Management of Company

The company is a device that unites the efforts of a large number of people namely the Share-
holders, Directors, Managing Director, Departmental Managers and Operatives.
The shareholders, who provide the funds for the company, are generally regarded as the owner of
the company and its business and property.
They delegate their powers and authority to their elected representatives—the Board of
Directors. So the management of a limited company is actually vested in the Board of Directors.
Generally the Board appoints one of their members to be the Chairman and one to the position of
the Managing Director.
Other features are:
1. The company as a legal entity is completely separate from its shareholders.
2. The number of shareholders is so large and widely diffused that it is not possible for them
to carry on day-to-day management of the company.
3. The shareholders are a heterogeneous body of men belonging to different walks of life
and may not be competent or interested to manage the difficult problems of management.
4. The position of a shareholder is that of an entrepreneur who bears the risks and supply the
funds but delegates the management to the directors or managing director. In theory, the
shareholder is the master but in practice, he is a sleeping master.

A distinguishing feature of company law in India is the statutory recognition of various types of
managerial personnel.
The Companies Act, 1956 formerly provided for four alternative forms of management:
(I) By Managing Directors or Whole-time Directors,
(II) By Managing Agents,
(III) By Secretaries and Treasurers and
(IV) By Managers. But no company can have at the same time more than one of the above
categories of personnel.
The amended Act of 1969 abolished (II) and (III) of the modes from 3rd April 1970. So now a
company can appoint either managing director or manager as its managerial executive.
The form of company management will be as follows:
At the top there will be shareholders but they are not the managers. The management of the com-
pany lies in the hands of the elected representatives of the shareholders—the Board of Directors.
For executing the accepted policies, the Board appoints the chief executive, who may be either
the managing director or manager.
Under him is a small group of top managers, beneath them a larger group of middle managers,
and below them, a still larger group of lower executives.
 Problems of Company Management:
The company is managed by two main organs the shareholders in General Meeting and the
Directors acting as a Board. The Board has to rely upon the Executives and staff to conduct the
day- to-day business of the company. Though theoretically the General Meeting could direct the
business of the company, but actually it is not feasible.
Hence law vests the executive authority in a Board of Directors, leaving only the ultimate
authority to the general meeting which is not generally exercised because shareholders are
widely diffused and they have small individual shareholdings. This raises a number of problems
of corporate management.
These problems are discussed under the following heads:
1. Company Management is oligarchic or democratic?
2. How effective is the Board of Directors?
3. The emerging pattern of company management.

Appointment of Directors, Legal Position

SECTION 152 OF THE COMPANIES ACT, 2013: APPOINTMENT OF DIRECTOR
An individual who is appointed or elected as the member of the board of Directors of a
Company, who, along with the other directors, has the responsibility for determining and
implementing the policies of the company.
Director is an individual who directs, manages, oversees or controls the affairs of the Company.
A director is a person who is appointed to perform the duties and functions of a company in
accordance with the provisions of The Company Act, 2013.
As per Section 149(1): Every Company shall have a Board of Directors consisting of Individuals
as director.
They play a very important role in managing the business and other affairs of Company.
Appointment of Directors is very crucial for the growth and management of Company.

APPOINTMENT OF DIRECTORS UNDER COMPANIES ACT 2013: 

TYPE OF COMPANY APPOINTMENT MADE

1. 2/3 of the total Directors appointed by the

Public Company or a Private
subsidiary of a public company
shareholders.
Company
2.Remaining 1/3 appointment is made as per
Articles and failing which, shareholders shall
appoint the remaining.

1. Articles prescribe manner of appointment of any

Private Company which is not a subsidiary of a or all the Directors.
public company 2. In case, Articles are silent, Directors must be
appointed by the shareholders
 *Nominee Directors can be appointed by a third party or by the Central Government in the case
of oppression or mismanagement.
REQUIREMENT OF A COMPANY TO HAVE BOARD OF DIRECTORS: 
Private Limited Company Minimum Two Directors

Public Limited Company Minimum Three Directors

one person Company Minimum One Director

 * A company may appoint more than (15) fifteen Directors after passing a special resolution.
*Further, every Company should have one Resident Director (i.e. a person who has lived at least
182 days in India during the financial year)
Director’s appointment is covered under section 152 of Companies Act, 2013, along with Rule 8
of the Companies (Appointment and Qualification of Directors) Rules, 2014.

