A company, by being an artificial person, discharges its functions through its directors, whoever are authorised on this behalf,

through a resolution passed by the company. Further, the shareholders also have been empowered to discharge certain functions. They discharge those functions in the companys general meetings.

Different types of Meetings of the Shareholders

(a) Statutory meeting (b) Annual General meeting (c) Extraordinary General meeting (d) Class meeting

Statutory Meeting Statutory meeting is required to be held only by a public company having a share capital. A private company or a public company, not having a share capital, need not hold such statutory meeting. (i) Such meeting must be held within a period of, not less than one month and not more than six months, from the date at which the company becomes entitled to commence its business. (ii) A notice of the meeting must be sent to every member, stating it to be a statutory meeting, at least 21 days before the date of such meeting. Such notice shall be deemed to have been served (sent) on the expiry of 48 hours after it has been posted [Section 53].

The Annual General Meeting (AGM) It must be held every year. All the companies, whether public or private, whether having share capital or not, whether a limited company or an unlimited company, must hold the Annual General Meeting (AGM). The meeting must be held in every calendar year (i.e. January to December). And, not more than 15 months should elapse between two such meetings. However, the first Annual General Meeting (AGM) may be held within 18 months from the date of incorporation. If such Annual General Meeting (AGM) is held within that period, it need not hold any such meeting in the year of its incorporation, or in the following year.

The Annual General Meeting (AGM)

Contd

The maximum gap between two such meetings may be extended by three months by taking permission from the Registrar of Companies, who may so allow for any special reason. The Court has not been empowered to grant such extension. The Annual General Meeting (AGM) must be held in the following days and time: (i) On any day, which is not a public holiday. Here, the Bank holidays, for the purposes of half yearly and yearly closings, are not deemed as public holidays, for this purpose), (ii) During the business hours, (iii) At the Registered Office of the company, or at some other place within the city town or village, in which the registered office of the company is situated [Section 166 (2)].

The Annual General Meeting (AGM)

Contd

Business transacted in Annual General Meeting (AGM) (a) Ordinary Business which relates to the following matters: (i) Consideration of the accounts, the Balance Sheet and the Profit and Loss Account, and the reports of the Board of Directors and the auditors, (ii) Declaration of Dividend, if any, (iii) Appointment of the directors in the place of those retiring, and (iv) Appointment of auditors and fixation of their remuneration.

The Annual General Meeting (AGM)

Contd

Business transacted in Annual General Meeting (AGM) (b) Special Business Any other business transacted at the meeting will be deemed as the special business. Further, with regard to all the special business, an Explanatory Statement is required to be annexed to the notice of the meeting. If the Annual Accounts of the company is not ready, the company can adjourn the AGM, to a subsequent date, and fix a date for the next meeting, when the accounts are expected to be ready for presentation and consideration.

The Annual General Meeting (AGM)

Contd

Business transacted in Annual General Meeting (AGM) Further, as the consideration of the annual accounts of the company is only one of the various other businesses to be transacted in the Annual General Meeting (AGM), the directors are under legal obligation to hold the meeting. Such adjourned meeting should, however, take place within the maximum time limit allowed under Section 166. The company must give 21 days notice to all the members of the company and the auditors. Such notice shall be deemed to have been served on the expiry of 48 hours after it has been posted. A company may advertise the notice of the meeting in the newspapers. Though not legally necessary, the company may do so, to avoid any dispute by the shareholders, specially residing outside India, to the effect that they have not received the notice of the meeting.

Extra-ordinary General Meeting (EGM) All general meetings, other than the AGMs, shall be called as the Extra-Ordinary General Meeting (EGM). An EGM is called to transact some special or urgent business that may arise in between the two AGMs For example, for changes in, the object of the company, in the location of the registered office of the company, in the share capital of the company, and so on. Further, as every business transacted in the EGM is called special businesses, every item on the agenda, must accompany an Explanatory Statement.

