Tag: Companies Act

Board meetings are meetings at the highest level, i.e. a meeting where board members or their representatives are present. A company is not an actual entity but a legal one so it cannot take actions and make decisions. The board of directors act as agents through which the company takes actions as well as makes decisions.

The board of directors is the supreme authority in a company and they have the powers to take all major actions and decisions for the company. The board is also responsible for managing the affairs of the whole company.

For the effective functioning and management, it is imperative that board meetings be held at frequent intervals. For this, Section 173 of Companies Act, 2013 provides:

In the case of a Public Limited Company, the first board meeting has to be held within the first 30 days, since the incorporation date. Additionally, a minimum of 4 board meetings must be held in a span of one year. Also, there cannot be a gap of more than 120 days between two meetings.

In the case of small companies or one person company, at least two meetings must be conducted, one in each half of the financial year. Additionally, the gap between the two meetings must be at least 90 days. In a situation where the meeting is held at a short notice, at least one independent director must be attending the meeting.

Notice of Board Meeting

The notice of Board Meeting refers to a document that is sent to all directors of the company. This document informs the members about the venue, date, time, and agenda of the meeting. All types of companies are required to give notice at least 7 days before the actual day of the meeting.

Quorum for the Board Meeting

The quorum for the Board Meeting refers to the minimum number of members of the Board to conduct a valid Board Meeting. According to Section 174 of Companies Act, 2013, the minimum number of members of the board required for a meeting is 1/3rd of a total number of directors.

At any rate, a minimum of two directors must be present. However, in the case of One Person Company, the rules of Section 174, do not apply.

Participation in Board Meeting

All directors are encouraged to actively attend board meetings and in case that’s not possible at least attend the meetings through a video conference. This is so that all directors can take part in the decision-making process.

Requirements for Conducting a Valid Board Meeting

• Right Convening Authority 

The board meeting must be held under the direction of proper authority. Usually, the company secretary (CS) is there to authorize the board meeting. In case the company secretary is unavailable, the predetermined authorized person shall act as the authority to conduct the board meeting.

• Adequate Quorum 

The proper requirements of the quorum or the minimum number of Directors required to conduct a Board meeting must be present for it to be considered a valid board meeting.

• Proper Notice 

Proper notice is one of the major requirements to be fulfilled when planning a board meeting. Formal notice has to be served to all members before conducting a board meeting.

• Proper Presiding Officer 

The meeting must always be conducted in the presence of a chairman of the board.

• Proper Agenda

Every board meeting has a set agenda that must be followed. The agenda refers to the topic of discussion of the board meeting. No other business, which is not mentioned in the meeting must be considered.

Quorum means the minimum number of persons who being entitled to attend a meeting must be present at the meeting so that the business of the meeting can be transacted validly. Such a number is desirable so that a meeting gets a representative character and no decisions are taken with a very small number of persons being present.

At the same time the quorum shall not be too big so that a meeting falls through on account of small attendance.

Features of Quorum:

(1) What shall be the quorum for different types of meetings of an organisation are usually mentioned in its bye-laws or in the Articles of Association in case of a company. Some statutes also make such provisions. For example Sec. 174 of the Companies Act makes such provisions. The bye-laws or the Articles cannot provide smaller quorum than what are provided in the statutes, if any.

(2) A meeting cannot be started if quorum is not present. The quorum might be continuously present. If any member or members leaves or leave earlier and by that the quorum falls, then any decision taken afterwards will not be binding, if the by-laws or Articles so provide.

(3) It is the duty of the chairman to see that the quorum is present. The secretary helps him in counting the quorum. If at the middle of the meeting quorum falls, any member present may draw the attention of the chairman to this fact by raising a ‘point of order’.

(4) If quorum is not present at the scheduled hour of a meeting already notified, then the members present will wait for half an hour.

After half an hour the following alternative effects can take place:

(A) In Case of an Informal Meeting:

(i) The chairman may allow informal discussions but no binding decisions can be taken. The meeting is adjourned and can be held afterwards after giving fresh notice.

(ii) If the quorum is missing by a small margin, the chairman may allow discussions and decisions may be taken which, however, have to be formally ratified at a next meeting where quorum must be present.

(B) In Case of Any Meeting of a Company:

The Act provides that the meeting shall be adjourned:

(i) In case of a general meeting to the same day in the next week, at the same time and place or to such other day and at such other time and place as the Board may determine.

(ii) In case of a Board meeting, unless the Articles otherwise provide, to the same day in the next week, at the same time and place or if that day is a holiday till the next succeeding day which is not a public holiday, at the same time and place.

(iii) In case of an extraordinary general meeting requisitioned by members the meeting is not adjourned and the meeting just fails.

(5) In case of a members’ meeting of a company where proxy is allowed only members present in person are counted for quorum and not the proxies but representatives are counted

(6) When fraction comes out while calculating quorum (like one-third, one-fourth) the next round number is taken into account.

(7) Conflicting views exist with regard to counting when there are joint holders of shares. Generally it is accepted that joint holders of shares shall be treated as a single member. Some people think that each joint holder is a separate member if his name appears in the Register of Members.

Where Quorum is Strictly not Necessary:

Normally the quorum is necessary for a valid meeting.

