Company Administration Short Answer Type Questions
Question 1.
Explain briefly liabilities of Board of directors of a company?
Answer:
Directors are having certain liabilities at the time of performing their duties in a company. They are –
(a) Directors are personally liable to make good the loss caused to the company by their acts these cases are:
- If directors used the powers beyond their limit in payment of dividend out of capital.
- Use of powers by the directors which are not according to provisions of articles of association of the company.
- Making secret profits or use of a company funds for their personal benefit.
- Purchase of property in the name of director by using company funds.
- Misappropriation of companies assets and funds will fully.
- Any illegal act or breach of contract for the directors personal benefit.
- Wrong statement given by directors to outsides about material facts of the company in the prospectus of the company.
- Use of borrowing power of the company beyond the borrowing limits.
- If the court holds then personally liable for fraudulent trading at the winding up of the company.
Directors of a company personally liable for fine or imprisonment or both. If they:
- Failure to hold annual general meeting
- Failure to attach board’s report to. the balance sheet
- Failure to file annual return with the registrar of companies
- Fraudulently inducing persons to invest money in the company.
- Failure to keep proper account of the company.
Question 2.
Write a note on (legal) actual position of directors in a company.
Answer:
Companies act defined the legal position of the directors, directors of a company are described as
(a) Agent: Directors are acting as an agent of the company. They have certain power and duties to carry On the business of the company. The relationship between the company and the directors is that of principal and the agent. But the directors are not allowed to use the powers beyond their authority.
(b) Trustees: Directors have been described as trustees of their company according to this the directors must take reasonable care to protect the assets of the company. They must act in good faith and cannot miss appropriate the funds of the company.
(c) Managing partners: Directors are appointed to look after the affairs of the company. They are described as the managing partners of the company. They frame the rules and policies of the company to manage the affairs of the company. Directors of a company act as the agents trustees and the managing partners of the company under certain circumstances.
Question 3.
Analyse the circumstances in which a company director is removed.
Answer:
A director of a company may be removed before the expiry of his term of appointment by
- Share holders
- Central Govt.
- Company law board.
(a) By Share holders: According section 284 of the companies act directors may be removed before the expiry of their teem as per the procedure given below.
- A special notice of 14 days is required to be given to the company by the shareholders to pass an ordinary resolution to remove director.
- In the second step company must inform it to all members and also send a copy of the notice to the director proposed to be removed.
- If the director concerned wishes to make any representation, he may send it in – writing to the company in time and after receiving such representation by the company it must send copies of the representation to all the members of the company along with notice of meeting.
- This meeting is called as extra ordinary general meeting of the shareholders and in this meeting two resolutions are passed by the shareholders, one for the removal of the director and the other for appointment of new director.
(b) Central Government: U/S 388 of companies act Central Government has power to remove the directors of a company on the grounds of fraud, negligence, breach of contract, misuse of company funds illegal activities etc.
(c) Removal of director by the company law board: Company law board on receiving an application for prevention of oppression of mismanagement may enquire the matter with concerned director and on enquiry if it funds that relief ought to be granted it may given an orders for removal of director.
Question 4.
Distinguish between director and managing director.
Answer:
Director | Managing director: |
(a) He is responsible for framing policies of the company. | He is responsible for implementing the policies. |
(b) He does not take part in day to day work of the company. | He takes part in day to day work of the company. |
(c) He is appointed by the share holders in annual general meeting. | He is appointed by the directors in board meeting. |
(d) A person can act as a director for 20 companies at a time. | A person can act as a managing director for 2 companies at a time. |
(e) Director is appointed for a period not exceeding 3 years. | Managing director is appointed for a period not exceeding 5 years. |
(f) Director is considered as an agent of shareholders. | He is considered as an agent of board of directors. |
(g) Appointment of director is compulsory to all the companies. | Appointment of managing directors not compulsory. |
Question 5.
How company secretary is appointed in a company.
Answer:
Only an individual can be appointed as a company secretary. But he must posses the qualification prescribed by the central government form time to time. The procedure to be followed for the appointment of the company secretary is as follows –
- In board meeting resolution has to be passed for appointing a secretary on certain terms and conditions.
- A copy of details of appointment must be filed with the registrar within 30 days of the appointment.
- If the person appointed as a secretary function as a secretary in any company, he has to inform the other company within 20 days of his appointment.
- If the appointed secretary is the director of the company or a relative of a director a special resolution has to be passed for such appointment.
Question 6.
Explain briefly the termination of the service of the secretary of a company.
Answer:
Company secretary is terminated from the service in any of the following grounds.
- After the expiry of the term of appointment.
