INTRODUCTION TO BUSINESS ORGANIZATION

1. DIRECTOR AND MD
Course: BBA I
Subject : Introduction to Business Organization
Unit: I

2. Board of Directors
 The Board of Directors of a company is a nucleus
selected according to the procedure prescribed in the
Act and the Articles of Association, out of the entire
mass of shareholders and even non-shareholders.
 Acting collectively as a Board of Director, they can
exercise all the powers of the company except those,
which are prescribed by the Act to be specifically
exercised by the company in the general meeting.
 Directors, as a body, frame the general policy of the
company, direct its affairs, appoints the company
officers, ensures that they carry out their duties and
recommend to the share holders regarding
distribution of dividend.

3. Board of Directors
 There are mainly two types of company directors -
Executive Directors orWhole-Time Directors (MD,
Technical Directors) and, Non-executive or part-time
Directors who are professionals and serve on the
board of many companies.
 Executive directors have employment stake in the
company.They wield substantial power, enjoy
maximum remuneration, perquisites, fees,
commission and allowances.
 Part-time directors get only sitting fees for the board
meetings attended by them and wield little or no
powers.

4. Board of Directors
 "A director includes any person occupying the
position of director by whatever name
called." [Section 2(13)]
 Only individual, and not a body corporate,
association or firm, shall be appointed as
director. [Section 253]
 "An individual who direct, control, manage,
superintend the affairs of the company in the
form of the board of directors."

5. Types of Directors
 Professional Directors
 Specialist in different fields of management.
 Income derives principally from sitting fees.
 Nominee Directors
 Appointed by FIs, or Banks
 Powerful tool of project supervision, monitoring and
control.
 Executive Directors
 Is a full time employee of the company.
 May not be members of the board, as such not a
director in strict sense.

6. Types of Directors
 Independent Directors
 Do not have any material pecuniary relationship or
transaction with the company.
 Entitle to receive director's remuneration.
 Government Directors (Section 408)
 Appointed by the Central Government on the
recommendation of the CLB.
 To safeguard the interest of the company or its
shareholder or in public interest.
 When the operations of the company are conducted
in such a manner as to oppress any member of the
company or in a manner prejudicial to the company.

7. Types of Directors
 Whole-time Directors [Section 269(1)]
 Includes a director in the whole time employment of
the company.
 Technical director, legal director, works director sales
director if appointed on full time basis.
 A whole-time director is also a managerial person.
[Section 268(1)]
 They cannot accept the office of executive or whole-
time director in any other company.
 There is no restriction on the period of appointment
of a whole time director, he may be appointed for a
longer period.

8. Types of Directors
 There are mainly two types of company directors -
Executive Directors orWhole-Time Directors (MD,
Technical Directors) and, Non-executive or part-time
Directors who are professionals and serve on the
board of many companies.
 Executive directors have employment stake in the
company.They wield substantial power, enjoy
maximum remuneration, perquisites, fees,
commission and allowances.
 Part-time directors get only sitting fees for the board
meetings attended by them and wield little or no
powers.

9. Managing Director
 A director who, by virtue of an agreement, or of a
resolution passed in the general meeting or board
meeting or by virtue of the Memorandum or Articles,
is entrusted with substantial power of management
and includes a director occupying the position of MD,
by whatever name called. [Section 2(26)]
 Powers exercised subject to the superintendence,
control, and direction of the company's board of
directors.
 A person who is not a director of the company must
be first appointed as an additional director in
accordance with Section 260 to be appointed as MD.

10. Managing Director
 He must sign and file his consent to act as a director
pursuant to the provisions of Section 264 and obtain
qualification shares u/s 270.
 He may have dual capacity that of an employee and
agent.
 It obligatory for public companies having paid up
capital of Rs 5 crore or more to appoint a MD or
whole-time director.
 Appointment of MD or whole-time director in a
public company only with the prior approval of the
central govt.

11. Legal Position of Directors
 Public companies must have at least three
directors. [Section 252]
 The Act does not lay down any qualification, but
it lays down disqualifications.
 Directors are the agent of the company.
 A single director has no authority to bind the
company unless such powers are delegated to
him by the board.
 To some extent directors are also trustee of the
company's properties.

