A corporate or a company has a separate legal entity. It has a perpetual succession and a common seal. It can sue and be sued in its own name. Every corporate is governed by a special companies’ act, prevailing in the country in which it is registered. A corporate is owned by a group of people i.e., the members or shareholders. The owners or the stakeholder’s function is to check upon the board, whether they are working diligently and in the interest of company or not. Shareholders exercise their power of control over the board. Along with it they want to know about the status of their investment and the aspects of the company which affects it. As day-to-day functioning is not the job of the shareholders. So, they appoint board of directors for this role. In the case of [i]Percival v. Wright, it was held that the directors owe duty of liability only to the company and not to the shareholders. It was codified under the UK act 2006.

The board of directors is a combination of executive, non-executive and independent directors. A non-executive director forms part of the board of directors. It is considered as a member but is not an employee of the company. An independent director does not hold a stake in the company and has no monetary relationship with the company except its remuneration.

The corporate along with the board of directors requires other professional for successful working of the organization. They are called managerial personnel as they hold the key positions of the corporation. A Chief Financial Officer is required for handling finance and its related aspects. A company secretary is appointed to handle compliance related matters and to ensure good corporate governance is being followed. For management of business, managing director and manager are appointed. All such professionals are covered under the definition of managerial personnel and each one of them has an important role to play in the healthy functioning of the corporation.

Appointment of Directors and Secretary[ii]

According to section 172, of the USA corporate law 2006. A private company must have at least one director and public company must have at least three directors, of which two of them are not employees of the company. Every company shall have a company secretary. A company with a sole director cannot act as the secretary of the company.

It is the duty of the director that a person with requisite knowledge, skills and experience is appointed as the secretary of the company. The work of the secretary must be done solely by the secretary of the company. If the secretary is unable to act or its office is vacant, the assistant or deputy secretary is in charged to perform on its behalf. If assistant or deputy secretary are not appointed in the company. Some other persons who are generally or specially authorized to perform the duties on behalf of directors. The secretary must be appointed according to the procedure prescribed in the act. Registrar of companies must be notified within fifteen days of its appointment.

Managerial personnel

Chief executive officer (CEO)

Chief executive officer, chief administrator or just chief executive are considered as company executives in charge of managing an association especially an independent legal entity such as a company or non-profit organization. In some countries’ law of companies, CEO can also be called as Managing Director. It is not necessary that the CEO is head or owner of the company. The responsibilities of CEO are decided by the board.

In many countries there is a two-tier system i.e., a corporate with two separate boards. One is the executive board for day to day functioning of the business. The other is the supervisory board for enforcing control, it is set up by the shareholders. In such countries, the CEO administer over the executive board and chairman oversees the supervisory board.

In US, the board of directors which are elected by the shareholders, their work is based on supervisory and its related aspects. The executive board in USA companies are known as Executive committee, the officers empaneled in this committee report directly to the CEO. In USA, executive officers are the top-level officers of the company. But the definition of executive varies depending upon the type of company. In case of One Person Company or sole proprietorship firm, the sole proprietor is considered as the executive officer. In case of partnership firm, the executive officer is a managing partner in a limited liability company, the executive officer can be the manager or member etc.

Chief Executive Officer (CEO) Vs. Chief Financial Officer (CFO)[iii]

• The CEO is responsible for management and supervision of all the activities taking place within an organization. CFO on the other hand, is responsible for finance and its related aspects of a company.
• CEO reports to the board of directors but CFO reports to CEO or COO.
• CFO’s role is restricted to the development of personnel within finance and accounting areas. CEO on the other hand, has to develop personnel within the company for management position.
• CEO is accountable for overall strategy of the company. CFO is accountable for only the financial strategy of the company and also its role is to coordinate with CEO.
• Duties of CFO are set up by the CEO which are related to finance. CEO’s duties are set up in most of the cases by the board of directors.

Managing Director (MD) and Manager[iv]

• There is no preliminary requirement for manager to be appointed as a director first in the company. But a managing director must be firstly appointed as a director.
• Manager has the responsibility of managing the entire affairs of the company. Managing director on the other hand exercises substantial powers of management.
• A manager can still remain appointed if it ceases to be the director of the company. When a managing director ceases to be the director will automatically cease to be the MD of the company.

