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Duties & Liabilities of Directors of Section 8 Companies

 The company registered under section 8 of the Companies Act, 2013 shall enjoy all the
privileges and be subject to all the obligations of limited companies.

 Restrictions- Restriction on application of profits and permits to utilize the same only
for the purpose for which the company is promoted, prohibits declaration of dividend.

Each Director has fiduciary duties towards the company. All the powers entrusted to the
Directors are only exercisable by them in this fiduciary capacity.

1. Fiduciary Duties- A Director owes fiduciary duties towards the company, and not to
individual shareholders, creditors.

“As per the provisions of Section 166 of the Act-

(1) A director of a company shall act in accordance with the articles of the company.

(2) A director of a company shall act in good faith in order to promote the objects of the
company for the benefit of its members as a whole, and in the best interests of the company, its
employees, the shareholders, the community and for the protection of environment.

(3) A director of a company shall exercise his duties with due and reasonable care, skill and
diligence and shall exercise independent judgment.

(4) A director of a company shall not involve in a situation in which he may have a direct or
indirect interest that conflicts, or possibly may conflict, with the interest of the company.

(5) A director of a company shall not achieve or attempt to achieve any undue gain or advantage
either to himself or to his relatives, partners, or associates and if such director is found guilty of
making any undue gain, he shall be liable to pay an amount equal to that gain to the company.

(6) A director of a company shall not assign his office and any assignment so made shall be void.

(7) If a director of the company contravenes the provisions of this section such director shall
be punishable with fine which shall not be less than one lakh rupees but which may extend to
five lakh rupees.

2. Specific Duties- Filing returns with the Registrar of Companies, Convening Shareholders’ &
Board Meetings, Approval of Company’s Documents (balance sheet and profit and loss account),
Declaration of Interest, Attending Board Meetings, etc

 Liabilities of Directors

As a general rule, since the company and its Director are separate entities, the Director has no
personal liability on behalf of the company. However, under certain circumstances, a Director
may be held liable on behalf of the company like- Liability for payment of Tax under the Income
Tax Act, 1961, Fraudulent Conduct of Business, False Statement, False Evidence.

“As per the Section 447 of the Act- Punishment for Fraud

Without prejudice to any liability including repayment of any debt under this Act or any other
law for the time being in force, any person who is found to be guilty of fraud involving an
amount of at least ten lakh rupees or one percent of the turnover of the company, whichever is
lower shall be punishable with imprisonment for a term which shall not be less than six months
but which may extend to ten years and shall also be liable to fine which shall not be less than the
amount involved in the fraud, but which may extend to three times the amount involved in the
fraud.

Provided that where the fraud in question involves public interest, the term of imprisonment shall
not be less than three years.

Provided further that where the fraud involves an amount less than ten lakh rupees or one per
cent of the turnover of the company, whichever is lower, and does not involve public interest,
any person guilty of such fraud shall be punishable with imprisonment for a term which may
extend to five years or with fine which may extend to fifty lakh rupees or with both.”

As per the Section 448 of the Act- Punishment for False Statement

Save as otherwise provided in this Act, if in any return, report, certificate, financial statement,
prospectus, statement or other document required by, or for, the purposes of any of the
provisions of this Act or the rules made thereunder, any person makes a statement,—

(a) which is false in any material particulars, knowing it to be false; or


(b) which omits any material fact, knowing it to be material,

he shall be liable under section 447.

As per the Section 449 of the Act- Punishment for False Evidence

Save as otherwise provided in this Act, if any person intentionally gives false evidence—

(a) upon any examination on oath or solemn affirmation, authorized under this Act; or
(b) in any affidavit, deposition or solemn affirmation, in or about the winding up of any company
under this Act, or otherwise in or about any matter arising under this Act,

he shall be punishable with imprisonment for a term which shall not be less than three years but
which may extend to seven years and with fine which may extend to ten lakh rupees.

Criminal Liability
 Dishonoured Cheques: The Director signing a cheque which is dishonoured so as to
constitute an offence under the Negotiable Instruments Act, 1881, can be prosecuted
along with the company.
 Offences under the Income Tax Act: An offence committed by a company under the
Income Tax Act, 1961 is attributed to the persons who were responsible for and in charge
of the business of such company.
 Offences under Labour Laws
 Rights of Shareholders

In return for investing in a company, a shareholder receives a bundle of rights in the company.

 Appointment of directors.
 Attending shareholder meetings and voting on key issues (e.g. election and dismissal of
directors), Right to call for general meetings.
 Legal action against directors.
 Appointment of company auditors.
 Voting Rights.
 Right to inspect registers and books.
 Transfer of shares.
 Receiving company reports and announcements.
 Participating in corporate actions (e.g. further issues of shares, share buybacks, mergers
and de-mergers).

 Shareholder Liabilities

Due to the separate legal existence of a company, shareholders are not responsible for the
company’s obligations simply because they are a shareholder. No Member shall be liable for any
debts or losses of capital or profits of the Company or be required to guarantee the liabilities of
the Company.

The liability of a shareholder is usually limited to:

 Any unpaid amounts on the shares held by that shareholder;


 Any liability or obligations expressly provided for in the company’s constitution or
shareholders agreement; and
 Liability for breach of directors’ duties if shareholders are considered to be directors (e.g. if
shareholders are provided with powers that would ordinarily be exercised by directors).

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