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Module No. 2
CORPORATE AND BOARD MANAGEMENT
2.1 Corporate Business Ownership Structure
An ownership structure concerns the internal organization of a business entity and the rights and duties of the
individual holding the equitable or legal interest in that business.Legal forms and ownership structures of
businesses are different from country to country.

1. Sole Proprietorships
A Sole Proprietorship is an enterprise that is wholly controlled by one person. The proprietor is responsible for
all liabilities and entire profit made by sole proprietor is in the hands of the owner. This is cost
effective and requires least compliances. However, conducting a business in a separate area would require
certain specific registrations like Shops and Establishment Registration etc. There is no formal registration
required to start a business in India under Sole Proprietorship.

2. Partnerships
In a partnership firm, two or more people come together to work and earn profits. There is a partnership deed
that specifies the invested interest of each partner and their profit sharing ratios along with other terms of
business functioning and operations. The partners are responsible for all liabilities. The partnership firm is
registered under the Indian Partnership Act of 1932.

3. Limited Liability Partnerships

A Limited Liability Partnership is incorporated under the Limited Liability Partnership Act of 2009. As opposed
to partnership firms, partners in an LLP are not burdened with unlimited liabilities caused by
the business. Their responsibility towards losses or debts is limited to investments made by them. A limited
liability partnership and its partners are considered separate legal entities. Further, individual
partners are shielded from joint liabilities upon commission of another partner’s misconduct. The compliance
requirements are less than that of private limited companies.

4. Private Limited Companies

A private company is defined as a company having a minimum paid-up share capital as may be prescribed, and
which by its articles
i) restricts the right to transfer its shares

ii) except in case of One Person Company, limits the number of its members to two hundred

iii) prohibits any invitation to the public to subscribe for any securities of the company.

Most startups and businesses in India with higher ambitions choose this structure.
The key differentiation of a company is that
• The company is considered as a separate legal entity i.e. the company can sue and can also be sued under its
name.
• The company’s existence remains unaffected by the death or resignation of any member.

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• The shareholders cannot claim to be owners of the property of the company. The company itself is the owner.

5. Public Limited Companies

A public company means “a company which is not a private company”. A public limited is formed by a
minimum of 7 (seven) persons with a minimum paid-up capital and can exceed any limitless number of
members’ dependent of its share capital. The company may get listed in the stock exchange and thereafter
shares of the same are traded openly. There are more legal restrictions on this type of establishment than a
Private Limited Company such as compliance to SEBI Act.

6. One-Person Companies
A “one person company” means a company that has only one person as a member. This is a recent invention to
facilitate entrepreneurs to own and manage companies alone. All the shares can be owned by one person
but there must be an additional nominee director to register this firm. One Person Company can avail all
benefits under the Micro, Small and Medium Enterprises Development Act, 2006. As the liabilities are
limited, an individual can take higher amount of risks in business without causing damage to personal assets.

2.2 Board of Directors – Role, Composition,Systems & Procedures

A board of directors (BofD) is the governing body of a corporation or other organization, whose members are
elected by shareholders (in the case of public companies) to set strategy, oversee management, and protect the
interests of shareholders and stakeholders.
Every public company must have a board of directors. Many private companies and nonprofit organizations
will have a board of directors, often called a board of trustees, as well.
Defination Of Board of Directors- Corporate Govenance Perspective
The BOD is a collective of individuals tasked with governing a company, making strategic decisions &
ensuring accountability to shareholders.
 The board of directors of a public company is elected by shareholders.
 The board makes key decisions on issues such as mergers and acquisitions, the issuance of dividends,
and the hiring and firing of senior executives.
 Board of directors candidates can be nominated by the company's nominations committee or by
outsiders seeking change.
 Public companies must have a board of directors.
 The New York Stock Exchange and Nasdaq require that the majority of members on the boards of
listed companies be outside, or independent, directors.
Role of Board of Directors

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A board of directors considers important issues relating to the company, its shareholders, its employees, its
community, and the public. As such, it's often involved in:
 Hiring and overseeing senior management: The board hires the CEO and other senior executives and is
responsible for overseeing their performance and ensuring that they are acting in the best interests of the
company.
 Monitoring financial performance: The board reviews the company’s financial statements and ensures
that the company is managing its finances responsibly.
 Ensuring compliance with legal and ethical standards: The board is responsible for ensuring that the
company is complying with all applicable laws and regulations, as well as maintaining high ethical
standards.
 Providing guidance and support to management: The board provides guidance and support to senior
management as needed, and may offer advice on key business decisions or challenges.
 Representing the interests of shareholders: The board represents the interests of the company’s
shareholders, and works to ensure that the company is maximizing shareholder value.

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 Setting the overall direction and strategy of the company: The board is responsible for setting the
company’s strategic goals and direction, and ensuring that management is taking the necessary steps to
achieve those goals.
Overall, the board of directors plays a critical role in ensuring that the company is operating in a responsible and
effective manner, and that it is delivering value to its shareholders and other stakeholders.
Board of Directors – Composition
An effective board of directors adheres to a structured hierarchy to ensure effective governance and
decision-making on behalf of an organization. The overall composition of the board of directors varies
depending on the organization’s size, legal requirements, and industry. Generally, the board of directors
is structured as followed:

 Chairperson
 Vice Chairperson
 Chief Executive Officer (CEO)
 Chief Financial Officer (CFO)
 Secretary
 Independent Directors
 Committee Chairs
The board of directors are can be called the brain of the company. They are responsible for taking all the big
decisions and making policy changes. These decisions are taken in special meetings members of the board hold
together, called ‘Board Meetings’.

 Section 149 of the Companies Act states that every company’s board of directors must necessarily have a
minimum of three directors if it is a public company. two directors if it is a private company and one director in
a one person company.
 The maximum number of members a company can assign as directors is fifteen. However, the company can
pass a special resolution in a general meeting to allow for assigning more than fifteen members to the board
of directors.

 The maximum number of companies that an individual can become a director of, is 20 companies.

 At least one director, who has lived in India for a minimum of 182 calendar days of the previous year, shall
be appointed by every company’s board. It is a mandatory rule.

 At least, one woman director must be appointed by the company.

 All listed companies must have at least one-third proportion of their board of directors as independent
directors

Under LODR for Listed Companies(Listing Obligations and Disclosure Requirements)

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 The members of the board shall have an optimum combination of executive and non-executive directors
and at least one woman director. At least 50% of the board of directors must be non-executive directors.

 When the board chairman is a non-executive director, a minimum of one-third directors shall be made up of
independent directors. In case of the board chairman being an executive director, a minimum of half of the
board of directors shall comprise of independent directors.

 However, in case a non-executive chairman is a promoter of the said listed company or directly related to a
promoter or a high-level manager, at least half of all directors will comprise of independent directors.

BOard of Directors- Systems & procedures

Functions of the Board -The key functions of the Board are as below

1. Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and business
plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing
major capital expenditures, acquisitions and divestments.

2. Monitoring the effectiveness of the company’s governance practices and making changes as needed.

3. Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing
succession planning.

4. Aligning key executive and board remuneration with the longer-term interests of the company and its
shareholders.

5. Ensuring a transparent board nomination process with the diversity of thought, experience, knowledge,
perspective and gender in the Board.

6. Monitoring and managing potential conflicts of interest of management.board members and shareholders,
including misuse of corporate assets and abuse in related party transactions.