Class Meeting (EGM)

If it is proposed to alter, vary or affect the rights of a particular class of shareholders (like where the accumulated dividends on cumulative preference share is to be cancelled), and it is not possible to obtain, in writing, the consent of the holders of 75 per cent (3/4 portion) of the issued shares of that class of shareholders, a meeting of the holders of such class of shares may be called. Such a meeting is referred to as the Class Meeting.

Class Meeting (EGM)

Contd

Further, all the resolutions in a class meeting must be passed as special resolutions. The holders of at least 10 per cent of the issued shares of that class, who did not consent to such resolution, may file an application in the Court within 21 days of to have the resolution cancelled. And where such application is made, the resolution shall not be effective unless and until it is confirmed by the Court. Every member of a company, entitled to attend and vote at a meeting, has the right to appoint another person (known as Proxy), whether a member of the company or not, to attend and vote for him. But the proxy does not have a right to speak at the meeting.

The term proxy is also used in the reference of the document/instrument, by which a member of a company appoints another person to attend the meeting and vote for him therein. However, the proper (correct) name for such document is proxy form or proxy paper. Casting of votes, through postal ballot, is allowed, in certain cases, and subject to certain conditions.

Accounts All the companies are required to keep, at its registered office, proper books of accounts, giving a true and fair view of their financial affairs. These books are open to inspection, during the companys business hours, by any director and the Registrar of Companies, or an officer authorised by the Central Government. Such books are required to be maintained for a minimum period of eight years. Further, the Companies Amendment Act 1988 as made it obligatory on the part of the companies to maintain their accounts on accrual basis.

At every AGM, the Board of Directors must lay before the members of the company the Balance Sheet and the Profit and Loss Account of the company. In the cases of non-profit making companies, an Income and Expenditure Account is required to be submitted, instead of the Profit and Loss Account. Section 211 deals with: (i) The form (proforma) of the Balance Sheet, and (ii)The details of the items, to be presented in the Profit and Loss Account. All the liabilities are shown on the Left Hand Side (LHS) and all the assets on the Right Hand Side (RHS) in the horizontal format. And, likewise, in the vertical form, first all the liabilities appear at the top, and thereafter assets are presented.

Companies, which are working for more than one year, are required to give the Balance Sheets of at least two consecutive years for the purpose of intra-firm comparison of the company during these two years. The Balance Sheet and the Profit and Loss Account of the company must be signed on behalf of the Board of Directors by at least two of the Directors, and countersigned by the Manager or the Company Secretary. In the companies, where there is a Managing Director, such Managing Director should be one of such signatories.

The Balance Sheet and the Profit and Loss Account of the company must be first approved by the Board of Directors, before these are submitted to the auditors for audit purposes. After completing the audit of the company, the auditors must submit their own Auditors Report which are also published in the companys Annual Report, along with its Balance Sheet and the Profit and Loss Account.

The report of the Board of Directors shall describe the companys state of affairs, the amount proposed to be carried over to the respective reserves, the amount recommended for dividend as also the change which might have occurred during the course of the financial year in regard to the nature of the business of the company. The Directoprs report must also explain the adverse (qualifying) remark(s) of the auditors, if any.

It must also include a list showing the names of all the employees of the company who receive the remuneration of Rs 12 lakh per annum or more (inclusive of the value of the perquisites). Besides, it must state whether any such employee is related to any director or manager of the company, and, if so, the name of such director must also be stated.

Audit All companies must appoint qualified auditors (a Chartered Accountant in practice) to audit the accounts maintained by the company. The first auditors may be appointed by the Board of Directors within one month of the date of incorporation of the company. If the Board of Directors does not appoint the first auditors, it may be done in the companys Annual General Meeting (AGM). The auditors may be automatically reappointed.

At every AGM, .the retiring auditors, by whatever authority appointed, is automatically reappointed, unless (a) He is not qualified for reappointment, or (b) He has given a written notice to the company of his unwillingness to be reappointed, or (c) A resolution has been passed at that meeting (AGM) appointing some one else, instead of the present auditor, or providing specifically and expressly that he shall not be reappointed, or (d) Where notice has been given of any intended resolution, appointing some one else, instead of the present auditor, but due to that persons death, incapacitation or disqualification, the resolution has to be dropped.