QUALIFICATIONS FOR DIRECTORS:

According to The Companies Act no qualifications for being the Director of any company is
prescribed. The Companies Act does, however, limit the specified share qualification of
Directors which can be prescribed by a public company or a private company that is a subsidiary
of a public company, to be five thousand rupees (Rs. 5,000/-).
New Categories of Director
Resident Director:
 This is one of the most important changes made in the new regime, particularly in respect of the
appointment of Directors under section 149 of the Companies Act, 2013. It states that every
Company should have at least one resident Director i.e. a person who has stayed in India for not
less than 182 days in the previous calendar year.
Woman Director
Now the legislature has made mandatory for certain class of the company to appoint women as
director. As per section 149, prescribes for the certain class of the company their women strength
in the board should not be less than 1/3. Such companies either listed company and any public
company having-
1. Paid up capital of Rs. 100 cr. or more, or
2. Turnover of Rs. 300 cr. or more.
Foreign National as a Director under Companies Act, 2013
Under Indian Companies Act, 2013, there is no restriction to appoint a foreign national as a
director in Indian Companies along with six types of Directors which are appointed in a
company, i.e., Women Director, Independent Director, Small Shareholders Director, Additional
Director, Alternative and Nominee Director. By complying with the Companies Act, 2013
(hereinafter referred as “The Act”) read along with the Companies (Appointment and
Qualifications of Directors) Rules, 2014 (hereinafter referred as “The Rules”)
Restrictions on number of Directorships
The Companies Act prevents a Director from being a Director, at the same time, in more than
fifteen (15) companies. For the purposes of establishing this maximum number of companies in
which a person can be a Director, the following companies are excluded:
A “pure” private company;
An association not carrying on its business for profit, or one that prohibits the payment of any
dividends; and
A company in which he or she is only appointed as an Alternate Director.
Failure of the Director to comply with these regulations will result in a fine of fifty thousand
rupees (Rs. 50,000/-) for every company that he or she is a Director of, after the first fifteen (15)
so determined.
 Duties & Liabilities & Powers of Directors of the Company
Duties
The position of Director of a Private Limited Company or Limited Company or One Person
Company comes with certain duties and responsibilities. Many Directors of a Company are
unaware of these duties and responsibilities expected of them and hold the position just as a
namesake. Our intention with this article is to change that mindset and create awareness about
the duties and responsibilities of a Director of a Company. This will in turn help create
companies that have a strong and ethical Board of Directors, thereby benefitting all the
stakeholders of a company.
Duty to act in the best interests of the Company
Directors are in a fiduciary position in relation to the company. So the Director must exercise
his/her power for the benefit of the company or in the best interest of the company. A Director
must also consider the interests of the company supreme and, in any case, above their personal
interest. Therefore, a Director acting honestly but not in the best interests of the company is in
breach of duty.
Fiduciary: A fiduciary is a person who holds a legal or ethical relationship of trust. Typically, a
fiduciary prudently takes care of money for another person.
Duty NOT to misapply company assets
Directors do not have legal ownership of the company’s assets. They only have effective control
of them, and they must use them and employe them for the proper purposes of the company, and
in the best interests of the company.
Duty NOT to make secret profits
A Director holds a key position in relation to the company. Therefore, in the course of
management of the business, the Director may get confidential and sensitive information
concerning the company’s business and affairs, or trade secrets. This privileged information
cannot be used by the Director for his/her personal benefit and gain to the detriment of the
company.
Duty of confidentiality
Directors would have access to all the relevant information about the operations and financials of
a company. However, a Director has a duty to ensure that such information is not, directly or
indirectly, divulged. A Director must not disclose or make use of that confidential information
for any purpose other than for the benefit of the company.
Duty to NOT permit conflict of interest
A Director of a company has a duty to not enter into any arrangement which will possibly impair
the Director’s interest and cause conflict of interest with the Company. A conflict of interest
arises when a person is in a position to derive personal benefit from actions or decisions made in
their official capacity.
Duty to attend meetings
A Director of a company must make best efforts to attend as many board meetings as
circumstances permit. In India, if a Director is absent from three consecutive meetings of the
Board, or from all meetings held in three months, whichever is longer, without obtaining leave of
absence from the Board, then the Director could lose his/her Directorship in the Company.
Duty NOT to exceed powers
The Memorandum of Association (MOA) of a Company states what the company is
authorized to do. Whereas, the Articles of Association (AOA) of the Company state what
powers are given to the Directors of the Company. It is the duty of the Directors to ensure that
not only do they keep within the company’s powers but also that hey keep within the powers
actually given to them in the Articles of Association.
Liability of directors:
The liabilities of directors may be discussed under three heads:
1. Liability to outsiders:
The directors are not personally liable to outsiders if they act within the scope of powers vested
in them. The general rule in this regard in that wherever an agent is liable, those directors would
be liable, but where the liability would attach to the principal only, the liability is the liability of
