12th Standard Commerce — Company Management Online Test

About Company Management

Medium ~45 min study

Company Management is the twenty-seventh chapter of the Tamil Nadu State Board Class 12 Commerce book, in Unit 10, Company Law and Secretarial Practice. It opens with Thirukkural 388 and explains how a company, an artificial person, is managed by a group of human beings called the Board of Directors.

The lesson follows the Companies Act, 2013: the definition of director under Section 2(34), Key Managerial Personnel under Section 2(51), the minimum and maximum number of directors under Section 149(1), the types of directors, their legal position, appointment under Section 152, removal, remuneration, powers, rights, duties and liabilities. It ends with the register of directors and two comparison tables.

This page gives the five printed one mark questions of the 12th Commerce book exercise with answers checked against the lesson, plus additional MCQs on every section, each with a short explanation.

What you'll learn

• Define a director and explain the role of the Board of Directors.
• List the Key Managerial Personnel under Section 2(51) of the Companies Act, 2013.
• Describe the types of directors and the minimum and maximum number of directors.
• Explain the legal position of directors as agents, trustees, employees and officers.
• State the rules for appointment, qualification, disqualification and removal of directors.
• Outline the remuneration, powers, rights, duties and liabilities of directors.

Before you start

• The meaning and kinds of companies from Chapter 26.
• The Memorandum and Articles of Association from Class 11 Commerce.
• The idea of shares, shareholders and general meetings.

Company Management explained

What this lesson covers

Director and Board

A director is a member of the Board of Directors who leads or supervises the functioning of a company. Section 2(34) defines a director as a director appointed to the Board. Directors are called the eyes, ears, brain and hands of a company.

Key Managerial Personnel

Section 2(51) lists the CEO, the Managing Director or Manager, the Company Secretary, the Whole-time Director and the Chief Financial Officer.

Types and number of directors

• Resident, independent, small shareholders', nominee, woman, additional, alternate and shadow directors
• Minimum: 3 in a public company, 2 in a private company, 1 in a One Person Company
• Maximum 15, more with a special resolution; up to 20 directorships per person

Legal position

Directors act as agents, managing partners, trustees, employees and officers of the company.

Appointment, removal and remuneration

Directors are appointed in general meeting and need a Director Identification Number. They may be removed by shareholders, the Central Government or the Company Law Board. Remuneration is limited to 11% of net profit.

Powers, rights, duties and liabilities

Powers fall under four heads; rights are individual or collective; duties are collective, general and specific; liabilities are to outsiders, to the company and criminal.

Common mistakes to avoid

• Giving three as the minimum for a private company. A private company needs two directors; a public company needs three.
• Saying a person can hold 15 directorships. The limit is 20, of which public companies are limited to 10.
• Thinking Central Government approval is needed for more than 15 directors. Only a special resolution is needed.
• Calling directors full-fledged agents. They are elected, while agents are appointed.
• Treating every failure to recover debts as misfeasance. Misfeasance covers wilful negligence.

Test yourself on these with the practice test, then check the worked reasoning in the solved MCQs.

Frequently asked questions

Who is a director of a company?

A director is a person who takes an active interest in the well-being of a company and is a member of its Board of Directors. Section 2(34) of the Companies Act, 2013 defines a director as a director appointed to the Board of a company.

Who are the Key Managerial Personnel?

Under Section 2(51) of the Companies Act, 2013 the Key Managerial Personnel are the Chief Executive Officer, the Managing Director or the Manager, the Company Secretary, the Whole-time Director, the Chief Financial Officer and such other officer as may be prescribed.

What is the minimum number of directors?

Section 149(1) requires a minimum of three directors in a public company, two directors in a private company and one director in a One Person Company. A company can appoint a maximum of fifteen, and more after a special resolution.

Who is an alternate director?

An alternate director is appointed by the Board of Directors as a substitute for a director who is absent from India. The appointment must be authorised by the Articles or by a resolution in general meeting, and he is not an agent of the original director.

Why are directors called trustees?

Directors are trustees of the company's money and property. They must safeguard them and use them for the sake of the company. As the equitable ownership of trust property vests only in the beneficiary, directors cannot act as full-fledged trustees.

How can a director be removed?

A director can be removed before the expiry of his term by the shareholders under Section 169 through a special notice and an ordinary resolution, by the Central Government on the recommendation of the Company Law Board, or by the Company Law Board itself.

What is the difference between a manager and a director?

A manager is in charge of a department, comes under middle-level management and implements plans approved by the Board. A director is appointed by shareholders, comes under top-level management and formulates plans and policies.