Duties

Every director or officer of the company while exercising powers must act honestly and with a bonafide intention in the interest of the company. It must follow due care, diligence and required professional skills while performing its functions. In [v]Gantler v. Stephens, the shareholders filed a case against the shareholders that they have violated their fiduciary duties by rejecting a valuable opportunity. The court dismissed the case. The court held that the directors owed the same duties of care and loyalty. The shareholders appealed the case after the dismissal. The fiduciary duties, loyalty and good faith expected from the directors is discussed also in case of [vi]Stone v. Ritter. Same was discussed in the case of [vii]Re Caremark International Incorporation. In the case of [viii]Coleman v. Myers, brother was made the chairman and CEO of the company and sisters were the shareholders of the company. It was held that brother was in a fiduciary relationship with the sisters and by not disclosing valuable information. He has breached his fiduciary duty.

Powers of board[ix]

The board is authorized to exercise several powers on behalf of the company. Such decisions can be made only by means of a resolution passed at the meetings of the board. Some of the functions required to be performed by the board are- to borrow monies, to invest funds of the company, to make calls on shareholders in respect of money unpaid on shares, to approve financial statements and report of board, to approve amalgamation, merger etc. the board has got the power to appoint or remove Key managerial personnel, to appoint auditors etc.

Removal of Directors[x]

According to section 179 of the Companies Act, USA, a company may by an ordinary resolution remove a person appointed as a director before the expiry of its term. A special notice is required to be given for passing a resolution. A copy of such notice shall be given to the director concerned. (whether or not it is the member of the company). A right to heard must be given to the director. It can be made in writing (not exceeding a reasonable length). Unless the representations are received too late, the company must state the fact of representation being made along with notice of resolution submitted to members.

The company must send a copy of representation to every member along with the notice of resolution. The director can ask for such representation to be read out in the meeting if it is received too late or was not shared with the members due to company’s default.  A vacancy created by the removal of director if was not filled at the same meeting. Such position must be filled according to the procedure followed in casual vacancy.

Register of Director and KMP[xi]

According to section 183 of Companies Act USA,

1. Every company shall keep at its registered office, a register containing particulars about the directors, manager, and secretary.
2. In case of an individual, his present Christian name and surname, his former name and surname, usual residential address, nationality or the nationality of origin, business occupation if any or if he has no business occupation but holds any other directorship particulars of that directorship.
3. In the case of corporation, the name of corporate, its registered or principal office.
4. The company shall send to the registrar a return in prescribed forms containing the particulars specified in the register and notifications relating to any change in directors or other such changes in the prescribed form along with date of change.
5. The return shall be sent within 14 days of the appointment of first directors and notification of change will be send within 14 days from the happening thereof.
6. The register will be kept open for inspection within business hours (with such restrictions as stated in the articles). The inspection will be open for members for free of cost and other any other person can inspect the documents at 50 dollars fee or less sum specify by the company for inspection.
7. If any inspection required under this section is refused or default is made. The company or any officer of the company shall be liable to fine not exceeding 50 thousand dollars.
8. In case of any such refusal, the court may by order compel an immediate inspection of the register
9. For the purpose of this section, a shadow director shall deem to be a director and officer of the company.

Frequently Asked Questions

How are directors appointed?

Board of directors are appointed by the shareholders of the company or subscribers to memorandum. Usually, directors are appointed by passing an ordinary resolution. But articles must be checked before passing such a resolution as the articles can even authorize for passing a special resolution. Sometimes board of directors are also authorized to appoint other directors. Executive directors are appointed using a type of contract of employment. On the other hand, non-executive director is appointed using a letter of appointment. The appointment of director must be notified by the company to the registrar of companies and register of directors must be updated.

Can directors be shareholders or members of the company?

In some privately owned companies, directors also hold membership in the company.

The membership rules are setup by the bye laws or articles of the company. Members are the individuals holding shares in the company. They are the subscribers of the memorandum. They can be directors in some cases.

Who are managerial personnel?

Managerial personnel are those who are in charge of day-to-day operations of the company. They are in the position to affect the company’s policies and practices.

Manager, managing director, chief financial officer, secretary etc. are all considered as the managerial personnel.

Reference

[i] www.lexisnexis.com

[ii] www.oas.org

[iii] www.educba.com

[iv] Csanoopjain, Secretarial Audit Compliance Management and Due Diligence, December 2019

[v] www.lexisnexis.com

[vi] Ibid

[vii] Ibid

[viii] Ibid

[ix] Csanoopjain, Resolution of Corporate Disputes Non-Compliances and Remedies, December 2019

[x] www.oas.org

[xi] Ibid