Delegation of Powers of the Board

What are the Power of Directors under Companies Act, 2013?

One of the most important powers of directors is their ability to appoint key executives. Directors are responsible for selecting and supervising top management, including roles like the managing director. This authority is essential in ensuring that the right individuals are leading the company and making day-to-day operational decisions. In simple terms, the power of directors under the Companies Act 2013 is accepted as being the decision-makers, protectors of the company’s best interests, and supervisors of the employees running the company. They are very crucial in pushing the company towards success while adhering to legal and ethical standards, making sure the company stays on the right course in the dynamic business sea....

Power of Directors and the Board

The power of directors and the board serves as a foundation in corporate governance. The Companies Act, 2013 lays significant authority in the Board of Directors (BOD) which allows them to make crucial decisions that direct every activity of the company. This authority is, however, subject to various provisions within the act to ensure transparency, accountability, and the protection of stakeholders’ interests. The act provides authority to the board to make decisions on matters starting from financial policies and strategic planning to the appointment of key executives. It is required that the whole board with their intelligence decide on the mission and vision of the company. Directors, as fiduciaries, are required to perform in the best interests of the company, exercising carefulness and loyalty in their decision-making....

Power Exercised by the Company in General Meeting

While the board possesses crucial powers, the Companies Act 2013 acknowledges the authority of the company in general meetings. Certain decisions which are of utmost importance, are reserved for the shareholders and their intelligence. These decisions consist of moderations related to the capital structure of the company, any changes in the Memorandum of Association (MoA) and Articles of Association (AoA), and anything crucial to financial statements....

Power Exercised by Passing Resolution at Board Meetings

Within the framework of the act, the board exercises its powers primarily through resolutions passed at Board Meetings. These resolutions cover a wide range of matters which include approval of financial statements, appointment of directors, declaring dividends, and adopting policies. The act provides directions related to the composition and other requirements of a quorum and how resolutions are to be passed....

Delegation of Powers of the Board

No board can run a business single-handedly. Keeping this in mind, the Companies Act 2013 allows for the delegation of certain powers by the board to committees, managing directors, or other executives. However, such delegation is not assumed to be an absolute transfer of responsibility; the board remains accountable for all the decisions made by those to whom powers are being delegated....

Restriction of Powers of the Board

While directors and the board possess major powers, the Companies Act 2013 places certain restrictions to prevent misuse and protect stakeholders. These restrictions are in place to maintain checks and balances, aligning with principles of good corporate governance. One significant restriction is the requirement for board approval in certain transactions. For example, transactions involving related parties necessitate approval from the board, and in some cases, approval from the shareholders. This ensures that transactions that have some potential conflicts of interest are observed thoroughly, preventing directors from using their positions for personal gain. Additionally, the Act imposes restrictions on the powers of the board concerning certain managerial decisions. For example, matters like the appointment and removal of auditors require approval from the shareholder. So it adds up an extra eye to ensure the independence and integrity of the audit process....

Conclusion

The Companies Act 2013 precisely directs the powers and limitations of directors and the board, aiming to maintain a balance between autonomy and accountability. The act recognizes the importance of shareholder democracy in major decisions, imposes formalities on decision-making processes, allows for efficient delegation, and places restrictions to prevent misuse of power. This regulatory framework is a foundation to encourage transparent, ethical, and responsible corporate governance in India. Furthermore, the act limits the powers of the board in matters related to borrowings. Some borrowing requires approval from the shareholders, and the board is restricted from exceeding certain limits without such approval. This protects the company’s financial health and prevents excessive debt liabilities....

Power of Directors under Companies Act, 2013- FAQs

Can Directors act independently?...