This document (Audit Report) is required with a view to ensuring that it is a clean report, certifying to the effect that the financial statements of the Company have been prepared from the books of accounts, properly kept, in accordance with the generally accepted accounting principles, and above all, that these present a true and fair view of the financial position of the Company. And, in case there are some qualifying remarks in the report, we must look for the explanations given by the management, as also to find out as to how far are these explanations convincing enough.

Dividends Per Cent Rate of Dividends Minimum Percentage of Profit Proposed to be Transferred to the Reserves 10 per cent to 12.5 per cent 2.5 per cent 12.5 per cent to 15 per cent 5.0 per cent 15 per cent to 20 per cent 7.5 per cent 20 per cent and above 10 per cent

A company may transfer a higher percentage of profit (i.e. more than the minimum 10 per cent), voluntarily to the Reserves, in accordance with the Rules framed by the Central Government in this regard. However, no transfer of funds will be required to the Reserves, if the proposed dividend is less than 10 per cent. Further, in the case of an inadequate profit or the absence of any profit, in any year, the company may declare dividends out of the previous years accumulated Profits and Reserves, in accordance with the Rules framed by the Central Government in this regard. Any amount of dividend, remaining unclaimed and unpaid for a period of seven years from the date the same had become due for payment, shall be transferred to the Investor Education and Protection Fund.

The Board of Directors of the company may declare interim dividend, i.e. the dividend which is declared by the Board of Directors of the company at any time between two AGMs. Central Government, under certain circumstances, may investigate into the following matters: (a) The affairs of the company, and (b) The ownership of the company.

A company must have a Board of Directors, and must appoint: (a) Managing Director (b) Manager A company may also employ Executive Director or Whole-time Director, if it likes. The term Director includes any person occupying the position of a director, by whatever name called.

Every public company must have at least three directors. Every private company, whether it is a subsidiary of a public company or not, must have at least two directors. A public company, having
(a) A paid up capital of Rs 5 core or more, or (b) 1,000 or more small shareholders, may have a director elected by such small shareholders in the manner as may be prescribed, as per the Companies (Amendment) Act 2000. The term small shareholders means a shareholder holding shares of the face (nominal) value of Rs 20,000 or less in a public company to which this Section applies.

The Articles of Association of a company may stipulate the minimum and maximum number of directors of its Board, say, minimum 4 and maximum 10. Further, the Articles of Association of a company may fix within these limits the limit which will constitute the Board for the time being, say, 7, which falls within the aforesaid limit. A company, in its AGM, may, by an ordinary resolution, increase or decrease the number of its directors, but within the limits fixed in that behalf, by its Articles of Association. Further, if such increase in the number of directors, exceeds 12 directors, the approval of the Central Government is required.

Only Individual persons, and no corporate body, association or firm, shall be appointed as the directors of the company [Section 253]. The names of the first directors usually appear in the Articles of Association of the company. However, the Articles of Association, instead of naming the first directors, may empower the subscribers, or majority of them , to appoint the first directors.

The appointment of the subsequent directors can be made by the following: (i)The subscribers to the Memorandum of Association [Section 254, Clause 64 (Table A)], (ii)The company in its Annual General Meeting (Section 255 to 257, 263 to 265), (iii)The Board of Directors (Sections 260, 262 and 313), (iv)The Central Government, and Third parties (Section 255).

Persons Disqualified for Being Appointed as Directors (i) A person found by the Court to be of unsound mind (ii) An undercharged insolvent (iii) A person who has applied for being adjudged insolvent (iv)A person who has been convicted any where in the world for an offence involving moral turpitude, and sentenced in regard thereto, to imprisonment for not less than six months, and for a period of five years has not elapsed from the date of the expiry of the sentence.