- Insolvency or in capacity of the secretary.
- Breach of terms and conditions on the part of secretary work.
- Negligence of secretary in management affairs of the company.
- Misconduct
- Fraudulent practices, dishonesty.
- Making secret profits.
- Misuse of company rights and powers.
- Willful disobedience of lawful orders.
- Court orders for dismissal of secretary during compulsory winding up of the company.
Question 7.
Write the distinction between director and managing director.
Answer:
Director | Managing director |
(a) He is appointed by the share holder at the general meeting. | (a) He is appointed by the board of directors of the board meeting. |
(b) Appointment of director does not require the approval of the Central Government. | (b) Appointment of managing director requires the approval of the Central Government. |
(c) A director is subject to retirement by rotation. | (c) Managing Director is not subject to retirement by rotation. |
(d) Company has at least two directors in private company and three directors in public company. | (d) Company has only one Managing Director. |
(e) He is considered as agent of share holders. | (e) He is considered as agent of directors. |
(f) Directors are must for every company | (f) Managing Director is not a must for a company. |
Question 8.
Explain the rights and duties of managing director of a public company.
Answer:
Managing director is of the director of the company who is in charge of implementing the policies framed by the board of directors. He acts as a chief executive offices of the company and he attends the day to day administration work of the company.
Managing director acts in dual responsibilities:
(i) As a director:
He performs all the works of a director and attends the board meeting and takes part in the formulation of polices.
(ii) As a manager he performs:
- Executive functions of the company
- Administer day to day affairs of the company
- Purchases and sells the properties on the behalf of the company.
- Enters into contract with the other parties.
- Maintaining day to day records of the company.
Question 9.
Write a note on whole time director of the company.
Answer:
Whole time director is a director in the whole time employment of the company. He is appointed in the company as a controller of finance and accounts of the company. Provisions of the act relating to whole time director:
- Only one individual can be a whole time director of the company.
- Whole time director must be in the whole time employment of the company.
- Whole time director can act as whole time director in more than one company.
- The appointment of whole time director may be made by passing resolution in the company or according to the articles of the company.
- Previous approved from the central government is required to appoint whole time director in the company.
- Changes in the terms of appointment and reappointment of whole time director is to be made with prior approval from the central government.
- There are no restrictions regarding the period of appointment of the whole time director.
- There can be a whole time director along with managing director of the company.
Question 10.
Write a note on Rights and powers of an auditor.
Answer:
Auditor of a company has following rights and powers.
- Auditor has power to receive notice of the meeting and to attend any general meeting of the shareholders.
- He has right to give any statement and explanation in connection with accounts audited by him.
- He has right to inspect the books of accounts and vouchers of the company.
- He has right to get information and explanation from the officers and directors of the company.
- He has right to visit branches of the company to audit the accounts.
- He is enpowered to take legal and technical advice on matters relating to his audit work of the company.
- He has right to claim remuneration for his audit work.
Question 11.
What are the duties and liabilities of auditor of the company.
Answer:
Following are the duties and liabilities of auditor of the company.
(a) Duties of auditor of the company:
- The main duty of auditor is to submit the report of the company accounts audited by him to shareholders.
- He must examine the relevant documents accounts financial statement of the company.
- He should submit his report on the financial items before the annual general meeting.
- He must obtain all the information and explanation necessary for the purpose of audit.
- He should prepare audit report as per the act.
- When a company desired to raise further capital by prospectus the auditor should submit his report on the financial accounts for the previous year. ‘
- He must be honest and must exercise reason able care and skill in pectorming his duties.
- he must report all material facts to the share holders.
(b) Liabilities of an auditor:
- If auditor fails to comply with the requirements of the company act in respect B/s and P & L A/c he is liable for a fine which may extert upto Rs. 1,000.
- He is liable for imprisonment for falsification of books of accounts.
- He is liable for breach of duty.
- He will be liable to indemnify the company if he is negligent in the performance of duties.
Question 12.
Give a brief note on appointment of director.
Answer:
Section 152 of the New Act governs the appointment of directors. Certain specific requirements for appointment of director as laid down in the New Act are:
→ If there is no provision for appointment of Director in the Articles (AoA), the subscribers to the memorandum, i.e. the shareholders, who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed.
→ Director to be appointed in a general meeting. If it is so done, an explanatory statement for such appointment, annexed to the notice for the general meeting, shall include a statement that in the opinion of the Board, he fulfills the conditions specified in this Act for such an appointment.
→ The proposed Director has to furnish his DIN (Director Identification Number) mandatorily. DIN is allotted by the Central Government on application by a person intending to be the Director of a company. DIN can be obtained in pursuance of section 153 and 154.