the company. The directors are personally liable to third parties of contracts in the following
cases:
1. They contract with outsiders in their personal capacity
2. They contract as agents of an undisclosed principal
3. They enter into a contract on behalf of a prospective company.
4. When the contract is ultra-vires the company.
In default of statutory duties, the directors shall be personally liable to third parties in the
following cases:
1. Mis-statement in prospectus.
2. Irregular allotment.
3. Failure to repay application money if the minimum subscription is not subscribed.
4. Failure to repay application money if allotment of shares and debentures is not dealt in on
the stock exchange as provided in the prospectus.
2. Liability to company:
The directors shall be liable to the company for the following:
(a) Where they have acted ultra-vires the company.
It is not necessary to prove fraud in such cases or that they acted bonafide. For example, where
they apply the funds of the company to objects not specified in the memorandum of association
or when they pay dividends out of capital.
(b) When they have acted negligently.
Negligence may give rise to liability; there need not be fraud. But they will not be liable where
they have acted bonafide and for the benefit of the company.
(c) Where there is a breach of trust.
Directors being the trusted of the company, they should discharge their duties in the best interest
of the company; they should discharge their duties in the best interest of the company. Where
they commit a breach of trust resulting in a loss to the company. Where they commit a breach of
trust resulting in a loss to the company, they are bound to make god the loss. For example, where
the directors apply company property of their own benefit they are guilty of breach of trust.
(d) Misfeasance:
Directors are liable to the company for misfeasance. The word misfeasance covers willful
negligence. Mere failure on the part of the director to take necessary steps for recovery of debts
due to the company does not constitute misfeasance. If the company is in the course of winding
up, the court may, on the application of the liquidator, creditor or contributory examine in to the
conduct of a director for any misfeasance or breach of trust in relation to the company.
3. Criminal liabilities of directors:
So far we have dealt with the civil liability of directors. For act of fraud, default in discharging
their duties and misdemeanor, the act provides penalties by way of fine or imprisonment. Section
75, 95, 113,115, 143, 162, 168, 303, etc. impose penalties upon the directors for omitting to
company with or contravening certain provisions of the act.
Power
The directors are considered as the head and brain of a company. When the brain functions, the
company is said to function. For the proper functioning, the directors should be properly
entrusted with some powers. The directors generally acquire their powers from the provisions of
the Articles of Association and then from the Companies Act.
1. General Powers of a Company Director
As per Sec. 291 of the Act, the Board is entitled to exercise all such powers and to do all such
acts and things as the company is authorized to do. The exceptions are the acts, which can be
done by the company only in the general meetings of the members as required by law.
Specific Powers of a Company Director
1. A) As per Sec. 262, in the case of a public company or a private company, which is a
subsidiary of a public company, the power to fill a casual vacancy of directors is to be
exercised at a Board meeting.
2. B) As per Sec. 292, the following powers of the company shall be exercised by the Board
by means of resolution passed at the meeting of the Board:
 To make calls,
 To issue debentures,
 To borrow moneys by other means,
 To invest the funds of the company, and
 To make loans.
The last three powers cannot be delegated to the Manager or to a Committee of Directors but
must be exercised only at a Board meeting.
2. Powers of Director subject to the Consent of the Company
The directors of a public company or of a private company can exercise the following powers,
which is a subsidiary of a public company only with the consent of the company in the general
meeting:
 To sell, lease or otherwise dispose of the undertaking of the company.
 To remit or give time for repayment of any debt due to the company by a director.
 To invest the sale proceeds of any property of the company in securities other than trust
securities.
 To borrow moneys where the moneys already borrowed (other than temporary) exceeds
the total of the paid-up capital and free reserves of the company.
 To contribute to charities and other funds not directly relating to the business of the
company or to the welfare of the employees in any year in excess of Rs.50,000 or 5% of
the average net profits of the three preceding financial years whichever is greater.
3. Powers of Director subject to the Consent of the Central Government
A) As per Sec. 268, any provision relating to the appointment or reappointment of a Managing
Director can be altered by the Board with the consent of the Central Government.
B) As per Sec. 295, the Board, subject to the Central Government’s consent, has the power to
appoint a person for the first time as a Managing Director.
C) As per Sec. 295, the Board, only with the previous approval of the Central Government, can
make any loan or give any guarantee or provide any security in connection with a loan made by
any other person to:
 Any of its directors or any director of its holding company, or
 Any partner or relative of such director, or
 Any firm in which any such director or relative is a partner, or
 Any private company of which any such director is a member or director, or
  Anybody corporate, 25% or more of whose total voting power may be exercised or
controlled by any such director or two or more directors together, or
 Anybody corporate, whose Board or Managing director or Manager is accustomed to act
in accordance with the directions or instructions of any director or directors of the leading
company.
Subject to the approval of the Government, the Board has the power to invest in the shares of
another company in excess of the limits specified in Sec. 372.

