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What are the rights and duties of Directors?

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posted Jul 18 by Sagar Sharma

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Rights of Directors

Rights can be categorized into individual and collective rights.Individual rights are such as right to inspect books of accounts {Section 209(4)},Right to receive notices of board meetings (Section 285),right to participate in proceedings and cast vote in favour or against resolutions(Section 300),right to receive circular resolutions proposed to be passed.(Section 289),right to inspect minutes of board meetings.

Collective rights are as follows:-

  • Right to refuse to transfer shares: According to Section 111 of the Act, directors of private companies and deemed public companies are entitled to refuse registration of transfer of shares to a person whom they do not approve.

  • Right to elect a Chairman: Regulation 76(1) of Table-A provides that the directors are entitled to elect a chairman for the board meetings.

  • Right to appoint a Managing director: The Board has the right to appoint the managing director/ manager (as defined in the Act) of the company.

  • Right to recommend dividend: The Board is entitled to decide whether dividend is to be paid or not. Shareholders cannot compel the directors to pay dividend. However they can reduce the rate of recommended dividend. Payment of dividend is the prerogative of the board

Duties of Directors

Directors as individuals have a duty to attend board meetings and contribute to the deliberations of the board and ultimately to the decision making leading to formulation of policies. Directors are under obligation to disclose their interest whether directly or indirectly in contracts or arrangements with the company (Section299). They are also duty bound to disclose their directorships in other companies within 20 days of appointment or relinquishment of his office in other companies (Section 305).As per Section 308, directors are also required to disclose their shareholding in the company.

The following are some of those duties exercised collectively:-

  • Approval of annual accounts and authentication of annual accounts

  • Directors report to shareholders highlighting performance of the company, transfers to reserves, investment of surplus funds, borrowings

  • Appointment of First Auditors

  • Issuance of Notice and Holding of Board meetings and shareholders meetings

  • Passing of resolutions at board meetings or by circulation.

  • Directors are paid remuneration for their efforts in formulating policies and for devoting their valuable time for the company.

Directors remuneration consists of sitting fees as per provisions in Articles of association, and Commission as a fixed percentage of net profits or as a fixed monthly sum as decided by the shareholders in the general meeting. As per the provisions in the new companies bill,2009 independent directors can not receive any remuneration other than sitting fees, expenses for attending board meetings and commission linked to profits.

answer Jul 19 by Shantanu Arora
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