7. Ensuring the integrity of the company’s accounting and financial reporting systems, including the
independent audit, and that appropriate systems of control are in place, in particular, systems for risk
management, financial and operational control, and compliance with the law and relevant standards.

8. Overseeing the process of disclosure and communications.

9. Monitoring and reviewing Board evaluation framework.

Responsibilities of the Board :- Other responsibilities of the board include:

1. The Board should provide the strategic guidance to the company, ensure effective monitoring of the
management and should be accountable to the company and the shareholders.

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2. The Board should set a corporate culture and the values by which executives throughout a group will
behave.

3. 3. Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the
best interest of the company and the shareholders.

4. The Board should encourage continuing directors training to ensure that the Board members are kept up to
date.

5. Where Board decisions may affect different shareholder groups differently, the Board should treat all
shareholders fairly.

6. The Board should apply high ethical standards. It should take into account the interests of stakeholders.

7. The Board should be able to exercise objective independent judgments on corporate affairs.

8. Boards should consider assigning a sufficient number of non-executive Board members capable of exercising
independent judgments to tasks where there is a potential for conflict of interest.

9. The Board should ensure that, while rightly encouraging positive thinking, these do not result in over-
optimism that either leads to significant risks not being recognized or exposes the company to excessive risk.

10. The Board should have the ability to ‘step back’ to assist executive management by challenging the
assumptions underlying: strategy, strategic initiatives (such as acquisitions), risk appetite, exposures and the key
areas of the company's focus.

11. When committees of the board are established, their mandate, composition and working procedures should
be well defined and disclosed by the board.

12. Board members should be able to commit themselves effectively to their responsibilities.

13. Corporate and the Board of Directors. In order to fulfil their responsibilities, board members should have
access to accurate, relevant and timely information.

14. The Board and senior management should facilitate the Independent Directors to perform their role
effectively as a Board members and also a member of a committee.

Powers of the Board

The Board of Directors of a company has all such powers, to do all such acts and things, as the company is
authorized to exercise and do subject to the following provisions contained on that behalf

a) in the Companies Act, or

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b) in the memorandum or articles, or

c) in any regulations not inconsistent therewith and duly made thereunder, including regulations made by the
company in general meeting.

The power of the board is restricted wherever, the same is to be exercised and approved by the company in the
general body meeting as stated in the Companies Act or in the memorandum or articles of the company or
otherwise.

The Board of Directors of a company shall exercise the following powers on behalf of the company by means
of resolutions passed at meetings of the Board, namely:

a) to make calls on shareholders in respect of money unpaid on their shares;

b) to authorize buy-back of securities under section 68;

c) to issue securities, including debentures, whether in or outside India;

d) to borrow monies;

e) to invest the funds of the company;

f) to grant loans or give guarantee or provide security in respect of loans;

g) to approve financial statement and the Board’s report;

h) to diversify the business of the company;

i) to approve amalgamation, merger or reconstruction;

j) to take over a company or acquire a controlling or substantial stake in another company;

k) any other matter which may be prescribed

2.3 Fiduciary relationship

A fiduciary relationship is a relation between two parties wherein one party (fiduciary) has the duty to act in the
best interest of the other party (beneficiary or principal). The purpose of studying fiduciary relationship is to
identify the areas where it exists and gain an insight into the duties of a fiduciary

Definition of Fiduciary Relationship

Justice Anant Narayan of Madras High Court in case of Mrs. Nellie Wapshare v. Pierce Leslie and Co. Ltd (1)
in which the term Fiduciary Relation is defined as follows:

A fiduciary relationship may arise in the context of a jural relationship. Where confidence is reposed by one in
another and that leads to a transaction in which there is a conflict of interest and duty in the person in whom

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such confidence is reposed, fiduciary relationship immediately springs into existence.

The term fiduciary relations relates to a person to whom property or power is entrusted for the benefit of
another. It is the relationship of a person to another, where the former is bound to exercise rights and powers in
good faith for the benefit of later, e.g. trustee and beneficiary. This fiduciary relationship may arise out of jural
relationship or it may not.

Principles of Fiduciary Relationship:

Fiduciary relationship covers variety of different relations arising out of jural relationship. There are certain
principles underlined the fiduciary relationships which are as under

1. Fiduciary transaction must be good faith transaction: A fiduciary is a person who is under confidential
obligation, in whom a confidence is reposed by another therefore; such person is always under obligation to
safeguard and protect the interest of that another person. It is immaterial whether the confidential obligation
arises from a contract or a gratuitous undertaking

2. Fiduciary must not: make profit at the cost of interest of beneficiary: The general rule is that a fiduciary
may not derive a profit for himself at the expense of beneficiary whose interest is bound to protect. Whatever
the profit which comes to the fiduciary, must be handed over to the beneficiaries as such profit belongs to the
beneficiaries.

3 Fiduciary must is not be a purchaser:- It is a general rule that fiduciary must not purchase the property held
by him and under his control for another. He is prevented from becoming the owner of the property of the
beneficiary which is given to him to exercise control over it for and on behalf of the beneficiary. Such type of
purchase if any, adversely affecting the interest of beneficiary and hence, not recognized by the law.

4. Fiduciary services are gratuitous in nature: The basic principle is that a fiduciary undertakes to act
voluntarily and is not give any remuneration for his services unless contrary he is provided under the contract.
The principle of gratuitous nature of fiduciary services has been applied to and generally governs all fiduciaries.
The reason behind this principle is that no person is entitled to payment simply for the reason that he has
undertaken to act in the interest of another person

5. Fiduciary office is onerous in nature: Fiduciary office is onerous and hence, fiduciary to perform and to act
for the protection of the interest of the person whom is bound to protect as a matter of confidential obligation he
has undertaken to fulfill

2.4 Director- Types of Directors: Promoter/Nominee/Shareholder/Independent

Directors refer to the part of the collective body known as the Board of Directors, that is responsible for
controlling, managing and directing the affairs of a company. Directors are considered the trustees of the
company’s property and money, and they also act as the agents in transactions that are entered into by them on
behalf of the company.

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Directors are expected to perform their duties and obligations as rationally diligent persons with skill,
knowledge, and experience as the person carrying out functions of a director and of that himself. He/she plays
multiple roles in the company, such as an agent, as an employee, as an officer and as a trustee of the company

a. Qualification Required to be a Director

Only a natural person can be a director in a company. Thus, an artificial person, such as a company,
corporation, firm, entity or association, cannot be appointed as a director. The following persons are eligible to
be appointed as a director in a company:
 The person should be above 21 years and below 70 years.
 The person should have a sound mind.
 The person should not be an undischarged insolvent.
 The person should not have applied to be adjudicated as an insolvent.
 The person should not have been convicted by a court of an offence and sentenced to imprisonment for
more than six months, and a period of five years should have elapsed from the expiry of the sentence.
 There should not be any order in force passed by a court or tribunal disqualifying the person for director
appointment.
 The person should have paid any calls in respect of any shares of the company held by him/her within
six months from the last day fixed for the payment of the call.
 The person should not have been convicted of the offence dealing with related party transactions under
section 188 at any time during the preceding five years.
 The person must have a Director Identification Number (DIN).
 The person should not be appointed as a director in more than 19 companies or nine companies in the
case of public companies since the maximum number of companies in which a person can act as a
director is 20 companies or ten companies in the case of public companies.

