## Working of a Company

To understand later chapters, you must first see how the people inside a company relate to each other — who owns it, who runs it, and how decisions flow.

### 1. Structure of a Company

```

Shareholders / Members (OWNERS)

│ form & own

▼

COMPANY

▲

│ manage

Board of Directors (BOD) ← appointed by shareholders

```

Members (shareholders) are the owners. They do not run day-to-day operations.
They appoint the Board of Directors (BOD) to manage the company.
The BOD takes decisions by passing a Board Resolution (BR) in a board meeting.
Where the Act requires, shareholders must then approve the BOD's decision by passing an Ordinary Resolution (OR) or Special Resolution (SR) in a general meeting.

### 2. Instructions by Shareholders — OR vs SR

Ordinary Resolution (OR)	Special Resolution (SR)
Passed by simple majority	Votes in favour ≥ 3 times the votes against
i.e., > 50% of votes cast	i.e., ≥ 75% of votes cast
Used for routine matters	Used for major matters (e.g., alteration of MOA, AOA, reduction of capital)

### 3. Members of a Company

A member is:

1. A person holding shares of the company (i.e., a shareholder), OR

2. A person who has subscribed to the Memorandum of Association (MOA) at the time of incorporation.

### 4. Directors and Board of Directors

Directors are only individuals (a body corporate cannot be a director).
They direct and oversee the affairs of the company.
Collectively, they form the Board of Directors (BOD).

### 5. Promoters

A promoter is any of the following:

(a) A person who has control over the affairs of the company, whether as a shareholder, director, or otherwise; OR

(b) A person on whose advice, directions, or instructions the BOD is accustomed to act (other than someone acting purely in a professional capacity — e.g., a lawyer or CA giving professional advice is NOT a promoter); OR

(c) A person named as a promoter in the prospectus, or identified as such by the company in its annual return.

### 6. Meetings

Annual General Meeting (AGM): A meeting of shareholders held annually to take specific decisions reserved by law (e.g., adoption of financial statements, declaration of dividend, appointment of auditors and directors).

[Other meetings — EGM, board meetings, class meetings — are covered in the Management and Administration chapter.]

Worked example

### Example 1

Example — OR vs SR

At a general meeting, 1,000 votes are cast.

If 510 votes are in favour and 490 against → Ordinary Resolution passes (>50%).
If 760 votes are in favour and 240 against → Special Resolution passes (760 ≥ 3 × 240 = 720). ✓
If 700 votes are in favour and 300 against → OR passes but SR fails (700 < 3 × 300 = 900). ✗

### Example 2

Example — Subscriber to MOA as member

Mr. A signs the MOA at the time of incorporation of ABC Pvt. Ltd. and agrees to take 100 shares. Even before shares are actually allotted to him in the register, he is treated as a member of the company by virtue of having subscribed to the MOA.

### Example 3

Example — Promoter vs professional adviser

Mr. X, a CA, advises the BOD of XYZ Ltd. on tax structuring of a transaction. He is acting in a professional capacity → he is NOT a promoter.

Mr. Y, the founder, holds 70% shares and the BOD habitually acts on his instructions on all key matters. Mr. Y IS a promoter even if he holds no directorship.

⚠️ Common exam mistakes

Treating 'simple majority' (>50%) as enough for a special resolution — SR requires ≥ 75%.
Forgetting that subscribers to the MOA are members even before shares are formally allotted to them.
Thinking a body corporate can be appointed as a director — only individuals can be directors.
Classifying a professional adviser (CA, lawyer) as a promoter merely because the BOD acts on their advice — professional-capacity advice is expressly excluded.
Confusing 'promoter' with 'director' or 'majority shareholder' — promoter has its own statutory definition based on control or naming in the prospectus/annual return.
Calculating SR as 'in-favour votes ≥ 75% of total members' — it is 75% of votes cast, not of total membership.

Reference: Section 2 (definitions of member, director, promoter); Section 114 (Ordinary & Special Resolutions); Section 96 (AGM) — Companies Act, 2013

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Working of a Company — Structure, Resolutions, Members, Directors, Promoters, Meetings

Worked example

⚠️ Common exam mistakes