Monthly Archives: December 2012
Q.1 Why does a company need directors?
Ans. The need for directors may be explained as follows:
- 1. Company is an artificial person incapable of acting by itself
On Incorporation a company becomes a legal person, i.e. it has a legal entity of its own, it is empowered to hold properties in its name and it can sue others. Also, the company is referred to as an artificial person, i.e., it is invisible, intangible and exists only in contemplation of law.
However, a company is not a natural person, i.e., it has no mind or body of its own, it has no eyes to see, no ears to hear, no hand to sign and no brain to think and take decisions. Therefore, a company cannot act by itself and consequently it has to depend upon some human agency to act in its name.
- 2. Separation of ownership from management
The members have no inherent right to participate in the management of the company. They generally lack the expertise to manage the affairs of a company. Further, a large sized company may have its members running into lakhs, who are dispersed all over the length and breadth of the country, which makes it impossible to give the management of the company in their hands. Therefore, a specialized body of persons, called as directors is appointed by the members to manage the affairs of the company.
- 3. Statutory requirement to have directors
The Act has recognized the need for directors and their vital position in a company. It requires every company to have its Board of directors. As per section 252, every public company shall have a minimum of 3 directors and every private company have a minimum of 2 directors.
|Delegation by the Board is permissible
The Board of directors may manage the company either by itself or where it is overburdened with the day-to-day affairs of the company, it may delegate some of its functions to a managing director, a manager, or a committee of directors.
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