12. Legal Position of Directors
 Barring directors in the whole time employment,
directors are not in the employment of the
company and are not entitled to any remuneration
beyond what is allowed by the Act, i.e. sitting fees.
 They are not also required to hold any shares in the
company on whose board they serve.
 A director can hold an office or place of profit in
the company in addition to his usual directorship.
[Section 314]

13. Qualification of Directors
 According to Sec 274 a person shall not be capable
of being appointed as director if:
 found to be of unsound mind;
 an un-discharged insolvent;
 applied to be adjudicated as an insolvent;
 convicted of any offence involving moral
turpitude and sentenced for not less than six
months and a period of 5 years has not elapsed;

14. Qualification of Directors
 has not paid any call in respect of shares and six
months have elapsed;
 an order u/s 203 is passed by a court disqualifying
him;
 is already a director of a public company which -
has not filled annual returns for three years, or
has failed to repay the deposits or interest
thereon or redeemed its debentures.
 Only individuals can be a director. [Sec 253]

15. Appointment of Directors
 First directors may be named in the Articles or
subscriber to the memorandum shall be first directors.
 One third of the total directors are liable to retire by
rotation every year and are eligible for re-
appointment in the General Meeting. [Section 256]
 Directors who have been longest in the office to retire
first.
 Directors nominated by financial institutions or by the
Central Govt. u/s 408 are not liable to retirement.
 MD and Whole-time director shall not be liable to
retire by rotation.

16. Appointment of Directors
 A retiring director may be re appointed at
the same AGM, some other person may also
be appointed in his place. [Section 256(3)]
 At the adjourn meeting, if the vacancy is not
filled and it was not expressly resolved not to
fill the vacancy, the retiring director shall be
deemed to have been reappointed,
provided:

17. Appointment of Directors
 Any person other than the retiring director may
give a notice not less than 14 days before an AGM
about his candidature as a director or any
member may give such notice signifying his
intention to propose him as a candidate for that
office.
 Two or more directors should not be appointed
en bloc or by single resolution. [Sec 263(1)] unless
a resolution to do so has first been agreed by the
meeting without any vote given against it.

18. Small Shareholder's Director
 A public company having a paid up capital of Rs.5
crore or above may have a director from amongst
small shareholders.
 Shareholders not less than 1/10th (or 100) of the
total shareholders may elect suo-moto or upon a
notice served at least 14 days before the AGM.
 Listed company shall elect small shareholder's
director through postal ballot while an unlisted
company on the recommendation of the majority
of small shareholders.

19. Small Shareholder's Director
 Hold office for a maximum period of three
years.
 Same person may be reappointed for another
term if so decided.
 He is treated as director for all purposes but
cannot be appointed as MD or whole-time
director.
 No individual can hold office of Small
Shareholder's Director at the same time in more
than 2 companies.

20. Managerial Remuneration
 Not defined in the Act but reference to be found in
Sections 198, 309, 311 and 387 suggesting that
director and managerial personnel are entitled to
receive managerial remuneration.
 Managerial Remuneration may take the form of
monthly payment, say, salary or a specified
percentage of net profits or a commission and /or
by way of a fee for each meeting of the board,
besides any or all of the following:
 Rent free accommodation;
 Any other amenity provided free of charge or at
concessional rate; and

21. Managerial Remuneration
 Any insurance, annuity, or gratuity.
 Payment received for holding an office/place of
profit is not managerial remuneration. [Section
309(1)]
 The overall Managerial Remuneration payable
not to exceed 11% of the net profit. [Section 198
(1)]
 MD and Whole-time directors may be paid a
monthly salary or specified percentage of net
profit. [Section 309 (3)]

22. Remuneration to Non-Exe
Directors Non-executive directors may be paid
remuneration either:
 Monthly, quarterly or annual payment with
approval of Central Govt.;
 By way of commission authorised by special
resolution.
 In either case remuneration shall not exceed:
 1% of net profit if company has MD or whole-time
director;
 3% of net profit in any other case.

23. Remuneration to Non-Exe
Directors
 The company with the approval of Central Govt. in
an AGM authorise a higher commission than 1% or
3%.
 Such resolution shall remain in operation for five
years, though renewable.
 If a director is paid sitting fees for attending board
meeting it shall not be considered for computing
overall Managerial Remuneration u/s 198
 Provisions of Sections 309 and 198 shall not apply
to a private company.

24. Co. having no or Inadequate
Profits
 Capital of company
 Less than 1 crore
 B/wn Rs 1 and Rs 5 cr
 B/w Rs 5 and Rs 25 cr
 B/w Rs. 25 and Rs 100
cr
 Above Rs 100 crore
 Monthly Remuneration
 75,000
 1,00,000
 1,25,000
 1,50,000
 2,00,000

25. Managerial Remuneration
 In addition, the managerial personnel shall also
be eligible for:
 Contribution to PF, Superannuation Fund or
annuity fund to the extent not taxable under
IncomeTaxAct, 1961;
 Gratuity @ not exceeding half a month's salary
for each completed year;
 Encashment of leave at the end of tenure.
 In case of an expatriate managerial person:

26. Managerial Remuneration
 Children education allowance - maximum Rs
5000 per month per child;
 Holiday passage for children, spouse and
members of family; and
 Leave travel concession.
 All remuneration payable aforesaid shall be
subject to approval by a resolution in AGM.

27. References
1. Fundamentals of Business Organization and
Management byY.K.Bhushan- Sultan Chand
publications
2. Principles & Practices Of Management by L M
Prasad – Himalaya Publishing House

28. Thank You!!