A person cannot be appointed as a director if he/she is a director in the following companies:

1. A company that has not filed financial statements or annual returns for a continuous period of three financial
years.
2. A company that has failed to repay the deposits, interest on deposits, failed to redeem any debentures on the
due date, pay interest on debentures, or pay the dividend declared for more than one year.

b. Duties of the director :-Section 166 of the 2013 Act enumerates the duties of directors, which apply to all
categories of directors, including independent directors.

As per Section 166 of the Companies Act, 2013 the duties of the director are:

 A director must behave in compliance with the company's Articles of Association

 A director must act in the best interests of the company's stakeholders and promote the company's
objectives in good faith.
 A director must exercise impartial judgment in carrying out his responsibilities with due consideration,
ability, and diligence.
 A director should always be mindful of potential conflicts of interest and strive to prevent them in the
best interests of the company

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 Before authorizing related party transactions, the Director must ensure that proper deliberations have to
be taken place and that the transactions are in the company's best interests.
 To ensure that the company's vigilance system and users are not harmed as a result of such use.
 Confidentiality of confidential proprietary knowledge, business secrets, inventions, and unpublished
prices must be maintained and should not be revealed until the board has authorized it or the legislation
requires it
 A Company's Director can not appoint his or her office, and any such assignment is invalid.
 If a company director violates the provisions of this section, he or she will be fined not less than one
lakh rupees but not more than five lakh rupees.
 The Companies Act of 2013 also assigns different roles to Independent Directors in order to ensure the
Board's independence and fairness. An Independent Director is a member of the Board of Directors who
does not hold any stock in the company and has no financial ties to it other than the fees it earns for
serving on the board. According to the Companies Act of 2013, Schedule IV
 Protecting and promoting the interests of all stakeholders, especially minorities shareholders.
 In the event of a conflict of interest among the stakeholders, acting as a mediator.
 Assistance in delivering an independent and fair decision to the Board of Directors.
 Adequate attention is paid to transactions between related parties.
 Any unethical activity, code of ethics breach, or alleged fraud in the company should be reported
honestly and impartially.

c. Rights Of Directors

 Rights that can only be exercised by passing resolutions at a Board meeting

 Power to make calls on shareholders for money unpaid on their shares that have not been paid.
 The authority to issue debentures
 Ability to borrow money in a way other than by debentures
 The authority to invest the company's funds
 Having the ability to make loans
 Rights of Directors can also be categorized into individual rights and collective rights

Individual Rights:-
 Individual privileges include the right to review books of accounts
 The right to receive notices of board meetings
 The right to engage in proceedings and cast votes in favor or against proposals
 The right to receive draught circular resolutions and the right to inspect minutes of board meetings.

Collective Rights:-

 Right to refuse to transfer shares: Directors of private and deemed public companies have the right to
refuse to register a transfer of shares to anyone they don't want to.
 Right to elect a Chairman: The directors have the right to elect a chairman for board meetings

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 Right to appoint a Managing Director: The Board of Directors has the authority to appoint the
company's managing director/manager.

d. Responsibilities of a Director:

The Director can be held responsible on behalf of the Company in the following situations:
 Directors who fail to make the necessary disclosures under the SEBI (Acquisition of Shares &
Takeovers) Regulations, 1997 and SEBI (Prohibition of Insider Trading) Regulations, 1992 can face
legal action from SEBI.
 Refunding of share application or excess in share application fee
 To pay for qualification shares
 Civil Liability for Prospectus Misrepresentation

e. Role of a Director

The director has two distinct different roles governing the activities of the company in which he is a director
and they are:- Performance role ; and Conformance role Performance role

In this role, the director plays their role as a specialist in the filed with their expert knowledge and skill which
are aiming to give the excellent performance of the organization.

The director brings his expertise knowledge from his wide experience and brings external information, know-
how and he really adds value to the business to take the company to the greater heights. This is the reason why,
by and large the companies appoint directors from outside who is the source of information, knowledge.

The outside director being directors in many other companies, they are well informed and advised about the
international markets, technological development, market related information etc.

Many directors are also being members of various forums like chamber of commerce, other public forums
dealing with the industry, trade and commerce, they are in a position to bring their expertise knowledge, and
they act as eye of the board to the external world.

2.5 Types of Director

The directors can be categorized based on the requirement of the Companies Act and the regulatory
requirements for the listed companies. The role, responsibilities and powers of some of the categories of
directors vary.

There should be a minimum number of three directors in the case of a public company, two directors in the
case of a private company, and one director in the case of a One Person Company. The maximum number of
directors in a company could be fifteen. However, a company may appoint more than fifteen directors after
passing a special resolution.

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a) Residential Director

As per the law, every company needs to appoint a director who has been in India and stayed for not less than
182 days in a previous calendar year. This becomes more relevant for the foreign companies establishing a fully
owned private company in India.

b) Independent Director

Independent directors are non-executive directors of a company and help the company to improve and enhance
the governance standards. In other words, an independent director is a non-executive director without a

relationship with a company that might influence the independence of his judgment. Every listed public
company shall have at least one-third of the total number of directors as independent directors and the Central

Government may prescribe the minimum number of independent directors in case of any class or classes of
public companies.

c) Small Shareholders Directors

A listed company may have a director elected by small shareholders to take care of their interest. This will be
based upon the notice of a minimum of 1000 small shareholders or 10% of the total number of the

small shareholder, whichever is lower.

d) Women Director

For promoting the diversity of thoughts and to help address the complex issues, a company, whether be it a
private company or a public company, would be required to appoint a minimum of one woman director.

e) Additional Director

A person could be appointed as an additional director and can occupy his post until the next Annual General
Meeting. In absence of the AGM, such term would conclude on the date on which such AGM should have been
held.

f) Alternate Director

Alternate director refers to personnel appointed by the Board, to fill in for a director who might be absent from
the country, for more than 3 months.

g) Nominee Directors

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Nominee directors could be appointed by a specific class of shareholders, banks or lending financial
institutions, third parties through contracts, or by the Union Government in case of oppression or
mismanagement.

h) Executive Director

An executive director is the full-time working director of the company. They look after the affairs of the
company and have a higher responsibility towards the company for its day to day affairs.

i) Non-executive Director

A non-executive director is a non-working director and is not involved in the everyday working of the company.
They might participate in the planning or policy-making process and challenge the executive directors to come
up with decisions that are in the best interest of the company.

j) Managing Director

A managing director means a director entrusted with the substantial powers of management of the company by
virtue of the articles of a company, agreement with the company, resolution passed in the company general
meeting or by the board of directors.