Company Meetings: Statutory, Annual general meeting,

Extraordinary Meeting
Statutory Meeting
Statutory Meeting is the first meeting of the shareholders of a public company. It must be held
within a period of not less than one month nor more than 6 months from the date at which the
company is entitled to commence business. It is held only once in the lifetime of a company. A
private company and a company limited by guarantee and not having a share capital need not
hold such a meeting.
The Board of Directors must, atleast 21 days before the day on which the meeting is to be held,
A forward a report, called the ‘statutory report’ to every member of the company. This
report contains all the necessary information relating to formational aspects of the company for
the information of the shareholders.
Contents of Statutory Report
1. The total number of shares allotted, distinguishing those allotted as fully or partly paid up
otherwise than in cash, the extent to which they are partly paid up, the consideration for
which they have been allotted and total amount received in cash;
2. An abstract of the receipts and payments under distinctive heads upto a date within seven
days of the date of report;
3. An account of estimate of the preliminary expenses of the company.
4. The names, addresses and occupations of the managing director, director, and also its
secretary and auditors of the company;
5. The particulars of any contract which, and the modification or proposed modification of
which, are to be submitted to the meeting for approval;
6. The extent to which underwriting contracts, if any, have not been carried out and the
reason therefor;
7. The arrears, if any, due on calls from directors, managing director or manager; and
8. The particulars of any commission or brokerage paid, or to be paid, in connection with
the issue or sale of shares to any director, managing director or manager.
Annual General meeting
Annual General Meeting (AGM) is a yearly meeting of stockholders or shareholders, members
of company, firm and organizations. Annual General Meeting is held every financial year and it
is mandatory for everyone. In AGM functions like reviewing company account, approving
audited accounts, elections, fiscal records of the past year are discussed.
As per Companies Act, an annual general meeting must be held by every company once a year
without fail. There cannot be a gap of more than 15 months between two AGMs.
However, the first AGM of a company can be held at any date, within a period of 18 months,
since the date of incorporation of the company. Annual general meetings help members
understand the company’s rate of growth and potential for improvement.
An AGM gives insights into what steps made the company more successful and which steps
caused loss. it helps the members and the board to decide the future course of action. An AGM
must be held on a working day.
Legal Requirements for holding an Annual General Meeting
Legally, a notice period of 21 days must be given to all the members before the meeting.
However, there is an exception to this rule. If all the voting members consent, the meeting may
be held at an earlier date. Further, the following documents are also to be sent with the notice.
Articles of Association, company bylaws, and jurisdiction specifies the rules that govern annual
general meeting.
 Copy of annual accounts of the company
 Director’s report on the company’s position for the given year
 Report by the Auditor of the annual accounts.
Members are allowed to use proxies in their absence. The proxy does not need to be a member of
the company. However, the proxy forms have to be submitted to the company at least 48 hours
before the meeting.
Quorum for Annual General Meeting
Unless the articles of the company state otherwise, the quorum for an Annual General Meeting is
as follows
 Public companies: At least 5 members must be present.
 Other companies:At least 2 members must be present within half an hour of the
commencement of the meeting.
Issues Undertaken at Annual General Meeting
The functions of business undertaken at a typical annual general meeting are listed as follows:
 The declaration of dividend among shareholders
 Consideration of annual accounts
 Discussion of the director’s report and the auditor’s report
 Appointment and fixing of the remuneration of the statutory auditors
 Appointing replacement directors in place of existing directors retiring
Extraordinary meeting
An Extraordinary General Meeting (an EGM) can be defined as a meeting of shareholders
which is not an Annual General Meeting (an AGM). It is held when some urgent issue becomes
about the company arises or any situation of crisis and it requires the input of all senior
executives and the Board.
Who can Call for an EGM
The members/shareholders of a company can call for an extraordinary general meeting.
However, only certain members with a significant stake in the company are allowed to call for an
EGM. They are listed in the Companies Act,2013 as follows.
 In the case of a company having a share capital, members holding not less than one-tenth
of such paid-up capital of the company that carry voting rights in regard to that matter as
on the date of depositing the requisition;
 In the case of a company not having a share capital, members holding not less than one-
tenth of the total voting power in regard to that matter as at the date of deposit of the
requisition.
 EGM called by Board.  Upon the receival of a valid requisition, the Board has a period of
21 days to call for an EGM. The EGM must be then held with 45 days from the day of
the EGM being called.
 EGM called by the requisitionists: In case the Board fails to call for an EGM, it can be
called for by the requisitionists themselves during a period of 3 months from the day the
 requisition was deposited. If the EGM is held within this specified period of 3 months, it
can be adjourned to any day in the future after the 3 months.
Essentials of a Valid Requisition
1. Specify the issue for which the meeting is called
2. Signed by requisitionists
3. Must be deposited at the company’s registered office.
Requirements for holding an EGM
A notice period of 21 days must be given to the members. However, there is an exception to this
rule. Where if 95% of the voting members consent, the EGM can be held at a shorter notice.
Quorum Required for EGM
Unless the company’s Articles state otherwise, the following number of members are required
for a quorum.
 In the case of a public company: Five(5) members personally present
 In the case of any other company: Two (2) members personally present

