# Working of a Company

This topic explains how a company functions — who owns it, who manages it, how decisions are taken, and how members exercise control.

## 1. Structure of a Company

```

Shareholders/Members (Owners)

| form & appoint

Board of Directors (BOD) -- manages the company

Company

```

Members/Shareholders are the owners of the company.
They appoint the Board of Directors (BOD) to manage day-to-day affairs.
The BOD takes decisions by passing Board Resolutions (BR) in board meetings.
For certain decisions, shareholders' approval is required by passing an Ordinary Resolution (OR) or Special Resolution (SR).

## 2. Resolutions Passed by Shareholders

Type	Majority Required	Used For
Ordinary Resolution (OR)	Simple majority, i.e., > 50% votes in favour	Routine matters
Special Resolution (SR)	Votes in favour ≥ 3 times the votes cast against, i.e., ≥ 75%	Significant matters (e.g., alteration of MOA/AOA)

## 3. Members of a Company

A 'member' is:

A person holding shares of the company (i.e., shareholder), OR
A person who subscribed to the Memorandum of Association (MOA).

## 4. Directors and Board of Directors (BOD)

Only individuals can be directors — a body corporate cannot be a director.
Directors direct and oversee the affairs of the company.
Collectively, all directors form the Board of Directors (BOD).

## 5. Promoters

A promoter is a person:

Having control over the affairs of the company (as shareholder, director, or otherwise), OR
According to whose advice, directions, or instructions the BOD of the company is accustomed to act (provided not merely acting in a professional capacity, e.g., a CA or lawyer giving advice), OR
Who is named as a promoter in the prospectus, or identified as such by the company in the annual return.

## 6. Meetings

Annual General Meeting (AGM): A meeting of shareholders held annually for specific decisions (e.g., adoption of financial statements, appointment of auditors, declaration of dividend).
Other meetings (board meetings, EGMs, etc.) are covered under Chapter 7 — Management & Administration.

## Quick mental model

Owners = Members (shareholders)
Managers = Directors (collectively BOD)
Decisions of BOD = Board Resolution
Decisions needing owner approval = OR or SR in a general meeting

Worked example

### Example 1

Example – OR vs SR threshold: A company has 100 voting members.

For an OR, at least 51 members must vote in favour (simple majority > 50%).
For an SR, votes in favour must be at least 3x the votes against. If 20 vote against, at least 60 must vote in favour (60 ≥ 3×20) — meaning roughly 75% support is needed.

### Example 2

Example – Promoter (professional capacity carve-out): Mr. A is a Chartered Accountant who advises the BOD on tax matters. Even if the BOD acts on his advice, he is NOT a promoter, because he acts merely in a professional capacity. However, if Mr. B (the controlling shareholder) instructs the BOD on business decisions and the Board is accustomed to act on his directions, Mr. B IS a promoter.

### Example 3

Example – Member vs Shareholder: Mr. X subscribed to the MOA at the time of incorporation but the company has not yet allotted shares to him. He is still a member because subscribers to the MOA are deemed members from the date of incorporation.

⚠️ Common exam mistakes

Treating a person advising in a professional capacity (CA, lawyer, consultant) as a promoter — the Act specifically excludes such persons.
Confusing OR (>50%) with SR (≥75% / 3x rule) — exam questions often test the exact threshold.
Forgetting that a subscriber to the MOA is a member, even before any share is formally allotted.
Believing a body corporate can be a director — only individuals can be directors.
Assuming all decisions are taken by shareholders — most operational decisions are taken by the BOD; shareholders only step in where law/articles require OR or SR.

Reference:

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Working of a Company – Structure, Resolutions, Members, Directors, Promoters and Meetings

Worked example

⚠️ Common exam mistakes