The specific requirements for independent director under the Companies Act are as below:

An independent director in relation to a company, means a director other than a managing director or a whole-
time director or a nominee director,

i) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;

ii) who is or was not a promoter of the company or its holding, subsidiary or associate company;

iii) who is not related to promoters or directors in the company, its holding, subsidiary or associate company;

iv) who has or had no pecuniary relationship with the company, its holding,

subsidiary or associate company, or their promoters, or directors, during the two immediately preceding
financial years or during the current financial year;

v) none of whose relatives has or had pecuniary relationship or transaction with the company, its holding,
subsidiary or associate company, or their promoters, or directors, amounting to two per cent or more of its gross

turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower,
during the two immediately preceding financial years or during the current financial year;

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Vi) who, neither himself nor any of his relatives a. holds or has held the position of a key managerial personnel
or is or has been employee of the company or its holding, subsidiary or associate company in any of the three
financial years immediately preceding the financial year in which he is proposed to be appointed;

b. is or has been an employee or proprietor or a partner, in any of the three financial years immediately
preceding the financial year in which he is proposed to be appointed, of

i) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary
or associate company; or

ii) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or
associate company amounting to ten percent or more of the gross turnover of such firm;

c. holds together with his relatives two per cent or more of the total voting power of the company; or

d. is a Chief Executive or director, of any nonprofit organisation that receives twenty-five per cent or more of its
receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or
that holds two per cent or more of the total voting power of the company; or

vii) who possesses such other qualifications as may be prescribed.

The independent director or a non-executive director not being promoter or key managerial personnel, shall be
held liable, only in respect of such acts of omission or commission by a company which had occurred with his
knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted
diligently.

2.6 Promoter/Shareholder/Independent Director/Nominee Director/Executive Director

1. Shareholder

Shareholders are fundamental stakeholders in any corporation. As partial owners of a company, they wield
significant influence over its operations, policies, and future trajectory. However, the extent of their rights and
responsibilities varies depending on the type of company, the class of shares held, and the governing laws in
their jurisdiction.

2. Independent Director-

Independent directors are non-executive directors of a company and help the company to improve corporate
credibility and enhance the governance standards. In other words, an independent director is a non-executive
director without a relationship with a company which might influence the independence of his judgment.

The tenure of the independent directors is five consecutive years; however, they shall be entitled to
reappointment by passing a special resolution with the disclosure in the Board’s report. Every listed public
company must have at least one-third of a total number of directors as independent directors.

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Following unlisted public companies need to appoint at the least two independent directors:
 Public Companies with Paid-up Capital of Rs.10 Crores or more,
 Public Companies with Turnover of Rs.100 Crores or more,
 Public Companies with total outstanding loans, deposits, and debenture of Rs.50 Crores or more.

3. Nominee Directors

Nominee directors could be appointed by a specific class of shareholders, banks or lending financial
institutions, third parties through contracts, or by the Union Government in case of oppression or
mismanagement

4. Executive Director
An executive director is the full-time working director of the company. They look after the affairs of the
company and have a higher responsibility towards the company. They need to be diligent and careful in all their
dealings.

5. Promoters, Types of Promoters –

A promoter refers to a person, group, or organization that undertakes the preliminary activities involved in the
formation of a company. These activities may include conceptualizing the business idea, assembling the team,
planning the business model, and raising the necessary capital.

Role Of a promoter

A promoter performs the following activities –

Promotion of ideas and incorporation of the company.

 Preparation of constitutional documents such as Memorandum and Articles of Association.
 Obtaining the necessary licenses and statutory approvals.
 Entering into pre-incorporation contracts with suppliers, service providers or other parties to ensure
smooth operations of the company after its incorporation.

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 Securing the necessary capital to start the company through an initial public offering or private
placement or public deposits, as the case may be.
 Verification that the statements made in the prospectus are true and correct.
 Exercise due diligence and compliance with applicable laws and regulations, particularly disclosures
through annual and periodic reports to the Registrar of Companies, SEBI and other regulatory bodies.

Responsibilities of a Promoter

The role of a promoter transcends beyond the initial phase of setting up a business. They carry several
responsibilities that are crucial to the success of a company.

 Identifying Business Opportunities

 Detailed Business Planning
 Raising Necessary Capital
 Legal Formalities:-
 Building the Initial Management Team:-

2.7 Role of Directors and Executives

Board’s responsibilities demand the exercise of judgment, hence need a reasonable level of discretion. While
corporate governance comprises of both legal and behavioral norms, the rules or laws alone cannot contemplate
every situation that a director or the board collectively may find itself in.

Besides, rules alone cannot prevent a director from abusing his position while taking a position and decision as
per written norms. Therefore, behavioral norms that include informed and deliberative decision making,
division of authority, monitoring of management and even-handed performance of duties owed to the company
as well as the shareholders are equally important.

With management much more deeply involved in the detail and operations of the organization, board members
rely on management to share in a timely manner all material information needed for decision making to allow
them to effectively fulfil their obligations as directors. A productive relationship between the board and
management is critical for good governance and organizational effectiveness.

The CEO expects the board to clearly state performance objectives and define boundaries of authority. The
CEO also expects regular and honest performance feedback. For optimal performance, boards and management
must work together cohesively as a team.

Role and Functions of Independent Directors

The independent directors shall:

1) help in bringing an independent judgment to bear on the Board’s deliberations especially on issues of
strategy, performance, risk management, resources, key appointments and standards of conduct;

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2) bring an objective view in the evaluation of the performance of the board and management;

3) scrutinize the performance of management in meeting agreed on goals and objectives and monitor the
reporting of performance;

4) satisfy themselves on the integrity of financial information and ensure that financial controls and the systems
of risk management are robust and defensible;

5) safeguard the interests of all stakeholders, particularly the minority shareholders;

6) balance the conflicting interest of the stakeholders;

7) determine appropriate levels of remuneration of executive directors, key managerial personnel and senior
management and have a prime role in appointing and where necessary recommending removal of executive

directors, key managerial personnel and senior management;

8) moderate and arbitrate in the interest of the company as a whole, in situations of conflict between
management and shareholder’s interest.

2.8 Responsibility for Leadership

The Role of Leadership in Driving Corporate Governance

Corporate governance is the system of rules, practices, and processes by which a company is directed and
controlled. It encompasses the relationships between the company’s management, its board of directors, its
shareholders, and other stakeholders. Effective corporate governance is essential for the long-term success and
sustainability of any organization. One of the key drivers of corporate governance is leadership.

Importance of Leadership in Corporate Governance

Leadership plays a crucial role in shaping the corporate governance practices of an organization. Strong and
ethical leadership sets the tone at the top and establishes a culture of transparency, accountability, and integrity.
Leaders are responsible for creating a governance framework that aligns with the company’s values, mission,
and strategic objectives.

1. Involvement: Leadership sets the tone at the top by establishing a clear vision, values, and ethical standards
for the organization. When leaders demonstrate a commitment to integrity and ethical behavior, it sends a
powerful message to employees, shareholders, and other stakeholders. This tone at the top influences the
corporate culture and shapes the governance practices of the company.

2.Building Trust and Credibility:-Effective leaders build trust and credibility with stakeholders by being
transparent, accountable, and responsive. They communicate openly and honestly, listen to feedback, and take
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responsibility for their actions. By fostering trust and credibility, leaders create a foundation of strong corporate
governance that enhances the company’s reputation and performance.

3. Plan the Implementation, Monitoring & Execution of the strategy:- It is the responsibility of leadership
to plan the implemention the strategy & put the monitoring system in place, analyze the strategy that is to be
implemented and make any necessary changes to make the implementation more efficient.

4. Empowering colleagues: The most effective leadership style is one that empowers colleagues to make
decisions in their areas of expertise. Great leaders are detail-oriented, and yet they avoid micromanaging others'
work. Instead, they invest in their coworkers’ professional development, offering both mentoring and
development opportunities.

5. Embodying company culture: This means embodying the values, ethics, and hard work that the company
expects from all team members. Great leaders at both large corporations and small businesses assume their
coworkers are looking to them to exemplify the company values.