Meeting of Board of Directors

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 legal one so it cannot take
actions and make decisions. The board of directors act as agents through which the company
takes actions as well as makes decisions.
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
frequent 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 gap 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 gap 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
The notice of Board Meeting refers to a document that is sent to all directors of the company.
This document informs the members about the venue, date, time, and agenda of the meeting. All
types of companies are required to give notice at least 7 days before the actual day of the
meeting.
Quorum for the Board Meeting
The quorum for the Board Meeting refers to the minimum number of members of the Board to
conduct a valid Board Meeting. According to Section 174 of Companies Act, 2013, the
minimum number of members of the board required for a meeting is 1/3rd of a total number of
directors.
At any rate, a minimum of two directors must be present. However, in the case of One Person
Company, the rules of Section 174, do not apply.
Participation in Board Meeting
All directors are encouraged to actively attend board meetings and in case that’s not possible at
least attend the meetings through a video conference. This is so that all directors can take part in
the decision-making process.
Requirements for Conducting a Valid Board Meeting
 Right Convening Authority 
The board meeting must be held under the direction of proper authority. Usually, the company
secretary (CS) is there to authorize the board meeting. In case the company secretary is
unavailable, the predetermined authorized person shall act as the authority to conduct the board
meeting.
 Adequate Quorum 
The proper requirements of the quorum or the minimum number of Directors required to conduct
a Board meeting must be present for it to be considered a valid board meeting.
 Proper Notice 
Proper notice is one of the major requirements to be fulfilled when planning a board
meeting. Formal notice has to be served to all members before conducting a board meeting.
 Proper Presiding Officer 
The meeting must always be conducted in the presence of a chairman of the board.
 Proper Agenda
Every board meeting has a set agenda that must be followed. The agenda refers to the topic of
discussion of the board meeting. No other business, which is not mentioned in the meeting must
be considered.
Guidelines for Managerial Remuneration
1st March 2020  0  By INDIAFREENOTES
‘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.
Permissible managerial remuneration payable under the Companies Act 2013
 Total managerial remuneration payable by a public company, to its directors, managing
director and whole-time director and its manager in respect of any financial year:

Condition Max Remuneration in any financial year

Company with one Managing director/whole time 5% of the net profits of the company
director/manager
Company with more than one Managing 10% of the net profits of the company
director/whole time director/manager
Overall Limit on Managerial Remuneration 11% of the net profits of the company

Remuneration payable to directors who are neither managing directors nor whole-time directors

For directors who are neither managing director or 1% of the net profits of the company if there is a
whole-time directors managing director/whole time director
If there is a director who is neither a Managing 3% of the net profits of the company if there is no
director/whole time director managing director/whole time director

The percentages displayed above shall be exclusive of any fees payable under section 197(5).
Until now, any managerial remuneration in excess of 11% required government approval.
However, now a public company can pay its managerial personnel remuneration in excess of
11% without prior approval of the Central Government. A special resolution approved by the
shareholders will be sufficient.

