Introduction: Drafting a board resolution to consider and approve borrowing powers is a critical aspect of corporate governance in accordance with the provisions of Section 180(1)(c) of the Companies Act, 2013. This resolution is essential for companies seeking to access funds beyond their paid-up capital and free reserves. In this article, we will provide a detailed guide on how to structure this resolution and navigate the legal requirements.
1. Legal Framework: The board resolution to approve borrowing powers falls under the ambit of Section 180(1)(c) of the Companies Act, 2013. This section stipulates that a company can only borrow funds if authorized by a special resolution passed in a general meeting. Therefore, the first step is to obtain shareholder approval through an Annual General Meeting (AGM) or Extra-Ordinary General Meeting (EGM).
2. Drafting the Resolution: The resolution should specify the maximum borrowing limit, which should not exceed the aggregate of the paid-up capital and free reserves of the company. The exact amount to be borrowed should be mentioned.
3. Calling a General Meeting: Once the board resolution is drafted/passed, a notice for an AGM/EGM must be issued, containing the resolution and an explanatory statement. This notice should provide shareholders with a clear understanding of the purpose and implications of the resolution.
4. Authorization of the Board: The board resolution authorizes the board of directors to take all necessary actions to implement the borrowing powers. This includes signing the required documents and performing other incidental tasks.
5. Compliance and Documentation: It is crucial to ensure strict compliance with the legal requirements and maintain proper documentation throughout this process. This includes keeping records of the board meetings, shareholder meetings, and all relevant documents.
Conclusion: In conclusion, the board resolution to approve borrowing powers under Section 180(1)(c) of the Companies Act, 2013, is a fundamental step for companies looking to secure additional funds. Ensuring compliance with the legal framework and seeking shareholder approval is essential to maintain transparency and uphold corporate governance standards. This resolution empowers the board to make strategic financial decisions while safeguarding the interests of the company and its stakeholders. Companies should approach this process with diligence, guided by legal expertise and attention to detail.
Format of Board Resolution To Consider and Approve the Borrowing Powers of The Company U/S 180(1)(c) Of the Companies Act, 2013
“RESOLVED THAT pursuant to the provisions of Section 180 (1)(c) and other applicable provisions, if any, of the Companies Act, 2013, and subject to the approval of shareholders in general meeting, the consent of the Board be and is hereby accorded to the Board of Directors of the Company for borrowing from time to time as they may think fit, any sum or sums of money not exceeding Rs. _______, including the money already borrowed by the Company Exceeding in aggregate, for the time being, of the paid up capital of the Company and its free reserves, that is to say, reserves not set apart for any specific purpose.
RESOLVED FURTHER THAT an AGM/Extra-Ordinary General Meeting be held on ________ at ____A.M/P.M. at the Registered office of the Company to get the approval of the members to the proposed resolution.
RESOLVED FURTHER THAT a draft of the resolution together with the explanatory statement, a draft of which is tabled before the meeting be included in the notice to be issued for convening of AGM/Extra-Ordinary General Meeting.
RESOLVED FURTHER THAT the Board of Directors of the Company be and is hereby authorized to do all such acts, deeds and things and to sign all such documents and writings as may be necessary, expedient and incidental thereto to give effect to this resolution and for matter connected therewith or incidental thereto.”