6. Decision-making: Companies expect good leaders to have keen decision-making and problem-solving skills.
The best leaders carefully review their options and make informed choices for the business in a timely manner.

7. Balancing the needs of all stakeholders: Leaders work with a range of stakeholders, including customers,
fellow executives, entrenched employees, and new hires. Their task is to make each of these stakeholders feel
valued and heard in the day-to-day operations of their business. It can be hard work to keep all team members
engaged in the long-term success of the business, but companies rely on leaders to balance competing needs to
keep operations running smoothly.

Examples of Leadership Driving Corporate Governance:

Several companies have demonstrated the impact of leadership on corporate governance through their actions
and decisions. One such example is Microsoft under the leadership of Satya Nadella. Since taking over as CEO
in 2014, Nadella has focused on fostering a culture of innovation, collaboration, and inclusivity.

He has emphasized the importance of ethical leadership and corporate responsibility, leading to improved
governance practices at Microsoft.

 Satya Nadella’s emphasis on ethical leadership and corporate responsibility

 Fostering a culture of innovation, collaboration, and inclusivity
 Improved governance practices at Microsoft under Nadella’s leadership

Conclusion

In conclusion, leadership plays a pivotal role in driving corporate governance by setting the tone at the top,
building trust and credibility, and shaping the culture of the organization.

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Strong and ethical leadership is essential for establishing effective governance practices that enhance
transparency, accountability, and integrity.

2.9 Harmony between Directors and Executives

Boards and executives go through various phases and stages in their cycle. Whether a new mission-driven
organization or a mature, transitioning, stable or progressing entity, the relationship between the executive
director and the board chair is one of the most important relationships in making the organization successful.

The relationship between the executive director and the board chair is interdependent, and requires regular
communication and collaboration. These individuals must have good chemistry so that they can connect and
communicate well with each other.

Besides the obvious need to work together, the relationship between the executive director and the board chair
sets an important precedent for other relationships. Their relationship has a collateral effect on the other board
directors, managers and staff. These two individuals represent a small, but powerful, leadership team. Either
they set the stage for respect and cooperation, or they can foster tension and dissonance among the ranks.

1. Personal attributes enhance the relationship

Professionalism, mutual trust and respect are contagious. When these qualities exist between an executive
director and a board chair, they will be evident to everyone around them — setting the tone for lower-level
relationships and inspiring collaborative work at every level.

It takes time, effort and commitment to make the relationship strong and productive. When both parties are
committed to their relationship and to the organization’s mission, they can accomplish great things together

1. Clarify roles and responsibilities

For the board chair and the executive director to maintain a strong professional relationship, each of them must
be clear on their duties and responsibilities to avoid overlap or potential conflict.

Board chairpersons should be focused on governance. In this role, the chair is accountable to the executive
director and to the board. These are some key responsibilities and must-dos for board chairs:

 Remove themselves from the day-to-day operations and organizational politics and stay in their own lane.
 Ensure that the work the executive director and staff do is continually in sync with the organization’s
mission, direction and priorities.
 Provide timely guidance and wise counsel to help the executive director be confident when presenting
status reports to the board, constituents and the media.

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 Carefully manage how the board functions when addressing issues or making fiduciary decisions for the
organization.
 Collaborate with the executive director on board meeting agendas and discussion topics.
By contrast, the executive director has other responsibilities that contribute to a strong relationship with the
board chair. They should:

 Focus on managing the daily operations.

 Lead the organization.
 Motivate staff.
 Support board chair with updates on operations or important issues such as risk management.
 Help to fulfill the mission and foster good governance by being transparent and accountable.

Executive directors have a reciprocal responsibility to support the board chair in delivering the mission. In
addition, executive directors play an important role in keeping the board chair informed on issues such as risk
management and updates on operations.

From a broader perspective, executive directors support governance by giving the chair the necessary data and
information in order to show accountability and transparency.

The relationship between the board chair and the executive director is a work in progress. When it works well,
the relationship should grow and strengthen through shared challenges and experiences. Mutual trust, respect
and a common understanding of the organization’s goals are key to making this relationship successful.

Executive directors and board chairs work on board meeting agendas together and executive directors are
usually instrumental in shaping board discussions.

Good governance means having solid processes in place — rules that build a foundation, policies that
guide your next steps, and coordinated activities that ensure informed oversight. Good governance
depends on people. Leaders set the tone at the top for collaboration, thoughtful deliberation, and giving
all stakeholders a voice. Download our good governance guide today to transform data into strategic
success and drive exceptional performance.

2. Sharing strengthens the relationship

One valuable way to build trust and maintain a strong relationship between the executive director and board
chair is for each to fact-share with candor and regularity. There are many uncertainties in running any company
or organization, creating continual opportunities for mutual brainstorming, problem-solving, out-of-the-box
thinking and exploring those all-important “what-ifs.”

Give-and-take exchanges are important all the time, but especially in times of change and transition. Leaders
can share information that helps them make concessions, adapt to changes, address new challenges and adjust to
changing circumstances.
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Since both positions come with many responsibilities and issues to manage, intense feelings may occur. It is
also important to emotionally support each other when this happens. Board chairs and executive directors can
reinforce their relationships by regularly offering words of support, reassurance and care.

3. Technology supports strong board and executive director relationships

Board chairs and executive directors need to support each other in many important ways. To do so, they both
need the support that only modern governance practices can offer them.

BoardEffect provides a secure platform where leaders can communicate and collaborate on a regular basis. The
software, accessible on mobile devices, allows them to connect while they are on the go.

Leaders can invite additional people into their board discussions as needed with a feature that opens access to
files for those who have authorization. BoardEffect delivers the right information at the right time to the board
and executive staff all with state-of-the-art cybersecurity measures to protect against cybercrime.

Board chairs and executive directors must operate in an interdependent series of cycles:

 Meeting cycles: online board books, scheduling, approvals and tasks.

 Annual cycles: surveys and evaluations, policy handbooks, budget, audit and compliance.
 Development cycles: recruitment, board orientation, collaboration tools and reporting
Creating and sustaining a strong relationship between the board chair and executive director is achieved through
communication, collaboration, clear lines of responsibility and using a solution like BoardEffect for secure and
efficient day-to-day board management.

2.10 Training of Directors -Need, Objective, Methodology

While the functional, full-time, executive directors are generally from the relevant business, the independent
directors are from outside having little understanding and technical knowledge about the business. This requires
familiarization and an awareness programme about the business/industry.

The full-time directors may also need the sharpening of their skills and knowledge through training
onbusiness strategies. Hence, corporates have been taking proactive action to plan and deliver specialized
training programmes for their directors in-house or through reputed national and international academic
institutions.

10 Objectives of Training

1. Developing self-awareness.

Directorswho can understand themselves and become self-aware can, among other things, enhance employee
morale by teaching others how to recognize their own strengths & weaknesses, develop a growth mindset, and
allow others to express their emotions in the workplace by creating psychological safety.

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2. Improving communication skills.

Directors training programmes that includes enhancing communication skills helps Directors set and
communicate their vision to their team, while allowing room for feedback. This eliminates ambiguity and
inspires team members to realize set goals.

3. Building strong relationships.

This means creating a culture of inclusivity and collaboration, where each team member's strengths are
developed and utilized. When teamwork is strong, it leads to increased productivity and engaged employees, as
well as better decision-making.

