CLAT PG Exam > CLAT PG Notes > Company Law > Distribution of powers between Board of Directors and Shareholders
Distribution of powers between Board of Directors and Shareholders | Company Law - CLAT PG PDF Download
Introduction
- The powers of a company are divided between the Board of Directors and the shareholders, with the Board generally having the authority to exercise most powers unless specifically reserved for the shareholders in a general meeting.
- In the case of John Shaw and Sons (Salford) Ltd v. Shaw, it was emphasized that a company is separate from its shareholders and directors. The articles of the company determine which powers are exercised by the directors and which are reserved for the shareholders. The directors have the exclusive right to manage the company’s affairs, and shareholders can only influence this by changing the articles or not re-electing directors.
Directors' Powers
- Issue preference shares.
- Borrow money by mortgaging the company’s property.
- Manage the company’s day-to-day operations.
- Sell the company’s assets, although the board is not obligated to do so if it believes it is not in the company’s best interest, even if the shareholders want it.
Only the directors can initiate legal actions on behalf of the company and settle disputes in the company’s interest. They cannot give up their power to control a manager by contract. While directors must consider the directions of the general meeting, they are not required to follow them if they believe it is not in the company’s best interest. Their discretionary powers cannot be challenged unless there is evidence of improper motives or arbitrary actions.
Here are some important powers of the board of directors in Indian companies:
- Issue shares and debentures
- Borrow money
- Invest funds
- Manage day-to-day operations
- Appoint and remove key executives
- Set company policies
- Oversee financial reporting
- Ensure compliance with laws
Question for Distribution of powers between Board of Directors and ShareholdersTry yourself: Which of the following is a power of the board of directors in a company?View Solution
Key powers of Board of Directors in India
- Issue Shares and Debentures: The board can issue shares and debentures to raise capital for the company.
- Borrow Money: The board has the authority to borrow money for the company’s needs, typically through loans or other financial instruments.
- Invest Funds: The board can make decisions on how to invest the company’s funds to generate returns.
- Manage Day-to-Day Operations: The board is responsible for overseeing the daily operations and ensuring the company runs smoothly.
- Appoint and Remove Key Executives: The board has the power to appoint and remove key executives, such as the CEO and CFO, to ensure effective leadership.
- Set Company Policies: The board establishes policies that guide the company’s operations and strategic direction.
- Oversee Financial Reporting: The board ensures accurate financial reporting and compliance with accounting standards.
- Ensure Compliance with Laws: The board is responsible for ensuring the company complies with all relevant laws and regulations.
The document Distribution of powers between Board of Directors and Shareholders | Company Law - CLAT PG is a part of the CLAT PG Course Company Law.
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FAQs on Distribution of powers between Board of Directors and Shareholders - Company Law - CLAT PG
| 1. What are the main roles of the Board of Directors in a company? |  |
Ans. The Board of Directors is primarily responsible for overseeing the company's management, making strategic decisions, and ensuring the company adheres to legal and ethical standards. They set the company's long-term goals, approve budgets, and monitor financial performance.
| 2. How do shareholders influence the decisions of the Board of Directors? | |
Ans. Shareholders influence the Board of Directors through their voting rights, particularly during annual general meetings. They can elect or remove directors, approve major corporate changes, and express their opinions on significant issues, which can impact the Board's decisions.
| 3. What are the rights of shareholders in relation to the Board of Directors? | |
Ans. Shareholders have several rights, including the right to vote on important matters, receive dividends, access company information, and participate in meetings. They can also voice their concerns and hold the Board accountable for its actions.
| 4. How is the power dynamic structured between the Board of Directors and shareholders? | |
Ans. The power dynamic is structured such that the Board of Directors exercises operational control over the company, while shareholders have ultimate authority through their voting rights. This creates a balance where the Board manages daily operations, but shareholders can influence major decisions.
| 5. What happens if there is a conflict between the Board of Directors and shareholders? | |
Ans. In case of a conflict, shareholders may seek to resolve the issue through dialogue, shareholder meetings, or even legal action. If necessary, shareholders can initiate proxy battles to replace Board members or push for changes in company policies to align with their interests.
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Nov 23, 2024 Last updated |
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