Document Format (PDP). E mail to be addressed to member.
- Opportunity to member to register / change address: Company shall provide an advance opportunity at least once in a financial year, to their member to register his e-mail address and changes therein.
- Subject line of e-mail: Shall state the name of the company, notice of the type of meeting place and the date on which the meeting is scheduled.
- Sending mail from in-house facility or R and T agent: The company may send e-mail through in-house facility or its registrar and transfer agent or authorise any third party agency providing bulk e-mail facility.
- Notice also on website: Notice of the meeting can also be placed on the website of the company if any and on the website as may be notified by the Central Government.
- Accidental omission to give notice: Or non-receipt of notice by, a member will not invalidate the proceedings of the meeting. Whereas intentional omission invalidates meeting.
COMPARITIVE STUDY
Points | Statutory Meeting (sec-165) | Annual General Meeting (sec-166) | Extra Ordinary General Meeting (sec-169) |
| It is the first meeting of the shareholders of a public company. | It is meeting of shareholders of company held once in a year. | It is meeting of shareholders held under special circumstances. |
2. Purpose | It is held to give information of company formation the up-to-date progress the newly formed company and to approve statutory report. | It is held to give information about the progress made by the company during the year. | It is held to discuss and decide urgent and matters. |
3. Time of Holding | It must be held after month and before the six months of obtaining the trading certificate. | It must be held within 6 months of completion of the financial year. The gap between two annual general meetings should not exceed 15 months. | It may be held at any number of times. |
4. Frequency | It is held once in the time of public company. | It is held once in every year. | It is being held at any time between two Annual general meeting.
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5. Authority | A) Board of Direction B) The Court if the Board fails to convene. | A) The Board of Directors B) The Central Government on Application form members.
| A) Board of Directors B) The Board of Directors on requisition of members C) The requisitions themselves D) The National Company Law Tribunal. |
6. Quorum | Five members according to provisions of Companies Act. | Two members in case of private company. Five Members in case of public company. | Two members in case of private company. Five members in case of public company. |
7. Effect of Failure | In case of default in holding the meeting fine up to Rs. 5000/- | In case of default fine up to Rs. 50000/- and fine of Rs. 2500/- per day till default continues. | In the meeting is not convened on requisition the requisitions themselves convene the meeting and can recover the expenses from defaulting directors. |
8. Business | a) To approve statutory report b) To give ideas to the member regarding formation of company. | a) To approve annual accounts b) To approve auditors and directors report c) To appoint directors d) To appoint auditors e) To declare dividend | a) To alter memorandum of Association b) To alter Articles of Association c) Removal of a director before expiry of his term d) Voluntary winding up of company. |
References
- Business Law 1 Essentials by Mirande Valbrun,
- The Legal and Regulatory Environment of Business by O. Lee Reed