4. Effective conflict management.

Directors training programmesshould teach vital conflict management skills such as encouraging collaboration,
finding compromise, dealing with difficult co-workers, active listening, and reading body language.

5. Enhanced decision-making skills.

Directors training programmesenhances decision-making abilities in critical areas, including how to gather and
analyze relevant information, consider different viewpoints, assess potential risks, and make well-timed and
sound choices.

6. Managing change effectively.

Directors training programmes create directors who are dynamic and can adapt to change effectively by making
decisions in the best interests of the compan

7. Motivating others.

Training should include developing skills to better motivate others, including empathy, goal-setting, active
listening, and giving feedback.

8. Developing coaching and mentoring skills

Training can develop coaching and mentoring skills that will increase employee engagement and lower turnover
rates.

9 Refining strategic thinking skills.

Directors training programmes will impart essential strategic thinking skills, including asking strategic
questions, considering the possible implications of decisions, understandings alternative viewpoints, and
identifying areas where delegation delivers the best results.

10. Teaching emotional intelligence.

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Leaders who have developed emotional intelligence possess the interpersonal skills necessary to effectively
manage conflict, establish and sustain trust, and inspire and motivate their teams.

Need for Training for Directors:

1. Legal and Regulatory Compliance:
 Directors need to be well-versed in the legal and regulatory landscape that governs their industry.
Training programs cover topics such as corporate laws, compliance requirements, and fiduciary duties,
ensuring directors are equipped to navigate the complex legal environment.
2. Ethical Decision-Making:
 Ethical considerations are at the core of corporate governance. Directors must understand the importance
of making decisions that prioritize integrity, transparency, and accountability. Training programs often
include case studies and scenarios to help directors develop their ethical decision-making skills.
3. Financial Literacy:
 A fundamental aspect of director's training involves enhancing financial literacy. Directors need to
comprehend financial statements, assess the company's financial health, and contribute to sound
financial decision-making. Training sessions focus on financial analysis, risk management, and
budgetary oversight.
4. Strategic Planning:
 Directors play a crucial role in shaping the company's strategic direction. Training programs provide
insights into effective strategic planning, market analysis, and the evaluation of business opportunities.
This enables directors to contribute meaningfully to the organization's growth and competitiveness.
5. Risk Management:
 Identifying and mitigating risks is an integral part of corporate governance. Directors are trained to
assess potential risks, implement risk management strategies, and ensure the organization's resilience in
the face of challenges.
Benefits of Training programmes for Directors:
 Enhanced Board Effectiveness:Well-trained directors contribute to a more effective board, fostering better
decision-making processes and strategic planning.
 Improved Compliance:-Directors equipped with a deep understanding of legal and regulatory requirements
are better positioned to ensure the company's compliance, reducing the risk of legal issues.
 Increased Stakeholder Confidence:Stakeholders, including shareholders and employees, gain confidence in
the organization when they see a board of directors capable of steering the company ethically and
responsibly.
 Adaptability to Change:Directors trained in strategic planning and risk management are better prepared to
navigate the dynamic business landscape, adapting to changes and seizing opportunities.
Conclusion:
Training programmes for Directors: is an indispensable investment in the success and sustainability of any
organization. By providing directors with the knowledge and skills necessary for effective leadership, these

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training programs contribute to the establishment of ethical, transparent, and well-governed companies that can
thrive in today's competitive business environment.
Training Methodology-

The Training methods shall cover Whole Time, Part Time and Independent Directors

General Training: Training shall be provided by experts / renowned institutes in the industry/ In-house:

i. As a good measure of ongoing training Directors shall be updated on all matters pertaining to the business
like Industry Overview, Marketing, Finance, Legislation, Technical, HR, Risk Assessment and CSR.

ii. The training shall also include content to enable the Board to get an overall view of the Company, its
Business Model, Projects, Risk Profile, and Responsibilities etc. iii. This training shall be updated every year to
include latest changes in the local and global market scenario including those pertaining to statutes/ legislation
and economic environment

Specific Training: At times, IFCI may feel the need for training related to a specific requirement. Also, need
based training may be provided on various matters. This training shall be provided by definite institutions that
specialize in the particular training.

The company will look at the various training requirements of the Directors based on input received by the
Board Members themselves. It will also look into available trainings in the market in the form of seminars,
conferences etc, in order to update the directors on various issues and help them perform their role as decision
makers better.

The company may engage specialists in various areas to provide information on various topics of interest.

In-house Training Program: A training program designed, developed and conducted within the Company, with
or without the assistance of external agency (ies).

External Training Program: A training program designed, developed and conducted within India, by an outside
agency.

2.12 Competencies for directors

Core competencies are the fundamental strengths or strategic advantages that a company has. These can include
knowledge, abilities, and skills that differentiate it from competitors.

These core competencies are key drivers of a company’s competitive advantage, says HBR, and are often
deeply integrated into its products, services, and culture. A competency is made up of a skill plus how well you
can perform that skill. Competency = skill + proficiency level

Core competencies can be categorised into three main types:

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1. Organisational

These are competencies that define the overarching strengths and capabilities of the entire organisation.
They are typically aligned with the organisation’s mission, vision, and strategic objectives.
For example: Innovation,Customer focus,Agility,Sustainability etc

2. Functional
These are competencies specific to individual functions or departments within the organisation.
They represent the specialised skills and knowledge required to perform tasks or roles effectively within a
particular functional area.
For example:Financial analysis for finance professionals, Marketing strategy for marketing specialists
Project management for project managers etc

3. Behavioural Competencies
Also known as interpersonal or soft skills, behavioural competencies are related to how individuals interact with
others and conduct themselves in the workplace.
For example: Leadership, Teamwork,Communication,Problem-solvingAdaptability,Emotional intelligence etc

This comprehensive list includes a mix of organisational, functional, and behavioural skills.

 Adaptability:- ability to adjust to new conditions and handle unexpected challenges. -Leads change
initiatives; adapts strategy dynamically, ensuring organisational resilience.

 Analytical Thinking - skill of understanding and solving complex problems through analysis. -Integrates
complex data across sources; drives strategic decisions.

 Communication -Ability to identify, address, and manage conflicts constructively. -Manages complex
conflicts, guides others in resolution techniques.

 Creativity - apacity to think outside the box and generate innovative ideas -Leads innovation initiatives,
champions a culture of creativity and experimentation.

 Conflict Resolution - ability to identify, address, and manage conflicts constructively. -Manages complex
conflicts, guides others in resolution techniques.

 Critical Thinking- ability to analyse facts, generate and organise ideas, defend opinions, make
comparisons, draw inferences, evaluate arguments and solve problems. -Synthesizes and integrates new
information, influencing strategic decisions.

 Customer Service- skills needed to provide support and advice to customers effectively. -Drives customer
engagement and loyalty programs.

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 Decision Making -process of making choices by identifying a decision, gathering information, and
assessing alternative resolutions. -Makes strategic decisions under uncertainty, influences organisational
direction.

 Emotional Intelligence-ability to perceive, control, and evaluate emotions in oneself and others.-Uses
emotional information to guide thinking and behaviour, improves team relations.

 Entrepreneurial - ability and desire to develop, organise, and manage a business venture along with any of
its risks to make a profit -Drives business innovation and strategic ventures.

