"Directors are trustee - but they are not" Explain – Class 12 Secretarial Practice

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Q. "Directors are trustee - but they are not" Explain.

Gujarat GsebGujarat Board (GSEB) HSC Commerce Board 2026Subjective· 3mImportance★★★★★

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Directors resemble trustees because they hold the company's funds, property and powers in trust and must act in good faith for the company; but they are not true trustees because the property belongs to the company, they act as agents, and their duty is to the company, not to individual beneficiaries.

Why directors are treated as trustees (fiduciaries):

They handle the company's money and property and must use it honestly for the company's benefit, not their own.
They hold and exercise powers (like the power to allot shares, make calls) in a fiduciary way, for a proper purpose.
They must act in good faith, avoid conflicts of interest and not make secret profits — exactly the duties of a trustee.

Why they are NOT trustees in the strict sense:

A trustee has the trust property vested in his own name; but the company's property is vested in the company itself, not in the directors.
A trustee deals with specific beneficiaries, whereas directors owe their duty to the company as a whole (the general body of members), not to individual shareholders. …

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

CBSE 2026Set MARCH1 markMCQ
$Q. How much can be paid as remuneration to all full time Managing Directors?$
(a) (A) 5% of sales
(b) (B) 5% of net profit
(c) (C) 5% of share capital
(d) (D) 5% of reserve
›Reveal solutionSolution
Remuneration payable to a full-time Managing Director is limited to 5% of the company's net profit — the correct option is (B).

Managerial remuneration under the Companies Act is fixed as a percentage of net profit, not of sales, share capital or reserves. For a company with adequate profits:

if there is one managing/whole-time director, the maximum remuneration is 5% of net profit;

if there is more than one, the overall limit is 10% of net profit; …
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CBSE 2025Set MARCH1 markMCQ
$Q. When the employee frequently commits indiscipline, which punishment does the business firm give, as the last resort?$
(a) (A) Promotion
(b) (B) Demotion
(c) (C) Completion of service
(d) (D) Transfer
›Reveal solutionSolution
The last-resort punishment for repeated indiscipline is ending (completing/terminating) the employee's service — option (C).

Disciplinary action follows an escalating ladder:

Oral or written warning.

Fine or withholding of increment.

Demotion (reduction in rank/pay) — a corrective step.

Transfer — moving the employee elsewhere.

Termination / completion (ending) of service — the most severe step, applied only when all lesser measures fail and indiscipline continues. …
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CBSE 2022Set MARCH1 mark
$Q. Why is an investigation committee appointed?$
›Reveal solutionSolution

An investigation committee is appointed to inquire into a specific matter/complaint and report the facts so a fair decision can be taken.

An organisation appoints an investigation (inquiry) committee when a particular issue needs to be examined carefully and impartially before any action is taken — for example, a serious complaint, a suspected irregularity or misconduct, an accident, or a dispute. The committee is entrusted with the task of gathering evidence, questioning the persons concerned, ascertaining the true facts free from bias, and then submitting a written report with its findings and recommendations. This helps management or the authority concerned to decide justly on the basis …

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Q."Directors are trustee - but they are not" Explain.

Concept understanding — Legal Position, Powers, Duties, Removal and Remuneration of Directors

Q."Directors are trustee - but they are not" Explain.

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