Discuss the modes of appointment of Directors of a Public Limited Company. What is the relation between Board of Directors and the Company they administer?

Question: Discuss the modes of appointment of Directors of a Public Limited Company. What is the relation between Board of Directors and the Company they administer? [BJS 1979]

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Answer

A Public Limited Company under Company Act 2013 is a company that has limited liability and offers shares to the general public. Its stock can be acquired by anyone, either privately through (IPO) an initial public offering or via trades on the stock market. A Public Limited Company is strictly regulated and is required to publish its true financial health to its shareholders.

In a Public Limited Company, the Board of Directors plays a crucial role in managing the affairs of the company. The appointment of directors in a Public Limited Company can be made through various modes, as discussed below:

Appointment by Shareholders: Directors can be appointed by the shareholders of the company through a resolution passed at the Annual General Meeting (AGM) or an Extraordinary General Meeting (EGM). The Companies Act, 2013 specifies the procedures for the appointment of directors by shareholders.

Appointment by Board: The Board of Directors of the company can also appoint new directors by passing a resolution in a board meeting. This power is generally exercised when a vacancy arises due to the resignation or death of an existing director.

Appointment by Nomination: In some cases, a director may be appointed through nomination by the government, financial institutions, or other entities as specified in the Articles of Association of the company.

Appointment by Independent Directors: In certain cases, the Independent Directors of a company may have the power to appoint a director to the Board. This is done to ensure the independence of the Board and to bring in fresh perspectives.

Appointment by Central Government: In certain circumstances, the Central Government may appoint directors to the Board of a company, such as in cases where the company is in financial distress or there are disputes among shareholders.

It is important to note that the appointment of directors in a Public Limited Company must comply with the provisions of the Companies Act, 2013 and the rules and regulations issued by the Securities and Exchange Board of India (SEBI). The Companies Act, 2013 also sets out the qualifications, disqualifications, and other requirements for the appointment of directors in a Public Limited Company.

What is the relation between Board of Directors and the Company they administer?

The Board of Directors is a key governing body of a company and is responsible for the overall management and strategic direction of the company. The Board acts as the link between the shareholders and the company's management, and its primary role is to act in the best interests of the company and its stakeholders.

The relationship between the Board of Directors and the company they administer is based on the principles of fiduciary duty and loyalty. The Board of Directors owes a duty of care and loyalty to the company, its shareholders, and its stakeholders. This means that the Board must act with prudence, diligence, and good faith in carrying out its duties, and must prioritize the long-term interests of the company over its own interests or those of any individual shareholder or stakeholder.

The Board of Directors has a wide range of responsibilities, including setting the company's strategy, appointing and supervising senior management, ensuring compliance with laws and regulations, and overseeing the company's financial performance. The Board is also responsible for managing risk and ensuring that the company is operating in an ethical and socially responsible manner.

Overall, the relationship between the Board of Directors and the company they administer is critical to the success of the company. By fulfilling their duties with care, loyalty, and expertise, the Board can help to ensure that the company is well-governed, financially sound, and well-positioned to achieve its strategic goals over the long term.

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