Board of Directors

Normally, the company is to be managed by a board of directors (BOD) elected

by the general meeting. They are the key actors of the company. They are the
persons who hold steering of the company to drive the whole activities of the
company.

The provision regarding Board of Directors (BOD) has been prescribed in Chapter
6 of the Companies Act, 2063.

Numbers: According to the Sec. 86 of the Companies Act, 2063, the appointment
and number of directors of a private company will be as prescribed in its AOA.
However numbers should not exceed eleven.

The board of directors of a public company should have minimum of three and a
maximum of eleven directors. Where, there are woman shareholders in a public
company, there must be at least one director from woman shareholders.

While forming the board of directors of a public company, it must appoint at least
one independent director, in the case of the number of directors not exceeding
seven, and least two independent directors, in the case of the number of directors
exceeding seven, from amongst the persons who have the knowledge as prescribed
in the AOA of the company. The independent director will be appointed amongst
the persons who have gained knowledge and experience in the subject related with
the business of the company concerned.

Any one director selected by the directors from amongst themselves will be the
chairman of the board of directors.

Method of appointment of directors: Section 87 of the Companies Act prescribes

the provision regarding the appointment of directors. According to it, the directors
of a company will be appointed by the general meeting of the company.

However, the first directors will be appointed by the promoters themselves, before
holding the first annual general meeting of the company. A director so appointed
holds office only until the next annual general meeting. Sec. 90(2).If the post of
any director appointed by the general meeting is vacated for any reason, the board
of directors has power to appoint another new director in that vacancy. Any
director appointed in a vacated office before the expiry of his term, hold the office
only until the remainder of the term of office of that director in whose place he is
appointed.

In case of a company, any shares of which has subscribed by a corporate body may
appoint a director in proportionate of the total number of directors of the company
as per the number of shares subscribed by such body. Such corporate body also
may appoint an alternative director to attend and vote in a meeting of the board
instead of every such directors, in case where such directors will not be in a
position to attend the meeting of the board for any reason. The alternative director
will entitled to attend, and vote in the meeting of the board of directors, where the
director appointed by the corporate body is not able to attend a meeting of the
board of directors, and gave information thereof to his alternative director and
board of directors.
Validity of the acts already done (S.106)

A procedural defect in appointment of a director does not usually invalidate the

acts of that director. According to Sec. 106, if there is procedural defect in
appointment of any director, acts already done by such director before the
discovery of such default will not render invalid by that reason. In such case there
must have been a purported appointment.

Qualification of directors: There are certain situations in which a person will not
be entitled to be a director of a company. Certain persons because of their own
conduct or characteristics may not be entitled to act as directors. Such
disqualification may be because of:

i. Disqualification by age
ii. Disqualification because not a member as per AOA
iii. Other grounds for disqualification may be provided in the AOA, like
bankrupt, insane, continuously absent in the board meeting for 6 months
iv. Statutory disqualification as prescribed in the Companies Act. In UK
Company Directors Disqualification Act, 1986 (CDDA86) prescribes it.

Shares qualification of director: According to Sec. 88, if the AOA of a

company specify any number of shares required to be held by a person for his
appointment as director of the company, the person who becomes director
 should hold such number of shares. If there is no such provision in AOA of the
company, specifying number of shares, any such person should hold at least
one hundred shares.

However, that any director who is appointed by a body corporate or appointed

as independent director will not be required to hold such shares.

Section 89 of the Companies Act, 2063 prescribes following twelve grounds of

disqualifications of a person to be a directors: (ground a. to ground l).

a. Who is below 21 years of age in case of a public company;

b. Who is of unsound mind or insane;
c. Who is declared insolvent and a period of five years has not lapsed;
d. Who is convicted of an offense of corruption or of an offence involving
moral turpitude

Accordingly Sec. 89(2) prescribes the grounds who is not be eligible to be

appointed to the office of the independent director as follows:

a. Who is a person as referred as above.

b. Who is share holder of the concerned company
c. Who has not acquired at least bachelor degree in a subject related to the
business of the company and gained at least ten years of experience in the
related field or in the company management
d. Who is officer, auditor or employee of the concern company or five years
has not lapsed after his retirement from any such office
e. Who is close relative of the concerned company
f. Who is an auditor of the concerned company or his partner.

No person should continue to hold the office of the director in any of the
following circumstances: (Removal of director) S. 89(3).

a. If he suffers from any disqualification for the appointment to the post of

director as prescribed;
b. If the general meeting passes a resolution to remove him from the office of
director;
c. If the resignation tendered by the director is accepted by the BOD;
 d. If he is held by a court to have done any act involving dishonesty or ulterior
motive in the activities of the company;
e. If he is held by a court to have done any act prohibited by the Act from
being done or failed to do any act required to be done under the Act;
f. If he is blacklisted by a competent body as per the prevailing law, like
default in repaying loan of any bank or financial institution, and period of
such black listing has not expired.
However, prior to holding any person to be disqualified after being
appointed director or holding such office, the company should provide him
with reasonable opportunity to defend himself.

Term of office of directors: (S.90)

The term of office of a director of a private company will be as specified in its

AOA. The term of director of a public company should be specified in its AOA,
which should not exceed four years.

A director who is appointed as first director holds office only until the next annual
general meeting. Sec. 90(2). If the post of any director appointed by the general
meeting is vacated for any reason, the board of directors has power to appoint
another new director in that vacancy. Any director appointed in a vacated office
before the expiry of his term, hold the office only until the remainder of the term of
office of that director in whose place he is appointed.