Kinds of Resolutions under Company Act 1965

Tere are Three types of Resolutions recognized by Companies Act
Type 1. Ordinary Resolution:
An ordinary resolution is that which is passed by a simple majority at any general meeting of the
shareholders. The resolution may be passed by a show of hands or by a poll. A 21 days notice
must have been given for the meeting in which such a resolution is passed. Any matters can be
decided through an ordinary resolution unless the Companies Act or the Articles of the company
provide otherwise.
Objects:
Following are some of the matters which can be decided by an ordinary resolution:
1. Approval of statutory report.
2. Approval of directors report.
3. Approval of final accounts.
4. Declaration of dividend.
5. Appointment of directors.
6. Election of directors.
7. Issue of shares at discount.
8. Appointment of auditors and their remuneration.
9. Alteration of share capital.
10. Change in the rights of shareholders of any class.
11. Creation of reserve fund.
12. Conversion of fully paid-up shares into stock.
13. Sale of the whole or part of the company’s undertaking or business.
Specimen of Ordinary Resolutions:
1. Issue of shares at discount (Sec. 79). “RESOLVED that the Directors of the Company be
and are hereby authorised, subject to the sanction of the court, to issue 10,000 shares of
Rs. 10 each in the capital of the Company at a discount of not exceeding Rupee one per
share.”
2. Increase in the number of directors (Sec. 258). “RESOLVED that (subject to the approval
of Central Government) the number of existing directors be increased
from……………………….. to…………………… and Mr………….. and Mr………….
be and they are hereby appointed as additional directors.”
3. Removal of director (Sec. 284) “RESOLVED that Mr…………………… Director of the
Company regarding whose removal special notice has been received and has been duly
heard as required by Section 284(3) of the Companies Act, 1956, be and is hereby
removed from his office of director of the company.”
Type 2. Special Resolution:
A special resolution is one which is passed by at least 3/4th majority of the members voting on it
at the General Meeting. A 21 days notice must have been given for the meeting in which such a
resolution is passed. Notice calling the meeting should indicate that the resolution is intended to
be proposed as a special resolution.
The main feature of special resolution is that the number of votes cast in favour of the resolution
should be three times the number of votes against it.
Objects:
The following are some of the matters which can be decided by a special resolution:
(1) Alteration of the name of company.
(2) Alteration of the objects of the company.
(3) Alteration of articles of association.
(4) Change of registered office from one state to another state.
(5) Reduction of share capital.
(6) Creation of reserve capital.
(7) Payment of interest out of capital.
(8) Fixing directors’ remuneration.
(9) Voluntary winding up of a company.
(10) Making the liability of directors unlimited.
(11) Application to the court to wind up the company.
(12) Appointment of inspectors to investigate the affairs of the company.
(13) To bind the company by an arrangement or compromise made.
Specimen of Special Resolution:
1. Alteration of name of the company. RESOLVED that the name of the company be and is
hereby altered from…………………. Limited to………………………… Limited and
the Central Government be officially informed for the purpose of securing their consent
of such alteration.
2. Voluntary winding up of the company. “RESOLVED that the company be wound up
voluntarily and that Mr……………………….. of………. be and is hereby appointed
liquidator for the purpose and that this be and is hereby passed as a special resolution
pursuant to Sec. 484 of the Companies Act, 1956.
3. Alteration of articles of association. “RESOLVED that clause…………………………….
of the Articles of Association of the Company be altered by omitting the following words
therefore
“………………………….”
and substituting instead of the following words:
“………………………….”
Type 3. Resolution Requiring Special Notice:
The Indian Companies Act, 1956 has introduced a new type of resolution for the passing of
which special notice has to be given. Some matters specified in the Act cannot be moved for
discussion at 3 General Meeting unless a special notice is given to the company.
A notice containing the intention to move the resolution had to be given in such cases at least 14
days before convening the meeting in which it is proposed to be moved. The company in turn
should give members the notice of that resolution at least seven days before the holding of the
meeting. Such resolution may be ordinary or special resolution.
Following are some of the resolutions requiring special notice:
(1) Resolution to remove a director.
(2) Resolution to fill up a casual vacancy of the director.
(3) Resolution to appoint as Auditor a person other than the retiring person.
(4) Resolution to appoint as Director a person in place of removed director.

