MEMBERS VS. DIRECTORS: WHO HOLDS THE REAL POWER IN A COMPANY?

Written by: Gutta Eekshitha, 3rd year B.A.LL.B Hons, School of Law, Lovely Professional University

Corporate law

INTRODUCTION

A company's organisational structure maintains a precise constitutional system where directors act as operational trustees while shareholders maintain the status of owners.  Under corporate law, the distinction regarding ownership versus control exists clearly, but determining the ultimate power of business decisions remains the actual difficulty.  Does the operational authority lie with the directors at board meetings or with owner-shareholders who exercise voting rights? Different circumstances determine answers regarding ownership and control distribution through corporate law, along with established corporate behaviours and functional mechanisms. The power relationship exists both in law and in strategic considerations.

MEMBERS AND DIRECTORS: WHO ARE THEY?

Corporation stockholders exist as members or shareholders of the organisation.  The shareholders exist for financial gain because they invest money to receive profits.  As the instructional and affective core of the organisation, the company directors function like its brain and heart.  Members select directors who become part of the Board of Directors and develop organisational policies and administer operations to ensure all procedural requirements are fulfilled.

Under the Companies Act of 2013, directors act as both fiduciary agents they serve the organisation best.  During general meetings, members possess influence over important choices, but they do not generally interfere with operational activities.  Directors put the mandate into action although members provide its contents.

LEGAL ROLES AND RESPONSIBILITIES

The Companies Act of 2013 establishes precise duties for both directors and members of companies.  Member's legal responsibilities include:

• Voting on important resolutions

• Accepting director appointments or dismissals

• Changing the capital structure

• Members need to approve all major business transformations that include winding up or mergers.

• Directors must fulfil two main duties according to Sections 166 and 179 of the Act:

• Making strategic decisions

• Taking charge of the business

• Behaving diligently, loyally, and responsibly

• The organisation protects itself against disagreements of interest while enforcing all the applicable rules.

Basic company decisions require member intervention only occasionally, but directors maintain continuous governance responsibilities.

POWERS OF MEMBERS

The primary method members use to exercise their authority happens during general meeting sessions.  Although occurring only periodically, the members exercise structural authority.  They can:

• Directors receive their appointment from the members for a specific duration under section 159 of the Companies Act 2006.

• The organisation has the power to approve or deny dividend payments and financial reporting documents.

• Modify the present articles of association together with the company memorandum.

• Shareholders need to authorise special resolutions that allow mergers or sales of substantial assets.

Every shareholder requires collective control from the group to take over ownership of the business, except in cases with major stakeholders or organisational support. The ultimate influence belonging to shareholders comes through democratic control mechanisms.  Members of the board have an indirect influence on corporate strategies because they function as part of the decision-making group.

POWERS OF DIRECTORS

The operational structure of every company centres on its leadership directors.  Section 179 of the Companies Act of 2013 extends authorising powers to the board for multiple operational activities. The organisation should obtain funding from loans and investments and obtain financial borrowing rights.

·         Issue financial instruments

·         Accept company plans and budgets.

·         Select senior management.

·         Dispute resolution or litigation

A board meeting enables directors to function as a unified group, taking continuous action unlike individual members.  Their powerful position needs to submit to their legal duties and organisational purpose, and shareholder targets. Members do not have the power to intervene during times when the board exercises its proper duties and responsibilities.  Independent directors possess internal information while making decisions uninhibited by external influence; therefore, they are often seen as the actual decision-makers.

WHO HOLDS MORE CONTROL?

The management control of a corporation moves between its two main parts in response to various problems. The controls do not cancel each other out.  The members possess wide ownership-based authority, yet their involvement tends to remain mostly reactive.  As a lower rank in organisational structure, directors possess the power to manage internal governance and make daily choices.

The strategic interaction holds the authentic power sector within organisational operations.  Well-informed boards, along with compliant shareholders, can effectively lead the corporation in reality.  Activist shareholders, together with dominant shareholders, demonstrate significant influence regarding business direction. Each stakeholder fulfils an essential role in keeping the company alive because they hold independent powers that remain separate from each other.

JUDICIAL TAKE

The judicial system of India has observed this conflict between authority multiple times.  Bajaj Auto Ltd. v. Western Maharashtra Development Corporation Ltd. affirmed before the Supreme Court that shareholders possess no authority above the board unless authorised by legislation or company articles.  In a similar vein, the UK case Automatic Self-Cleansing Filter Syndicate Co Ltd v. Cuninghame has become a common reference in India to demonstrate that boards of directors’ exercise control over managerial choices unless shareholders gain a specific majority approval. Power disputes between corporate control entities like Satyam and Tata-Mistry have shown either beneficial governance improvements or damaging business instability in practical corporate governance situations.  The real-world scenarios emphasise the need for clear and balanced fulfilment of responsibilities.

CONCLUSION

An absolute ruling power does not exist within the corporate kingdom.  The power of functional control rests with the Directors, but fundamental authority belongs to the members.  The contrasting abilities need to be coordinated because they are necessary for unified corporate performance.  Business integrity faces the risk of both destruction through board members who exercise too much power and from shareholders who do not show enough interest. The foundation of good governance relies on the positions maintaining their intended legal boundaries instead of overstepping into the roles of others.  An ethical board, when paired with engaged shareholders through dedicated articles of association, establishes an ideal corporate power structure allowing proper authority use.

REFERENCES

1.      Do shareholders have more power than directors? Available at: https://vardags.com/law-guide/shareholder-agreements-and-disputes/do-shareholders-have-more-power-than-directors (Last Visited on April 20, 2025).

2. Members vs Directors of the company: who wins? Available at: https://readinglaw.wordpress.com/2010/05/20/members-vs-directors-of-company-who-wins/ (Last Visited on April 20, 2025).

3. Shareholders Versus Directors in a Corporation available at:  https://www.lawdepot.com/resources/business-articles/shareholders-versus-directors-in-a-corporation/?loc=US (Last Visited on April 20, 2025).

4. What is the difference between shareholders and directors? Available at: https://www.companylawclub.co.uk/what-is-the-difference-between-shareholders-and-directors#google_vignette (Last Visited on April 20, 2025).

5.  Directors in Company Law available at: https://blog.ipleaders.in/director-companies-act-2013/ (Last Visited on April 20, 2025).