But in the following circumstances a less number of persons may make the quorum:

(1) Whenever a meeting is adjourned for want of quorum, any number of members present at the adjourned meeting shall make the quorum.

(2) At a Board meeting when a matter comes up in which one or more than one director is or are interested then, director or directors concerned cannot take part in the discussion. The remaining directors shall make the quorum. If only on- director is left out then of course there cannot be a quorum and the matter shall be referred to a general meeting of members for decision.

(3) In case of class meetings if one person alone holds all the shares of that particular class of shares then he alone shall make the quorum.

(4) In case of an annual general meeting of a company (ailed by the order of the Central Government on the complaint by only one member of the company, or a general meeting called by the Company Law Board on the application of one member of the company then the member alone present in person or by proxy, shall make the quorum when the meeting is held.

The General Patterns of Quorum:

Every company in its Articles of Association or an association in its bye laws or a Com­mittee or Sub-Committee in its own rules and regulations usually provides what shall be the quorum for the different kinds of meetings to be held under it. The quorum for a general meeting is usually one-fourth or one-third of the total number of members or a fixed number like ten, fifteen etc. taking into consideration the total strength of the members.

The Companies Act is very liberal and provides that if nothing is mentioned in the Articles then any two members in case of a private company and any five members in case of a public company, present in person at a general meeting, shall make the quorum.

The quorum for the meeting of an important committee, like the Executive Committee or Managing Committee, is generally fixed at one-third. The Companies Act provides that the quorum for Board meeting, if nothing is provided in the Articles, shall be one-third or two whichever is bigger.

The directors themselves at the first Board meeting may fix the quorum for Board meetings. In some special cases, the quorum is fixed at a big percentage of the total number of members. For example, the quorum for a class meeting in a company is very often fixed by the Articles to be two- thirds or three-fourths or all the shareholders belonging to that class.

Sometimes all the members make the quorum. For example, in a private company having only two directors, both the directors shall make the quorum at a Board meeting. Again, in a private company having only two shareholders, both the members shall make the quorum at a general meeting.

Company debenture is one of the important sources of finance for large companies, in addition to equity stocks, bank loans, and bonds. Companies need to follow certain procedures for issue of debentures to raise money. There are several ways of issuing a debenture viz. at a par, premium or discount and even for consideration other than cash.

Issue of Debentures

The procedure of issuing debentures by a company is similar to the one followed while issuing equity stocks. The company starts by releasing a prospectus declaring the debenture issuance. The interested investors, then, apply for the same. The company may need the entire amount while applying for the debentures or may ask for installments to be paid while submitting the application, on allotment of debentures or on various calls by the company. The company can issue debentures at a par, at a premium or at a discount as explained below.

Different ways for issuing of Debenture

Once the company invites the applications and the investors apply for the debentures, the company can issue debentures in one of the following ways:

Issue of Debenture at par

When the issue price of the debenture is equal to its face value, the debenture is said to be issued at par. When a debenture is issued at par, the long-term borrowings in the liabilities section of the balance sheet equals the cash in the assets side of the balance sheet. Thus, no further adjustment is required to balance the assets and the liabilities of the company. The company can collect the whole amount in one installment i.e on an application or in two installments i.e. on an application and subsequent allotment. However, there might be a scenario in which money is collected in more than two installments i.e. on an application, on an allotment and at various calls by the company.

Issue of debenture at discount

The debenture is said to be issued at a discount when the issue price is below its nominal value. Let us take an example – a Rs. 100 debenture is issued at Rs. 90, then Rs.10 is the discount amount. In such a scenario, the liabilities and the assets sides of the balance sheet do not match. Thus, the discount on debentures’ issuance is noted as a capital loss and is charged to ‘Securities Premium Account’ and is reflected as an asset. The discount can be written off later.

Issue of Debenture At Premium

When the price of the debenture is more than its nominal value, it is said to be issued at a premium. For example, a Rs. 100 debenture is issued for Rs.105 and Rs.5 is the premium amount. Again, assets and liabilities do not match in such situation. Therefore, the premium amount is credited to Securities Premium Account and is reflected under ‘Reserves and Surpluses’ on the liabilities side of the balance sheet.

The Issue of Debenture as Collateral

The debentures can be issued as a collateral security to the lenders. This happens when the lenders insist on additional assets as security in addition to the primary security. The additional assets may be used if the complete amount of loan cannot be realized from the sale of the primary security. Therefore, the companies tend to issue debentures to the lenders in addition to some other physical assets already pledged. The lenders may redeem or sell the debentures on the open market if the primary assets do not pay for the complete loan.

Issue of Debenture for Consideration Other Than Cash

Debentures can also be issued for consideration other than cash. Generally, companies follow this route with their vendors. So, instead of paying the cash for the assets purchased from the vendor, the companies issue debentures for consideration other than cash. In this case, also, the debentures can be issued at a par, premium or discount and are accounted for in the similar fashion.

Over Subscription

The company invites the investors to subscribe to its debenture issue. However, it may happen that the applications received for the debentures may be more than the original number of debentures offered. This scenario is referred to as oversubscription. In the case of over-subscription, a company cannot allocate more debentures than it had originally planned to issue. So, the company refunds the money to the applicants to whom debentures are not allotted. However, the excess money received from applicants who are allocated debentures is not refunded. The same money is used towards allotment adjustment and the subsequent calls to be made.