Issue of Debentures
Company debenture is one of the important sources of finance for large companies, in addition to
equity stocks, bank loans, and bonds. Companies need to follow certain procedures for issue of
debentures to raise money. There are several ways of issuing a debenture viz. at a par, premium
or discount and even for consideration other than cash.
Issue of Debentures
The procedure of issuing debentures by a company is similar to the one followed while issuing
equity stocks. The company starts by releasing a prospectus declaring the debenture issuance.
The interested investors, then, apply for the same. The company may need the entire amount
while applying for the debentures or may ask for installments to be paid while submitting the
application, on allotment of debentures or on various calls by the company. The company can
issue debentures at a par, at a premium or at a discount as explained below.
Different ways for issuing of Debenture
Once the company invites the applications and the investors apply for the debentures, the
company can issue debentures in one of the following ways:
Issue of Debenture at par
When the issue price of the debenture is equal to its face value, the debenture is said to be issued
at par. When a debenture is issued at par, the long-term borrowings in the liabilities section of
the balance sheet equals the cash in the assets side of the balance sheet. Thus, no further
adjustment is required to balance the assets and the liabilities of the company.
Issue of debenture at discount
The debenture is said to be issued at a discount when the issue price is below its nominal value.
Let us take an example – a Rs. 100 debenture is issued at Rs. 90, then Rs.10 is the discount
amount. In such a scenario, the liabilities and the assets sides of the balance sheet do not match.
Thus, the discount on debentures’ issuance is noted as a capital loss and is charged to ‘Securities
Premium Account’ and is reflected as an asset. The discount can be written off later.
Issue of Debenture At Premium
When the price of the debenture is more than its nominal value, it is said to be issued at a
premium. For example, a Rs. 100 debenture is issued for Rs.105 and Rs.5 is the premium
amount. Again, assets and liabilities do not match in such situation. Therefore, the premium
amount is credited to Securities Premium Account and is reflected under ‘Reserves and
Surpluses’ on the liabilities side of the balance sheet.
The Issue of Debenture as Collateral
The debentures can be issued as a collateral security to the lenders. This happens when the
lenders insist on additional assets as security in addition to the primary security. The additional
assets may be used if the complete amount of loan cannot be realized from the sale of the
primary security. Therefore, the companies tend to issue debentures to the lenders in addition to
some other physical assets already pledged.
Issue of Debenture for Consideration Other Than Cash
Debentures can also be issued for consideration other than cash. Generally, companies follow
this route with their vendors. So, instead of paying the cash for the assets purchased from the
vendor, the companies issue debentures for consideration other than cash. In this case, also, the
debentures can be issued at a par, premium or discount and are accounted for in the similar
fashion.
Over Subscription
The company invites the investors to subscribe to its debenture issue. However, it may happen
that the applications received for the debentures may be more than the original number of
debentures offered. This scenario is referred to as oversubscription.
Winding up of Company
Winding up of a company is defined as a process by which the life of a company is brought to
an end and its property administered for the benefit of its members and creditors. In words of
Professor Gower, “Winding up of a company is the process whereby its life is ended and its
Property is administered for the benefit of its members & creditors. An Administrator, called a
liquidator is appointed and he takes control of the company, collects its assets, pays its debts and
finally distributes any surplus among the members in accordance with their rights.”
Modes of Winding up of a Company
As per section 270 of the Companies Act 2013, the procedure for winding up of a company can
be initiated either:
a) By the tribunal
b) Voluntary
A) Winding up by the tribunal: As per new Companies Act 2013, a company can be wound up
by a tribunal in the below mentioned circumstances:
1. When the company is unable to pay its debts
2. If the company has by special resolution resolved that the company be wound up by the
tribunal.
3. If the company has acted against the interest of the integrity or morality of India, security
of the state, or has spoiled any kind of friendly relations with foreign or neighboring
countries.
4. If the company has not filled its financial statements or annual returns for preceding 5
consecutive financial years.
5. If the tribunal by any means finds that it is just & equitable that the company should be
wound up.
6. If the company in any way is indulged in fraudulent activities or any other unlawful
business, or any person or management connected with the formation of company is
found guilty of fraud, or any kind of misconduct.
Filling up winding up petition: Section 272 provides that a winding up petition is to be filed in
the prescribed form no 1, 2 or 3 whichever is applicable and it is to be submitted in 3 sets. The
petition for compulsory winding up can be presented by the following persons:
a) The company
b) The creditors
c) Any contributory or contributories
d) By the central or state govt.
e) By the registrar of any person authorized by central govt. for that purpose
Final Order and its Contents: The tribunal after hearing the petition has the power to dismiss it
or to make an interim order as it think appropriate or it can appoint the provisional liquidator of
the company till the passing of winding up order. An order for winding up is given in form 11.
B) Voluntary winding up of a company: The company can be wound up voluntarily by the
mutual decision of members of the company, if:
1) The company passes a Special Resolution stating about the winding up of the company.
2) The company in its general meeting passes a resolution for winding up as a result of expiry of
the period of its duration as fixed by its Articles of Association or at the occurrence of any such
event where the articles provide for dissolution of company.
Procedure for Voluntary Winding Up:
1. Conduct a board meeting with 2 Directors and thereby pass a resolution with a
declaration given by directors that they are of the opinion that company has no debt or it
will be able to pay its debt after utilizing all the proceeds from sale of its assets.
 2. Issues notices in writing for calling of a General Meeting proposing the resolution along
with the explanatory statement.
3. In General Meeting pass the ordinary resolution for the purpose of winding up by
ordinary majority or special resolution by 3/4th majority. The winding up shall be started
from the date of passing the resolution.
4. Conduct a meeting of creditors after passing the resolution, if majority creditors are of the
opinion that winding up of the company is beneficial for all parties then company can be
wound up voluntarily.
5. Within 10 days of passing the resolution, file a notice with the registrar for appointment
of liquidator.
6. Within 14 days of passing such resolution, give a notice of the resolution in the official
gazette and also advertise in a newspaper.
7. Within 30 days of General meeting, file certified copies of ordinary or special resolution
passed in general meeting.
8. Wind up the affairs of the company and prepare the liquidators account and get the same
audited.
9. Conduct a General Meeting of the company.
 In that General Meeting pass a special resolution for disposal of books and all necessary
documents of the company, when the affairs of the company are totally wound up and it
is about to dissolve.
 Within 15 days of final General Meeting of the company, submit a copy of accounts and
file an application to the tribunal for passing an order for dissolution.
 If the tribunal is of the opinion that the accounts are in order  and all the necessary
compliances have been fulfilled, the tribunal shall pass an order for dissolving the
company within 60 days of receiving such application.
 The appointed liquidator would then file a copy of order with the registrar.
 After receiving the order passed by tribunal, the registrar then publish a notice in the
official Gazette declaring that the company is dissolved.
Effect of Winding up by tribunal (Sec. 279): According to this section, the order for winding
up of a company shall operate in favour of all the creditors and all contributories of the company
as if it had been made out or the joint petition of creditors and contributories.
Effect of voluntary winding up (Sec. 309): In the case of a voluntary winding up, the company
shall from the commencement of the winding up cease to carry on its business except as far as
required for the beneficial winding up of its business. The corporate state and corporate powers
of the company shall continue until it is dissolved.

