The board of directors is the highest authority in any company. According to Section 179, Companies Act 2013, the power of directors of a company – entitled to make any and all decisions, and thus exercise all the power, which the company has authority to enact.
the Companies Act 2013, a Company can exercise its power through a Board of Directors or shareholders. The relationship between the shareholders and the board of directors works as an alliance because the board of directors has some powers that are exercised exclusively by them and also has some powers that can only be exercised with the approval of the shareholders either through an ordinary resolution or a special resolution.
Power of Directors
POWERS OF BOARD as per section-179(1)- Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do Provided that while exercising such powers or doing such act or thing, the Board shall be subject to the provisions contained in that behalf in
1. Companies Act, 2013
2. Article of Association
3. Memorandum of Association
4. Any regulations not inconsistent therewith and duly made thereunder
5. Regulations made by the company in general meeting
Provided further that the Board shall not exercise any power or do any act or thing which is directed or required, whether under.
1. Companies Act, 2013
2. Article of Association
3. Memorandum of Association
SEC 179 empowers the board of directors and authorizes them to exercise all these powers, and the board of directors, within the scope of this authority, may perform any act or thing on behalf of the company that the company is authorized to do and act, if:
- When the board of directors exercises such powers or any such in or matter, it shall be subject to certain provisions contained herein in that representation under the Companies Act, or the memorandum, or articles of association, or some other regulations duly made thereunder and includes also the regulations of the company at their general meeting.
This means that the powers vested in the board of directors should be within the limits of the Companies Act, Articles of Association, Memorandum of Association, or any rule or regulation made by the Companies Act or any order made by the company in general meeting.
The Board of Directors cannot exercise any power that is inconsistent with the Companies Act, the Articles, the Articles of Association, or any rule or regulation made by the Companies Act or any regulation of the company in general meeting.
- Nor can the Board of Directors exercise its powers or do any act or thing which is either ordered or required, either by the Companies Act or by the memorandum or articles of association, which can only be done or done by the company at a general meeting of the company.
Restriction on powers of Board of Directors
SECTION 180
- Sell, lease, or otherwise dispose of all or substantially all of the Company’s business, or if the Company owns more than one business, all or substantially all of any such business.
- If the company wishes to sell, lease or otherwise dispose of (including by mortgage) the whole of the business or a substantial part of the business, it requires the prior approval of the shareholders through a special resolution.
- Unless the company passes a special resolution for the above transaction, and the purchaser or other person in good faith buys or takes on lease any property without knowing that the company has failed to comply with the law, then the claim of such person against such person’s property shall not be affected thereby.
- If the company sells or leases real estate in the ordinary course of business, shareholder approval is not required.
- Any special resolution adopted by the Company for the foregoing transaction may, within the scope of such resolution, set forth such conditions as to the use, disposition, or investment of the proceeds of sale which may arise from the transactions.To otherwise invest in the trust securities the amount of compensation it receives as a result of any merger or amalgamation
If the company has received any amount of compensation as a result of any merger or amalgamation and wants to invest such amount anywhere, the company requires the approval of the shareholders through a special resolution.
It may be noted that the approval of the shareholders is not required if the company wants to invest such an amount in trust securities.Borrow money where the money to be borrowed by the company, together with money already borrowed by the company, exceeds the aggregate of its paid-up share capital, free reserves, and securities premium, excluding temporary loans obtained from the company’s bankers in the ordinary course of business:Temporary loans mean loans payable on demand or within six months from the date of the loan, such as short-term, cash credit arrangements, bill discounting and issuance of other short-term loans of a seasonal nature, it does not include loans obtained for financial expenses of a capital nature.
- If a company wants to borrow money and the amount of money already borrowed plus the amount of money to be borrowed exceeds its paid-up capital, free reserves, and securities premium. In such a case, the company requires the approval of the shareholders through a special resolution.
(Amount already borrowed + amount to be borrowed > paid-in share capital, free reserve,s, and securities premium) = a special resolution is required.It can be said that if the money already borrowed and the money to be borrowed is less than the sum of its paid-up share capital, free reserves, and securities premium, a resolution of the board of directors is sufficient and no special resolution needs to be passed.(Amount already borrowed + Amount to be borrowed < paid-up share capital, free reserves, and premiums for securities) = Resolution of the board of directors is sufficient.
- The acceptance by banking companies of any deposits of money from the public, payable on demand or otherwise and redeemable by check, bill of exchange, order or otherwise, in the ordinary course of business, shall not be deemed to be money lending to the banking company within the meaning of this section.
- If a banking company accepts any deposits of money from the public which are payable on demand or otherwise and which can be collected by cheque, draft, order, or otherwise, then it does not require the approval of the shareholder by special resolution provided that the transaction should be in the ordinary course of its business.
- This means that unless the transaction is in the ordinary course of business, it will require shareholder approval through a special resolution.
- No debt incurred by the company over the specified limit shall be valid or effective unless the creditor proves that he made the loan in good faith and without knowledge that the specified limit was exceeded.
- If the company does not pass a special resolution and borrows money over the above limits, then the onus is on the creditor to prove that he made the loan in good faith and without knowing that the limit was exceeded.
- Each special resolution adopted by the general meeting of the company with borrowed money determines the total amount up to which the board of directors can borrow funds.
- This means that shareholders can set an upper limit up to which the company can borrow without shareholder approval. If the board wishes to borrow any amount above this cap, it will again require shareholder approval through a special resolution.
To remit or allow time for the repayment of any debt due by a director
Which is required to be exercised or done by the company in general meeting
As per Section 179(2)- Company shall not make any regulation in general meeting which shall invalidate any prior act of the Board which would have been valid if such regulation had not been made. As per section 179(3)- Board of Directors of the company shall exercise followings powers by passing Board Resolution in the Board Meeting:-
(a) To make calls on shareholders in respect of money unpaid on their shares;
(b) To authorise buy-back of securities under section 68;
(c) To issue securities, including debentures, whether in or outside India;
(d) To borrow monies;
(e) To invest the funds of the company;
(f) To grant loans or give guarantee or provide security in respect of loans
(g) To approve financial statement and the Board’s report;
(h) To diversify the business of the company;
(i) To approve amalgamation, merger or reconstruction;
(j) To take over a company or acquire a controlling or substantial stake in another company;
(k) Any other matter which may be prescribed:
As per Rule 8 of Companies (Meeting of Board and its Powers) Rules, 2014 Board shall also exercise these power only by passing of Board Resolution
i. To make political contributions;
ii. To appoint or remove key managerial personnel (KMP);
iii. To appoint internal Auditor and Secretarial auditor.
Board shall also delegate its power to committee of Director by passing Board Resolution to
1. Any director of Committee
2. Managing Director of company
3. Manager of company
4. Principal officer of company
5. Principal officer of any branch office of company
FAQs
What are the typical powers of a board of directors?
Boards typically have the authority to make strategic decisions, appoint executives, set company policies, approve budgets, declare dividends, and represent shareholders’ interests.
Do boards have the power to authorize major transactions, mergers, or acquisitions?
Yes, boards typically have the authority to approve major transactions, mergers, and acquisitions after careful evaluation.
Are there any limitations on the board's authority set by law?
Yes, boards must operate within the legal framework governing corporate governance, including laws related to fiduciary duties, shareholder rights, and corporate compliance.
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