Persons Disqualified for Being Appointed as Directors (v)A person who has not paid his calls on the shares for six months from the date fixed for the payment (vi)A person who has been disqualified by the Court under Section 203, which empowers the Court to restrain fraudulent persons from managing the companies (vii)A person who is already a director of a public company, under certain circumstances specified under Section 203

A minor may not be appointed as director of a public company or a private company, which is a subsidiary of a public company, as he is not competent to enter into as valid contract. But nothing in the Act prohibits a minor from being appointed as the director in an independent private company. But, a minor director occupies the position as an ornamental and not an active and functional director.

A Managing Director of a company is a director who, by virtue of an agreement with the company, or by virtue of a resolution passed by the company in its AGM, or by its Board of Directors, or by virtue of its Memorandum of Association and its Articles of Association, is entrusted with substantial powers of management, which would not be exercisable by him, otherwise. The term Managing Director includes a director, occupying the position of the Managing Director, by whatever name called.

The Managing Director carries on the day-to-day affairs of the company. He is the executive head of the company and, subject to the control of the Board of Directors, of the company, controls the affairs of the company. A director entrusted with managerial functions will be a Managing Director even though he may be called as a Technical Director or a Technical Advisor. But then, he has necessarily to be a member of the Board of Directors. The Managing Director is also an employee.

Appointment of a Managing Director In any one of the following four ways:

(i) By virtue of an agreement with the company (ii) By virtue of a resolution passed by the company in its AGM (iii) By virtue of a resolution passed by the Board of Directors (iv) By virtue of the companys Memorandum of Association and its Articles of Association. The term of office of the Managing Director cannot exceed a period of five years at a time. He may, however, be reappointed or re-employed or his term of office may be extended, but again for a period of five years on any one occasion. But such reappointment or extension shall not be sanctioned earlier than two years from the date on which it is to come into force (effect).

Persons Prohibited from Being Appointed as Managing Director, or the Whole-time Director (i) Who is an undercharged insolvent (ii) Who suspends, or has any time suspended, payment to his creditors, or makes, or has any time made, a composition with them (iii) Who is, or has any time been convicted by a Court for an offence involver moral turpitude. Further, as the Managing Director has necessarily to be one of the directors of the company too, all the conditions of disqualifications involving a director, shall automatically apply in the case of a Managing Director as well.

Manager means an individual who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole or substantially the whole of the affairs of the company, and includes a director or any other person occupying the position of a manager, by whatever name called, and whether under a contract of service or not. Only Individual persons, and no corporate body, association or firm, shall be appointed as the manager of the company.

The appointment of the following types of persons as the Manager of a company has been prohibited: (i) Who is an undercharged insolvent, or (ii) Who has at any time within the preceding five years been adjudged a an insolvent, or (iii) Who suspends, or has any time suspended, within the preceding five years payment to his creditors, or (iv)Who makes, or has any time made within the preceding five years, a composition with his creditors, (v) Who is, or has any time been convicted within the preceding five years by a Court for an offence involver moral turpitude.

However, the Central Government, by notification in the Official Gazette, may remove any of the aforementioned disqualifications incurred by any person either generally or in relation to any company or companies specified in the Official Gazette notification.

The term Whole-Time Director includes a director in the whole time employment of the company. As regards the appointment, re-appointment and remuneration of the Whole-Time Director, the same provisions are applicable in this case also as are applicable in the case of the Managing Director. Every public company, or a private company, which is a subsidiary of a public company, must have a Managing Director or a Whole-Time Director, if its paid up share capital is Rs 5 crore or more.

Distinctions between Managing Director and Whole-time Director (a) A Managing Director may be appointed in that capacity in two or more companies at the same time. But a Whole-Time Director cannot be appointed in more than one company simultaneously, as he is in the whole time employment of a company already. (b) The tenure of a Managing Director of a public company or a private company (subsidiary of a public company) cannot be more than five years at a time. However, there is no such restriction for the employment of a Whole-Time Director It is compulsory for all the companies, having a paid up share capital of Rs 25 lakh and above, to necessarily appoint a whole time Company Secretary.