Dividends vs. Bonus Shares

WHAT ARE DIVIDENDS ON STOCKS?
When you buy a company’s shares you expect that company to make a profit. The profit that
company makes is then divided among the shareholders on a ratio proportional to the number of
stocks one has. Dividend on stocks is therefore the proportion of a company’s profit that it pays
to its shareholders. This is usually declared as a dividend per share. Although a company makes
profit, they are in no way obligated to pay dividends. It’s the managing board’s decision whether
to pay or not.
For example - If a company whose share price is Rs. 400, declares a healthy dividend of 60%
(face value Rs. 10), the dividend paid would be Rs. 6 per share.( Rs 10 * 60%) and not Rs 240
(400 * 60%). The dividend yield in this case would be 6/400 = 1.5%
 Dividends are looked upon by the market at large as an important signaling mechanism
determining the health of the corporate. Dividends are paid out of reserves and by paying
dividend the company is distributing a part of its reserves amongst shareholders.

WHAT ARE DIVIDEND PAYING STOCKS?

Dividend paying stocks are shares of a company that pays regular dividend payments to its
shareholders. These are good companies to invest in because even if the stock price was to go
down, you still get a worthwhile return in your investment from dividends. Investors who follow
the ‘income investing strategy’ may have a portion of their investments in regular dividend
paying companies.

WHEN IS IT PAID?
Dividends are paid after the board recommendation is accepted by shareholders. So dividend
payouts have direct effect on the cash balance of the company. While it is not mandated by the
law to sustain dividend payouts, many companies make it a regular process to retain their value
among the investor community. Dividends are seen as a harbinger of corporate prosperity, as it is
the most popular route taken to reward investors. However, this does not imply that all
companies that declare dividends may be on a sound business footing. You may need to run a
few litmus tests to find out whether such dividends stand to gloss up your portfolio returns.

BONUS SHARES
Bonus shares have been already dealt in the previous articles. Bonus shares issued by
capitalizing a part of the company’s reserves. Following a bonus issue, though the number of
total shares increase, the proportional ownership of shareholders does not change. Also, post the
bonus the cum bonus share price should fall in proportion to the bonus issue, thereby making no
difference to the personal wealth of the share holder. However, a bonus is perceived to be a
strong signal given out by the company and the consequent demand push for the shares causes
the price to move up. As far as tax is concerned, since no money is paid to acquire bonus shares,
these have to be valued at nil cost while making calculations for capital gains.

WHY DO COMPANIES ISSUE BONUS SHARES?

 The issue shares allows the company to declare a dividend without using up the cash that
may be used to finance the profitable investment opportunities within the company and thus
company can maintain its liquidity position
 When a company faces stringent cash difficulty and is not in a position to distribute
dividend in cash, or where certain restrictions to pay dividend in cash are put under loan
agreement, the only way to satisfy the shareholders or to maintain the confidence of the
shareholders is the issue of bonus shares.
 I By issuing bonus shares, the rate of dividend is lowered down and consequently share
price in the market is also brought down to a desired range of activity and thus trading activity
would increase in the share market. Now small investors may get an opportunity to invest their
funds in low priced shares.
 The cost of issue of bonus shares is the minimum because no underwriting commission,
brokerage etc. is to be paid on this type of issue. Existing shareholders are allotted bonus shares
in proportion to their present holdings.