However, a director appointed by the GON or a corporate body will hold the office
so long as the GON or the appointing body desires.

Remuneration, allowance, reward etc of directors:(S.91). The meeting allowance,

their monthly remuneration, daily allowance and travelling allowance or other
facility will be as determined by the general meeting.

Disclosure by directors: (S.92) A director no latter than fifteen days after assuming
his office of director should disclose in writing the specified matters under S. 92.
and S. 94. (Share disclosure)
The powers and duties of board of directors are prescribed in S. 95 of the Act:

1. Subject to the provisions contained in the Act, AOA and decisions of the
general meeting, the director should manage all transactions, exercise of
powers and perform duties of all company through the board of director
collectively.
2. No director of a public company should do anything yielding personal
benefit to though the company. However a private company may make a
reasonable provision on the benefit which the director may derive through
the company as mentioned in the MOA/AOA.
3. The BOD may delegate some power in case of a private company by
appointing employee as per the AOA. Like delegation of power to a
Company Secretary or to send notice of the company or to a committee or
sub-committee formed as required thereof.
4. A company may recover damages from a person acting as a director for any
loss or damage caused to the company from an act or action done by such
person beyond his jurisdiction i.e where acts are ultra vires.

Meetings of board of directors: (S.97)

1. Meetings of the board of directors of a private company will be held as

mentioned in the AOA
2. Meeting of the BOD of a public company should be held at least six
times in a year. However, that the interval between any two meeting
should not exceed three months.
3. The directors should be present in person at the meetings of the BOD.
4. Before convening board meeting quorum must be fulfilled i.e. it should
be attended by at least fifty one percent of the total number of BOD of
the company as per the subject matter.
5. If a meeting has been postponed due to the quorum, another meeting may
be called by giving a notice of at least three days. Even if such meeting is
not attended by the directors as per required number of quorum, the
meeting can be conducted with directors attended thereof, and the
 proceedings and decisions conducted and made by the attended directors
will be valid.
6. The decision of a majority in a meeting of the BOD will be binding, in
the event of tie, the chairman may exercise the casting vote in addition to
a vote cast by him as a director.
However, any director who has any personal concern or interest in any
matter to be discussed in a meeting of the BOD will not be entitled to
take part in such discussion and vote on the matter.
7. Minutes regarding the proceeding of the meeting, subject discussed and
the decisions taken thereon should be recorded in a separate book signed
by at least fifty one percent of the total directors present in the meeting.
However, if any director puts forward any descending opinion oppose to
the decision in the course of discussion on any subject in the meeting he
may mention the same in the minute book.
8. It is also prescribed that any decision will not be deemed invalid merely
for the reason that there is no signature of any member.
9. However an act done as per the provision of the MOA/AOA with the
consent of all the board of directors, will be valid even though without
holding meeting by recording such consent in the minute book. In such
case the consent of the directors will be deemed to be a decision of a
meeting of BOD.

Notice of meeting of BOD: (S.98)

1. Except as otherwise provided in the AOA, the company secretary or

chairman of the board will call a meeting of the BOD.
2. Provided that, if at least twenty five percent of directors of the total
number of directors make written requisition, setting out the subject to be
discussed in the meeting, for calling the meeting of the BOD, the
chairman should call the meeting no later than fifteen days of receipt of
such requisition. If the meeting of the BOD is not called within that
period, such requisition making directors themselves may call the
meeting of the BOD.
3. The notice should be provided at the address supplied by the directors to
the company, and the notice may also be give through any electronic
means of communication.
Responsibilities and duties of directors: (S.99)

1. Duty not to yield personal benefit: No director of a company should do any

thing to derive personal benefit through the company or in the course of
conducting business of the company.
2. Personal liability of the benefit: If any person has derived personal benefit in
the course of business of the company in contravention of the provision, the
company will recover the amount involved in the matter from such director
as if such amount were loan.
3. Duty to take oath: Any person appointed as a director of a public company
should, prior to assuming the duties of his office, take an oath of secrecy and
honesty in a format as prescribed.
4. Duty to act in good faith: Every director of a company should discharge his
duties , act honestly in a good faith having regard to the interest and benefit
of the company and exercise duty of care and skill as a prudent person
exercises.
5. The company may recover damages for any loss caused to the company
from a director done with ulterior motive in contravention to the Act.
6. It will be duty of every director to comply with the provision of the Act,
MOA/AOA of the company and consensus agreement.

Restriction on authority of directors: (Sec. 105)

The BOD of a public company or of a private company should not receive

loan from any bank of financial institution except with a special resolution
being adopted by the general meeting of shareholders to do following act:

a. Selling, donating, gifting, leasing or otherwise disposing of more than

seventy per cent of one or more undertakings being operated by it.
b. Barrowing money, where the money to be borrowed will exceed the
aggregate of the paid-up capital of the company and its free reserves
apart from loan and facilities.
c. Making a contribution, donation or gift in a sum exceeding one hundred
thousand rupees in one financial year or sum exceeding one percent of
the average net profit of the company during last fiscal year, whichever is
 lesser except donation made for the welfare of the employees for the
promotion of the business.

Registers of director: (S.107) Every company should maintain a separate register

of director. Every company should record the name, address, citizenship,
profession, of its directors, and the date of appointment as director as well as the
date of removal if applicable.

The end