 Financial Acumen -ability to understand and apply financial management principles in the workplace. -
trategises based on financial data to enhance business profitability.

 Influence - The capacity to have an effect on the character, development, or behaviour of someone or
something. -Shapes organisational strategy and external stakeholders’ perspectives.

 Initiative -The ability to assess and initiate things independently. -Leads projects and strategic initiatives
impacting the broader business scope

 Integrity - Quality of being honest and having strong moral principles. Upholds and champions integrity in
complex scenarios, organisational ethics.

 Interpersonal Skills -the skills used by a person to interact with others properly -Masters diplomacy,
manages complex stakeholder relationships.

 Leadership -The action of leading a group of people or an organisation. -Visionary leadership, shapes
organisational culture and strategy.

 Negotiation -The ability to reach agreements between two or more parties with conflicting interests -
Strategically negotiates major contracts impacting the organisation’s direction.

 Performance Management -process of ensuring that set performance standards are achieved in a
consistent manner. -Leads organisation-wide performance enhancement strategies

 Personal Development -The commitment to improving one’s skills, abilities, and knowledge -Mentors
others and drives a culture of continuous personal growth.

 Project Management -Discipline of planning, organising, securing, managing, leading, and controlling
resources to achieve specific goals. -Directs major projects with broad organisational impact

 Quality Management -The act of overseeing all activities and tasks needed to maintain a desired level of
excellence. -Sets and enforces quality standards across the organisation.

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 Relationship Building -The ability to establish and maintain positive and effective working relationships. -
Leverages relationships to enhance business outcomes and organisational reputation

 Resilience - capacity to recover quickly from difficulties; toughness. -Leads teams through crises,
sustaining operational integrity

2.13 Executive Management Process

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2.14 Executive Remuneration

Total managerial remuneration payable by a public company, to its directors, managing director and whole-time
director and its manager is governed as below under the Companies Act.

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However, a public company can pay managerial remuneration in excess of 11% by passing a special resolution
approved by the shareholders and subject to compliance of Schedule V conditions.

Where in any financial year during the currency of tenure of a managerial person or other director, a company
has no profits or its profits are inadequate, it may pay remuneration to the managerial person or other directors
not exceeding, the limits given below:-

However, remuneration in excess of above limits may be paid if a special resolution has been passed by the
shareholders. In case of a managerial person or other director who is functioning in a professional capacity,
remuneration may be paid-

• if such managerial person or other director is not having any interest in the capital of the company or its
holding company or any of its subsidiaries directly or indirectly or through any other statutory structures and
not having any direct or indirect interest or related to the directors or promoters of the company or its holding
company or any of its subsidiaries at any time during the last two years before or on or after the date of
appointment

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• possesses graduate level qualification with expertise and specialized knowledge in the field in which the
company operates.

An employee of a company holding shares of the company not exceeding 0.5% of its paid up share capital
under any scheme formulated for allotmentof shares to such employees including Employees Stock Option Plan
or by way of qualification shall be deemed to be a person not having any interest in the capital of the company.

The directors may receive fees for attending meetings of board or committee and such fees cannot exceed Rs
one lakh per meeting. Different fees for different classes of companies and fees in respect of independent
director may be such as may be prescribed. Sitting fees paid to independent directors and women directors shall
not be less than the sitting fee payable to other directors

2.15 Functional Committees of Board

The Board of the company places reliance on outside independent directors for monitoring the performance of the
company and hence, the board sets up many committees, mainly consisting of independent directors, comprising of
outside directors such as:-

1. Audit Committee

2. Compensation/Remuneration Committee

3. Nomination Committee

4. Shareholders & Investors Grievance Committee

5. Ethics and Compliance Committee

6. Stakeholders’ relationship committee (SRC)

7.CSR committee

8.Risk Management Committee

1. AUDIT COMMITTEE

Audit committee to consist of independent directors who in turn report to the board of directors.

This committee works as a link between the external auditors, internal auditors and the audit committee goes into the
details of all matters raised by the external auditors, internal control related matters coupled with risk management.

The main function of this committee is to review the audited and unaudited financialstatements which are published by
the company pursuant to the listing agreement entered by them with the respective stock exchanges as per the Listing
Agreement.

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The committee would discuss the financial aspects with the external auditors independently relating to any problems the
auditors have experienced, qualifications if any, deviations in the accounting standards applied and other financial related
matters and finally they recommend the publication of results to the board for its approval

Role of Audit Committee The role of the audit committee shall include the following :

1. Oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the
financial statement is correct, sufficient and credible.

2. Recommending the appointment and removal of external auditor, fixation of audit fee and also approval for payment
for any other services.

3. Reviewing with management the annual financial statements before submission to the board, focusing primarily on;

(a) Any changes in accounting policies and practices.

(b) Major accounting entries based on exercise of judgment by management.

(c) Qualifications in draft audit report.

(d) Significant adjustments arising out of audit.

(e) The going concern assumption.

(f) Compliance with accounting standards.

(g) Compliance with stock exchange and legal requirements concerning financial statements

(h) Any related party transactions

4. Reviewing with the management, external and internal auditors, the adequacy of internal control systems.

5. Reviewing the adequacy of internal audit function, including the structure of the internal audit department, staffing and
seniority of the official heading the department, reporting structure coverage and frequency of internal audit.

6. Discussion with internal auditors any significant findings and follow up there on.

7. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud
or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board.

8. Discussion with external auditors before the audit commences about nature and scope of audit as well as postaudit
discussion to ascertain any area of concern.

9. Reviewing the company’s financial and risk management policies.

10. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in
case of nonpayment of declared dividends) and creditors.

Powers of Audit Committee

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The Audit Committee shall have powers, which should include the following:

1. To investigate any activity within its terms of reference.

2. To seek information from any employee.

3. To obtain outside legal or other professional advice.

4. To secure attendance of outsiders with relevant expertise, if it considers necessary.

2. Nomination Committee:- Nomination committee is normally set up to decide and select the new non executive
director and it is headed by the Chairman along with other independent directors as members. The committee screens, the
prospective candidates for the position of non executive directors and makes it selection

The role of the committee include:

i) To identify persons who are qualified to become directors and who may be appointed
in senior management in accordance with the criteria laid down, recommend to the
Board their appointment and removal and shall carry out evaluation of every director’s
performance.

ii) To formulate the criteria for determining qualifications, positive attributes and
independence of a director and recommend to the Board a policy, relating to the
remuneration for the directors, key managerial personnel and other employees.

iii) To ensure that—

a) the level and composition of remuneration is reasonable and sufficient to attract,

retain and motivate directors of the quality required to run the company successfully;

b) relationship of remuneration to performance is clear and meets appropriate

performance benchmarks; and

c) remuneration to directors, key managerial personnel and senior management involves

a balance between fixed and incentive pay reflecting short and long-term performance
objectives appropriate to the working of the company and its goals

The chairperson of each of the committees constituted under this section or, in his
absence, any other member of the committee authorised by him in this behalf shall
attend the general meetings of the company.

In case of any contravention of the provisions of section 177 and this section, the
company shall be punishable with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees and every officer of the company who is in default

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Shree Vedha Campus No 6, Papareddypalya, Nagarabhavi 2nd stage, Bangalore 560072

shall be punishable with imprisonment for a term which may extend to one year or with
fine which shall not be less than twenty-five thousand rupees but which may extend to
one lakh rupees, or with both.