→ The proposed Director has to also furnish a declaration stating that he is not disqualified to be a director.
→ Furthermore, such appointment should be with his consent. Earlier such consent was not mandatory for private companies.Consent implies that being appointed a director and taking the charge of the office are two different things.
Consent has to be filed with the Registrar of Companies within 30 days of appointment, The provisions for optional proportionate representation which was earlier mandated only for public companies and the private companies which are subsidies of a public company has now been extended to all private companies also (section 163 of the Companies Act, 2013). Also, the disqualifications for appointment and reappointment of directors have been made applicable to the private companies. Therefore, prior to appointing a director, a company must tick off the various disqualifications for appointment as director under Section 164 of the New Act.
Question 13.
Give a brief note on composition of board of directors under the companies act 2013.
Answer:
Composition of Board: The Board of directors consists of whole time director/Managing, director and other directors including independent directors. Whole time directors as the name itself implies devote whole time and are treated as employees. Similar is the position of Managing director and this category of directors are entrusted with substantial powers of management to look after the day to day affairs of the company. Listed companies have to comply with Clause no.49 which deals with Corporate Governance.
As per Corporate Governance clause, the Board of directors of the company shall have an optimum combination of executive and non-executive directors with not less than fifty percent of the board of – directors comprising of non-executive directors. If chairman of the Board is a non-executive director, at least one-third of the Board should comprise of independent directors and in case he is an executive director, at least half of the Board should comprise of independent directors.
Unless the articles provide for retirement of all directors not less than 2/3rds of the total number of directors shall be liable to retire by rotation at every Annual General meeting of a public Limited company {Section 152 (6)} and are eligible to be reappointed. The remaining 1/3 directors shall be permanent directors. There is no change in the provisions relating to retirement of (l/3rd of 2/3rds) directors at every Annual General meeting. Directors to retire shall be those who have been longest in the office.
Question 14.
State the duties and responsibilities of company director.
Answer:
- A director must act in accordance with the Articles of Association of the company
- A director must pursue the best interests of the stake holders of the company, in good faith and to promote the objects of the company.
- A director shall use independent judgement to exercise his duties with due and reasonable care, skill and diligence.
- A director should always be aware of conflict of interest situations and should try and avoid such conflicts for the interest of the company.
- Before approving related party transactions the Director must ensure that adequate deliberations are held and such transactions are in interest of the company.
- To ensure vigil mechanism of the company and the users are not prejudicially affected on account of such use.
- Confidentiality of sensitive proprietary information, commercial secrets, technologies, unpublished price to be maintained and should not be disclosed unless approved by the board or required by law.
- A Director of a Company shall not assign his office and any assignment so made shall be void.
- If a director of the company contravenes the provisions of. this section such director shall be punishable with fine which shall not be less than one Lakh Rupees but which may extend to five Lac Rupees.
Question 15.
State the provisions relating to appointment of director as per companies act 2013.
Answer:
If there is no provision for appointment of Director in the Articles (AoA), the subscribers to the memorandum, i.e. the shareholders, who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed. Director to be appointed in a general meeting. If it is so done, an explanatory statement for such appointment, annexed to the notice for the general meeting, shall include a statement that in the opinion of the Board, he fulfills the conditions specified in this Act for such an appointment.
The proposed Director has to furnish his DIN (Director Identification Number) mandatorily. DIN is allotted by the Central Government on application by a person intending to be the Director of a company. DIN can be obtained in pursuance of section 153 and 154. The proposed Director has to also furnish a declaration stating that he is not disqualified to be a director.
Furthermore, such appointment should be with his consent. Earlier such consent was not mandatory for private companies.Consent implies that being appointed”a director and taking the charge of the office are two different things. Consent has to be filed with the Registrar of Companies within 30 days of appointment
Question 16.
Explain the various key managerial personnel under the companies act 2013.
Answer:
1) CEO: Chief executive officer means an officer of a company, who has been designated as such by it.
2) Chief Financial officer: Chief financial officer means a person appointed as the Chief financial officer of a company,
3) Company secretary or secretary: means a person who been qualified as such and holds a valid qualified certificate issued by Institute of Company Secretary of India as prescribed under Company secretaries act 1980.
4) Manager – means a person appointed as such who is in charge of control and direction of the Board of Director and is entrusted with the substantial powers of management of the affairs of the Company and it is inclusive the position of managing director or by whatever name called.
5) “Managing Director”: means a person who is appointed as such by passing a resolution in general meeting, or by its Board of Directors and has the substantial power of management of the affairs of the Company.
6) “whole time director”: includes a director in the whole-time employment of the Company,
Question 17.
