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Liability of minority shareholder

HBJ Mumbai (Director) (125 Points)

15 February 2010

If there is a Pvt Ltd company with 2 shareholders, say A with 60% and B with 40%. Both are also directors. The director loans in the company are A - Rs. 100 and B : Nil. Bank loans are say Rs.100. Now there is a dispute between the shareholders, my questions are as under :

1) Can A dismiss B as director and not give him anything as salary or dividend?

2) Can A run the company himself as single director and recover his loans and take salary / dividend?

3) In case the company closes in future, is B 40% liable towards the loans of Director / Shareholder A and banks?

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4 Replies

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 16 February 2010

1. A can not remove B from directorship alone. As per section 284 shareholder can remove a director by passing ordinary resolution.

2. A can not run the company himself as single director. As per section 252 min. dir for a pvt. co. is 2.

3. Both the directors and property of the co. are liable to repay the loan.

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HBJ Mumbai (Director) (125 Points)
Replied 16 February 2010

dear mr.garg, thanks for the reply. maybe i tried to simplify the question too much. actually there are 4 shareholders (say A,B,X,Y) and the same 4 are directors. A+B have 60% and X+Y have 40%.

1) can A&B pass resolution and remove X&Y as directors and deny salary / dividends? I mean not declare dividends, instead increase salary for A&B?

2) Can A&B be the only 2 directors and run the company?

3) say loans of A&B = Rs.100 whereas loans of X&Y=Rs.0. Bank loans are Rs.100. If company has to close down and bank loans are paid from selling assets, will X&Y be responsible to pay 40% of A&B loans?

thanks

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 16 February 2010

Kindly appreciate by holding GM with 2 members (Quorum as per section 174) and by passing an ordinary resolution you may remove other director.

Yes you can run the co. with 2 directors.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 16 February 2010

First of all a company may remove its directors in General Meeting by way of Ordinary Resolution. Special Notice requires in this case.

Secondly, once incorporated, a limited company's members enjoy limited liability i.e. as they have paid for their shares they will be under no further personal liability even in the event of the winding up of the company.

Thus, being shareholder X and Y are not be responsible to pay 40% of the loan.

Thus,

1. Yes.

2. Yes.

3. Regarding liability of directors i am of the view that after removal X and Y are not entitle to repay the loan. It was held in the case of Dalmia (R.K.) v. Delhi Administration (1962) that "A Director will be personally liable on a company contrat when he has accepted personal liability either expressly or impliedly. Directors are the agents or the trustees of a Company."

Further Directors as agents do not incur liability for acts done in good faith on behalf of the company if such acts are within the scope of their authority [Pilkington & Co. V Hurten ] Where the directors exceed their powers, they may be held personally liable for such acts unless such acts are intra vires the company and are ratified by the members.