Directors, Meetings, and Corporate Governance notes — Unit 4
Free unit-wise study notes on directors, meetings, and corporate governance for Company Law, Semester 3 of Bachelor of Laws (LLB) — key concepts, examples, important questions and a revision checklist for semester exams.
The brain of the corporation. This unit dissects the role of Directors, their fiduciary duties, and the stringent Corporate Governance norms introduced in 2013 (Independent Directors, Women Directors). It also maps out the mechanics of corporate decision-making through Board Meetings and Annual General Meetings.
Notebook — 6 pages
Page 1
Wink Notes
LLB — 3rd Semester
Company Law
— Unit - 4 —
1. Directors and the Board
A company is an artificial person; it has no physical brain or hands. It acts through human agents called Directors. The collective body of directors is called the Board of Directors.
⇒Requirement of Directors (Section 149)
Public Company: Minimum 3 directors.
Private Company: Minimum 2 directors.
One Person Company (OPC): Minimum 1 director.
Maximum: 15 directors (can be increased by passing a Special Resolution).
Residency: At least ONE director must have stayed in India for a minimum of 182 days in the previous year.
⇒Legal Position of Directors
Directors hold a unique, multi-faceted position in law:
As Agents: They act on behalf of the principal (the company). They bind the company to contracts.
As Trustees: They are trustees of the company's money and property. They must use it only for company purposes.
As Fiduciaries: They owe a duty of absolute loyalty and good faith to the company.
Page 2
Wink Notes
LLB — 3rd Semester
Company Law
— Unit - 4 —
2. Corporate Governance Reforms (Act of 2013)
To prevent corporate frauds (like the Satyam scam), the 2013 Act introduced massive governance requirements.
⇒1. Independent Directors
In listed public companies, at least 1/3rd of the Board must be Independent Directors. An independent director is a non-executive director who does not have any pecuniary (financial) relationship with the company, its promoters, or its management. Their job is to act as a neutral watchdog for minority shareholders.
⇒2. Women Directors
Every listed company (and certain large unlisted public companies) MUST have at least one Woman Director on the Board.
⇒3. Corporate Social Responsibility (CSR - Sec 135)
Companies hitting specific profit/net worth thresholds must spend at least 2% of their average net profits of the preceding 3 years on CSR activities (education, poverty alleviation, environment). India was the first country to legally mandate CSR.
Page 3
Wink Notes
LLB — 3rd Semester
Company Law
— Unit - 4 —
3. Duties of Directors (Section 166)
For the first time, the 2013 Act codified the fiduciary duties of directors into a specific section.
Act in accordance with AoA: Must follow the company's constitution.
Act in Good Faith: Must promote the objects of the company for the benefit of its members as a whole.
Exercise Due Care and Skill: Cannot be criminally negligent in their decision-making.
Avoid Conflict of Interest: Must not involve themselves in situations where their personal interests conflict with the company's interests.
No Secret Profits: Must not achieve any undue gain or advantage for themselves or their relatives.
No Assignment of Office: A director cannot assign their office to someone else.
Page 4
Wink Notes
LLB — 3rd Semester
Company Law
— Unit - 4 —
4. Company Meetings: Board vs Shareholders
Decisions in a company are made through democratic voting in formal meetings.
⇒1. Board Meetings (Directors)
Frequency: Minimum 4 meetings every year. The gap between two meetings cannot exceed 120 days.
Quorum: Minimum number of directors required to start the meeting is 1/3rd of the total strength or 2 directors, whichever is higher.
Decisions: Passed by simple majority (Board Resolutions). Directors can also participate via Video Conferencing.
⇒2. General Meetings (Shareholders)
The supreme decision-making body of the company. There are two main types:
Annual General Meeting (AGM): Held once a year. Crucial for adopting financial statements, declaring dividends, and appointing auditors/directors.
Extraordinary General Meeting (EGM): Any shareholder meeting held between two AGMs to discuss urgent matters that cannot wait for the next AGM.
Page 5
Wink Notes
LLB — 3rd Semester
Company Law
— Unit - 4 —
5. Resolutions in General Meetings
Shareholders express their decisions by voting on 'Resolutions'. There are two levels of severity:
Ordinary Resolution
Requirement: Votes cast IN FAVOR must be greater than votes cast AGAINST (>50%).
Usage: For routine, day-to-day business.
Examples: Declaring a dividend, appointing auditors, passing the annual financial accounts.
Special Resolution
Requirement: Votes cast IN FAVOR must be at least THREE TIMES the votes cast AGAINST (≥75%).
Usage: For constitutional or highly critical changes.
Examples: Altering the MoA or AoA, changing the company's name, reducing share capital, shifting registered office to another state.
Page 6
Wink Notes
LLB — 3rd Semester
Company Law
— Unit - 4 —
6. Conclusion and Exam Strategy
⇒Summary of Master Concepts
Directors' Position: Agents, Trustees, and Fiduciaries.
Governance: Independent Directors act as watchdogs. Women Directors mandated. CSR (2% profit) is compulsory.
Duties (Sec 166): Good faith, care/skill, avoid conflicts, no secret profits.
Resolutions: Ordinary (>50% for routine) vs Special (≥75% for critical changes).
⇒University Exam Tips for this Unit (Premium Advice)
Fiduciary Duty: Whenever writing about directors, use the phrase 'fiduciary relationship' repeatedly. Explain that they cannot place their personal interests above the company's.
Resolution Thresholds: Be mathematically precise. An Ordinary Resolution is >50% of voting members present, not of the total company. Special is ≥75%.
CSR: The 2013 CSR provision (Sec 135) is a highly probable short-note question. Remember the '2% of 3-year average net profit' metric.