Explain the functions of audit committee.
Answer:
- Approval of transactions with related parties.
- Scrutiny of Inter-corporate Loans & Advances.
- Valuation of undertakings or assets of the company wherever it is necessary.
- Monitoring the end use of funds raised through public offers and related matters.
- Recommend appointment of Auditors, their remuneration, terms of appointment etc. and monitoring their performance.
- Examination of financial statements and auditors report thereon.
- Evaluation of internal financial controls and risk management systems
Question 18.
State the functions of company secretary under the companies act 2013.
Answer:
According to Section 205 of the Companies Act, 2013 the Company Secretary shall discharge following functions and duties, this is the first time that the duties of the company secretary have been specified in the company law:
- To report to the Board about the compliance with the provisions of this Act.
- To ensure that the company complies with the applicable secretarial standards.
- To provide to the directors of the company the guidance they require in discharging their duties, responsibilities and powers.
- To facilitate the convening of meetings and attend Board, committee and general meetings and maintain the minutes of these meetings.
- To obtain approvals from the Board, general meeting, the government and such other authorities as-required under the provisions of the Act.
- To assist the Board in the conduct of the affairs of the company.
- To assist and advise the Board in ensuring good corporate governance and in complying with the corporate governance requirements and best practices
Question 19.
Explain the rights and powers of company secretary.
Answer:
Company Secretary is a senior level officer. He enjoys the rights as per the agreement signed by him with the Company. Some rights areas follows:
- As a senior level officer Company Secretary can supervise, control and he can direct subordinate officers and employee.
- A Company Secretary can sign any contractor agreement on behalf of the company as a principle officer of a company, subject to the delegation of power by the board of the company.
- Company Secretary can issue guidelines for the employees on behalf of the company.
- Company Secretary can attend meeting of shareholders and the meeting of board of directors.
- During Winding up he can claim his legal dues as a preferential creditor of a company.
- He can sign and authenticate the proceeding of meetings (Board, Annual general’or extra ordinary general meeting) and other documents on behalf of the company where common seal is not required.
- Company Secretary is a Compliance Officer and he has a right to blow whistle whenever he finds the conduct of the officers or of the directors of the company are detrimental to the interest of the company.
Question 20.
Explain the legal position of company secretary.
Answer:
The legal position of a company secretary may be explained as follows:
(a) Servant of the company: The Secretary of a company is servant of the company, whose duty is to act in accordance within the instructions given to him by directors.
(b) Agent of the company: The secretary of a company, being chief administrative officer of the company by virtue of his office, is also an agent of the company in a restricted sense. He also ostensible authority to enter into contracts on behalf of the company as regards matters connected with office administration.
(c) Officer of the company: As an officer of the company, the secretary may incur personal liability to statutory penalties by reason of non-compliance with the requirements’of Companies Act, 2013. Besides, he is a chief officer under whose supervision all ministerial and administrative work at registered office of the company is carried on.
Question 21.
Explain the role and need of company secretary under the companies act 2013.
Answer:
The present Companies Act has strengthened the role of company secretaries. Some of the f key areas that have directly impact the role of company secretaries in employment or in practice due to this Act are as follows:
(1) Introduction of secretarial audit:
Secretarial Audit is the process to check whether the company is adhering to the legal and procedural requirements and a process to monitor the company’s compliance with the requirements of the stated laws. The objective behind the introduction of secretarial audit is to improve corporate governance and compliance.
According to Section 204 of the Companies Act 2013, it is the duty of the Company Secretary in practice to perform secretarial audit of every listed company and any such other class of prescribed companies. The Central Government has prescribed the such other class of prescribed companies as –
- Every public company with a paid-up share capital of Rs. 50 Crore or more.
- Every public company with a turnover of Rs. 250 Crore or more.
(2) Secretarial standards:
The objective behind the formulation of secretarial standards is to integrate, harmonize and standardization of diverse secretarial practices. The Companies Act, 2013 under Section 118 has made the compliance of Secretarial Standards compulsory on meeting of the Board of Directors and on general meetings.
(3) Annual return:
Annual return is a comprehensive document contains information regarding share capital, directors, shareholders, changes in directorships etc about the company. Under the old Companies Act of 1956 the annual return of the listed companies are required to be signed by the company secretary in practice. The new Companies Act, 2013 under Section 92 has widened this requirement by providing that annual returns of companies having such paid up capital and turnover to be signed and certified by the company secretaries in practice.
(4) Appointment of whole-time key managerial personnel:
Under Section 203 of the new Companies Act, 2013. the companies has to compulsorily appoint the whole time Key Managerial Personnel in respect of certain class of companies as prescribed by the Central Government to ensure good corporate governance and regulation.