3.Compensation/Remuneration Committee The shareholders are becoming more concern about the disclosure and
transparency of the company in which they have invested their money and definitely would like to know the
compensation/remuneration package of the directors and as well the senior management of the company.

This committee, having regard to the long term goal of the company design a package for the directors and as well for the
senior management which is a transparent policy and review the remuneration/ compensation, approve wherever within its
power, recommend for approval to the board/shareholders and the disclosures are also made in the annual reports

4. Ethics and Compliance Committee This committee reviews the ethical policy of the company and also keep a close
watch on the code of conduct formulated by the board and its adherence by the all the employees of the company. Advises
the board on ethics related matter, modifications of code of conduct etc.

5. Shareholders & Investors Grievance Committee :-This committee is formed for overseeing the investors grievances
and resolving the same.

(i) A board committee under the chairmanship of a non-executive director shall be formed to specifically look into the
redressal of shareholder and investors complaints like transfer of shares, non-receipt of balance sheet, non-receipt of
declared dividends etc. This Committee shall be designated as ‘Shareholders/Investors Grievance Committee’.

(ii) To expedite the process of share transfers the board of the company shall delegate the power of share
transfer to an officer or a committee or to the registrar and share transfer agents. The delegated authority shall
attend to share transfer formalities at least once in a fortnight.

6. Stakeholders’ relationship committee (SRC)

The Board of Directors of a company which consists of more than one thousand shareholders, debenture-
holders, deposit-holders and any other security holders at any time during a financial year shall constitute a

The SRC consists of a chair who must be a non-executive director and other members as may be decided by the
board. At least three directors, with at least one being an independent director, must be the members of the
SRC.

The Stakeholders Relationship Committee shall consider and resolve the grievances of security holders of the
company.

7.Risk Management Committee

The listing regulation also require a company to establish a Risk Management Committee. In accordance with
the Listing Regulations, the top 500 listed companies have to constitute a risk management committee (RMC),

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consisting of a director as the chair and senior executives of the company as members. The majority of
members of RMC must be members of the board, and in the case of a listed entity with outstanding SR equity
shares, at least two-thirds of the RMC shall comprise of independent directors.

The Listing Regulations also provide that a director should not be a member in more than 10 committees or act
as a chair of more than five committees across all listed entities in which he or she is a director.

• The company shall lay down procedures to inform Board members about the risk assessment and
minimization procedures.

• The Board shall be responsible for framing, implementing and monitoring the risk management plan for the
company.

• The company shall also constitute a Risk Management Committee. The Board shall define the roles and
responsibilities of the Risk Management Committee and may delegate monitoring and reviewing of the risk
Management

4. CSR committee

Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand
crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate

Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one
director shall be an independent director.

The composition of the committee shall be disclosed in the board report.

The responsibilities of the Corporate Social Responsibility Committee include

• to formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the
activities to be undertaken by the company as specified in Schedule VII; to recommend the amount of
expenditure to be incurred on the CSR activities

• to monitor the Corporate Social Responsibility Policy of the company from time to time.

Based on the recommendation of the CSR committee, the board shall

i) approve the Corporate Social Responsibility Policy for the company after taking into account the
recommendations made by the Corporate Social Responsibility Committee, and disclose contents of such Policy
in its report and also place it on the company's website.

ii) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are
undertaken by the company.

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Shree Vedha Campus No 6, Papareddypalya, Nagarabhavi 2nd stage, Bangalore 560072

iii) ensure that the company spends, in every financial year, at least two per cent of the average net profits of the
company made during the three immediately preceding financial years, in pursuance of its Corporate Social
Responsibility Policy.

2.17 Rights and Relationship of Shareholders and Other Stakeholders

A stakeholder is anyone who is impacted by a company or organization’s decisions, regardless of whether they
have ownership in that company. Shareholders are those who have partial ownership of a company because
they have bought stock in it. All shareholders are stakeholders, but not all stakeholders are shareholders.

Shareholders and other stakeholders have various rights and relationships with the company. Here's an
overview:

Shareholders' Rights

1. Voting Rights: Shareholders have the right to vote on important matters, such as electing directors,
approving mergers and acquisitions, and authorizing executive compensation.

2. Dividend Rights: Shareholders are entitled to receive dividends, if declared by the company.

3. Pre-emptive Rights: Shareholders may have the right to purchase additional shares in the company before
they are offered to the general public.

4. Right to Information: Shareholders have the right to access certain company information, such as financial
statements and meeting minutes.

5. Right to Participate in Meetings: Shareholders have the right to attend and participate in general meetings.

Rights of Other Stakeholders

1. Employees: Employees have the right to fair treatment, safe working conditions, and compensation for their
work.

2. Customers: Customers have the right to receive fair and honest treatment, including accurate product
information and protection of personal data.

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SHREE VEDHA COLLEGE

Shree Vedha Campus No 6, Papareddypalya, Nagarabhavi 2nd stage, Bangalore 560072

3. Suppliers: Suppliers have the right to fair treatment, including timely payment and respect for their
intellectual property.

4. Communities: Local communities have the right to protection from environmental harm and respect for their
cultural heritage.

5. Creditors: Creditors have the right to timely payment and fair treatment in the event of bankruptcy or
insolvency.

Relationship Between Shareholders and Other Stakeholders

1. Interdependence: Shareholders and other stakeholders are interdependent, as the success of the company
depends on the contributions of all stakeholders.

2. Mutual Respect: Shareholders and other stakeholders should treat each other with respect and fairness,
recognizing their respective rights and interests.

3. Communication: Shareholders and other stakeholders should maintain open and transparent communication,
ensuring that each group is informed about the company's activities and decisions.

4. Balancing Interests: The company should balance the interests of shareholders and other stakeholders,
ensuring that no single group is prioritized at the expense of others.

5. Long-term Sustainability: Shareholders and other stakeholders should work together to promote the long-
term sustainability of the company, recognizing that their respective interests are aligned with the company's
success.

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 NRI CHILDREN’S EDUCATIONAL TRUST ®

SHREE VEDHA COLLEGE

Shree Vedha Campus No 6, Papareddypalya, Nagarabhavi 2nd stage, Bangalore 560072

Question Bank
2 Marks- Conceptual Questions
1. List the Types of Corporate Business Ownership Structure ?

2. What do you undertand by Fiduciary relationship?

3. List the Types of Directors?

4. Who is Promoter & list the Types of Promoter?

5. Who is Nominee ?

6. Who is Shareholder ?

7. Who is Independent Director?

8. Who is Nominee Director?

9. Who is Executive Director?

10. What is Executive Management Process?

11. List the competencies for Directors?

12. List the Functional Committees of Board?

5 marks -Application Questions

1. Explain the Responsibility for Leadership?

2. Discuss about the Harmony between Directors and Executives

3. Disucss the Need for Training of Directors?

4. Disucss the Objective& methodolog for Training of Directors?

5. Ellucidiate about the Executive Remuneration?

6. Explain the Role & Responsibilities of Directors?

7. Discuss in brief regading the competencies for directors

12 marks- Analytical question

1. Dicuss in detail regarding the Board of Directors – Role, Composition, Systems and Procedures -
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2. Discuss about the Rights, Duties and Responsibilities of Director

3. Write in detail about the Executive Management Process?

4. Discuss the diferent Functional Committees of Board?

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