The companies were generally run by the majority of shareholders and it was evident from court ruling that majority rule was accepted and the internal management of the company was not discussed or questioned. However, with the change in the business environment and the way the business was carried out, the external parties showed signs of deviation from the rigid majority rule so as to protect the interest of minority shareholders. Balance between the minority and majority shareholders of the company was needed with the changed environment. The small shareholders were given importance in the company through Companies Amendment Act (2000) has bought the importance of small shareholders in the company & protect the interest of the minority shareholders and introduced the concept of ‘Small Shareholder Director’. Companies (Second Amendment) Bill 1999, which ultimately led to Companies (Amendment) Act 2000, contained provision for small shareholder director (as proviso to section 252(1) of the Companies Act, 1956 i.e. clause 122 of the bill) for specified class of public companies on mandatory basis but while passing this bill this provision got converted from mandatory to optional l.
The term Small Shareholders have been defined as persons holding shares of a nominal value of not more than INR 20,000 or such other sum as may be prescribed. Section 151 of the Companies Act 2013 states that A listed company, may upon notice of not less than one thousand small shareholders or one-tenth of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders. In the erstwhile Companies Act, 1956 under Section 252(1), the provision was applicable only to public companies with a paid-up capital of INR 5 crores or more and having one thousand or more small shareholders. Companies Act, 2013 have restricted the scope of the Small Shareholders by limiting their presence only in the listed companies. Requirement of Companies Act, 2013 with respect to Small Shareholder Director Section -151: Appointment of Director Elected by Small Shareholders [Notified Date of Section: 01/04/2014] A listed company may have one director elected by such small shareholders in such manner and with such terms and conditions as may be prescribed. Explanation.- For the purposes of this section ‘small shareholders’ means a shareholder holding shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed. Detailed analysis of Section 151 Small shareholders mean persons holding shares of a nominal value of not more than INR 20,000 or such other sum as may be prescribed. A listed company, may upon notice of not less than one thousand small shareholders or one-tenth of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders. Under Section 252(1) of the 1956 Act, the provision was applicable only to public companies with a paid-up capital of INR 5 crores or more and having one thousand or more small shareholders. Sub rule (2) of Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014 states that the small shareholders intending to propose a person as a candidate for the post of small shareholders’ director shall leave a notice of their intention with the company at least fourteen days before the meeting under their signatures specifying the name, address, shares held and folio number of the person whose name is being proposed for the post of director and of the small shareholders who are proposing such person for the office of director. Provided that if the person being proposed does not hold any shares in the company, the details of shares held and folio number need not be specified in the notice.
TITLE : Small Shareholder, Companies Act
Name of candidate : Jai Sikand AT LEXCLIQ