The company shall have the following whole-time Key Managerial Personnel (KMP):
- Managing Director, or Chief Executive Officer or manager and in their absence, a whole-time director.
- Company Secretary.
- Chief Financial Officer.
So this made the appointment of whole-time Company Secretary mandatory for better efficiency.
Question 22.
State the disqualifications for appointment of director.
Answer:
Sec 164 of the Companies Act, 2013 provides that a person is ineligible for appointment as a director of a company if he –
→ Is of unsound mind
→ Has been declared insolvent or has applied to be adjudicated as an insolvent
→ Has been convicted of any offense involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for six months or more by a court and a period of five years has not elapsed from the date of expiry of a sentence. However, a person is ineligible to be appointed to any company if, has been convicted of any offense and was sentenced to imprisonment for a period of seven years or more.
→ Has been disqualified from appointment as a director by any court or Tribunal
→ Has failed to pay any call money in respect of any shares of the company held by him and a period of six months has elapsed from the day on which the call money was to be paid.
→ Has been convicted of the offense dealing with related party transactions under section 188 in preceding five years;
→ Does not have a DIN.
Question 23.
What is the difference between director, additional director and whole time director?
Answer:
As per Companies Act, a Director is a person appointed to the Board of a Company by the shareholders of that-firm, to perform the duties of administering the companies policies, manage the business and other legally required activities.
Director: An attendee to all Board meetings – A director who attends the Board meetings of the Company and participates in the matters of the business of the Board. They are neither Managing Directors or Whole Time Directors.
Additional Director:
Appointed between 2 AGM’s by the Board of Directors – If the Articles specifically so provide or enable, the Bbard has the discretion, where it feels it necessary and expedient, to appoint Additional Directors who will hold office until the next AGM. However, the number of Directors and Additional Directors together shall not exceed the maximum strength fixed in the Articles for the Board.
Whole Time Director: In the employment of the Company whole time – A whole-time director is a director in the whole-time employment of the company. In other words, a director who devotes his whole time to the affairs of a company is called a whole-time director of the company. A whole-time director of a company cannot accept the position of a whole-time director in other companies, though he may accept office of non-whole-time director in other companies.
Question 24.
State the qualification of independent director.
Answer:
Companies Act 2013 prescribes detailed qualifications for the appointment of an independent director on the board of a company. Some important qualifications include:
→ he / she should be a person of integrity, relevant expertise and experience.
→ he / she is not or was not a promoter of, or related to. the promoter or director of the company or its holding, subsidiary or associate company.
→ he / she has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors during the 2 (two) immediately preceding financial years or during the current financial year.
→ a person, none of whose relatives have or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors amounting to 2 (two) percent or more of its gross turnover or total income or INR 5,000,000 (Rupees five million only), whichever is lower, during the 2 (two) immediately preceding financial years or during the current financial year.
→ Companies Act 2013 also sets forth stringent provisions with respect to the relatives of the independent director.
Question 25.
Explain the powers of managing director.
Answer:
Managing directors is a director of a company. All the directors of the company by virtue of an agreement, or by resolution or by virtue of its memorandum or a articles of association appoints one of the director among themselves to occupy the position of a managing director. He is also called as full time director of the company.
Managing director is entrusted with substantial powers of management of the company he is delegated power by directors to take decisions on matters like investment of funds, buying and selling on behalf of the company, appointment of the company’s employees, entering into contracts with other parties etc. Managing director exercises his powers subject to superintendence, control and direction of the board of director of the company.
He takes the responsibility of management to frame the policy of the company. He is considered as an agent of the board of directors. He is entrusted with special powers of management by the board can act individually.
Question 26.
‘Directors are the brains of the company, the secretary is its ears, eyes and hands’ Comment.
Answer:
It is rightly said that “while the Directors are the brains of the company, the Secretary is its ears, eyes and hands”. The Directors are the brains because they collectively make policy decisions. But in order to do so they require to have detailed information and data and they need that their policies are communicated to the organisation so that they are carried out. The assistance of the Secretary becomes necessary for this purpose.
The Secretary is described as ‘eyes and ears’ because the Board of Directors looks at things and hears information through the Secretary. The Secretary, as in charge of the office, keeps detailed information about the men and their activities inside the company.
As a liaison officer he keeps in contact with the outside world on behalf of the company. Moreover, as a liaison officer between the Board of Directors and the members of the staff, the Secretary communicates all the decisions of the Board to the members of the staff. The orders are issued under the signature of the Secretary and so he is the ‘hands’ of the company.