Q.2 Explain the term ‘Board of directors’
Ans. The term ‘Board of directors’ means a body duly constituted to direct control and supervise the activities of affairs of a company. In other words, the Board of directors is the ‘directing mind and will’ of the company.
Board has management and the control of the company. The ‘Board of directors’ is the supreme authority having the management and control of the affairs of a company. It is entitled to exercise all such powers as the company is authorized to exercise. However, certain powers are required to be exercised in general meeting by the shareholders, and therefore such powers shall not be exercised by the Board.
Functions of the Board. The Board directs controls, manages and superintends the affairs of a company. It formulates the general policy of the company, establishes organizational set up for implementing these policies, and directs its affairs to achieve the objectives laid down by it. The success of the company depends on the efficient functioning of its directors. Therefore, Board has been referred to as the eyes, ears, brains, nerves and essential limbs of the company.
The directors collectively are referred to as the ‘Board of directors’ or the ‘Board’ [Section 252(3)]. In practice, the expression ‘directors’ is also used to mean the ‘Board of directors’
All the powers vested in the Board of directors are exercisable by the directors collectively, i.e., by the Board. An individual director has no authority to act on behalf of the company, unless he is so authorized by the Act, articles, a resolution of the Board of Directors or a resolution of the shareholders.
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.
R K Kumawat & Associates
Address:G-15, Ashirwad Complex, Central Spine, Vidhyadhar Nagar, Jaipur – 302023 (Rajasthan)
Email : firstname.lastname@example.org
Phone : +91-8829035203 , +91-9928399554