We briefly mentioned earlier that the business specified in section 173 that
is ordinarily considered at an annual general meeting come within the scope of
ordinary business placed at such meetings. It is now proposed to enumerate the
specific information and documents that shall be supplied to all members in
respect of every general meeting which are all first approved by the board at
meeting of the board before they are sent to members.
Balance sheet and profit and loss account
On the conclusion of every financial year, the board of directors shall
ensure that the accounts of the company are finalized and simultaneously the
auditors would be carrying out the audit of the accounts. The balance sheet and
profit and loss account finalized by the company will be placed for
consideration of the board at a board meeting. After approval of the balance
sheet and profit and loss account, the same will be signed on behalf of the
board by not less than two directors, one of whom will be the managing director
where there is one, and by the manager or secretary.
After signature, the accounts will be passed on to the auditors for their
report thereon. It may be noted that although the accounts are audited before
the balance sheet and profit and loss account are considered and approved by
and signed and behalf of the board, it is a fiction in company law that the
auditors are supposed to give their report in the standard format only when the
auditors receive the accounts duly signed on behalf of the board.
Appropriations out of profit
It is good to remember another aspect of annual accounts that are placed
before the board for consideration. The profit and loss account would show the
net profit if any after tax on the years operations. It is for the board to
decide how much of the profits will be transferred to general reserve pursuant
to companies transfer of profits to reserves rules 1975.
Directors report section 217
It is mandatory for every company, public and private, to forward to its
members along with its annual balance sheet and profit and loss account, the
directors report. The directors report is an important document in which the
board gives a complete review of the performance of the company during the year
and other information as explained below:
State of company’s affairs
The directors report starts with the financial results of the year which
will show the working results for the year under review, the net profits before
tax and the net profits after provision for tax and the appropriation of
profits including the mandatory transfer to general reserve.
The report will mention the year’s total sales turnover and income and point
out any problems faced by the company which have affected the profits and
measures which have been taken to improve the working and reduce costs.
Mandatory transfer to reserve before declaration of dividend
Pursuant to provision in section 205(2A), no dividend shall be declared by a
company for any financial year out of profits for that year except after
providing for depreciation and except after the transfer to the reserves of the
company such percentage of profits for that year not exceeding 10% as may be
Where it is proposed to pay dividend, the directors report shall contain the
recommendation of the board as to the rate of dividend for the year under
review for the approval of members at the annual general meeting. The boards
proposal about dividend shall be in conformity with the relevant rules in terms
It is not obligatory for a company to transfer any amount from net profit to
general reserve if the rate of dividend does not exceed 10%.
Where the rate of dividend is up to 12.5%, 15% or 20%, the amount to be
transferred to reserves shall not be less than 2.5%, 5% or 7.5% of net profits.
Where the rate of dividend exceeds 20% the transfer to reserves shall not be
less than 10%.
There is no prohibition on the company to transfer more than 10% to reserves
provided the company is able to maintain payment of dividend at a rate equal to
the average of last 3 years immediately during the financial year.
Material changes since the conclusion
of the financial year
As there is bound to be some interval of time between the end of the
financial year and the day when the board finalized the directors report. The
board shall indicate in the report the up-to-date position affecting the
financial position of the company as well as material changes that have occurred
which have a bearing on the working of the company.
Publication of particulars of certain employees
Pursuant to sub-section (2A) of section 217, the boards report shall contain
information in a statement about employees who are in receipt of remuneration
of such sum as may be prescribed per annum if employed in the whole of last
year or per month if employed for the part of the year.
Designation of employees
Nature of employment, whether contractual or otherwise.
Other terms and conditions.
Nature of duties of the employees.
Qualifications and experience of the employee
Age of the employee
Whether the employee is a relative of any director or manager of the company
and the name of such director.
The remuneration referred to above is stated to mean the same way as in
section 198. In terms of section 198, the term shall include all expenditure
incurred by the company in providing rent free accommodation, benefit or
amenity and any expenditure incurred by the company which would have been
incurred by the employee if not paid by the company.