Rule 304 — Admission of directors to a fund.
The rule limits which directors may take benefits from a fund. A director of a company, as defined in section 2(20) of the Companies Act, 2013, may only receive benefits from the fund if he is a whole-time bona fide employee of the company and does not beneficially own shares in the company carrying more than 5% of the total voting power.
A fund of this kind exists for employees, and a director sits on both sides of the arrangement — he may be an employee in substance or only in name, and he may control the company that funds it. The rule keeps the fund to its purpose with two tests that can be checked from the company's own records: whole-time bona fide employment, and a shareholding below the stated proportion of voting power.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Beneficial shareholding above which a director may not receive benefits | Shares carrying more than 5% of the total voting power | Beneficially owned by the director in the company | Rule 304 |
Both conditions must hold at once: whole-time bona fide employment and a beneficial shareholding not carrying more than 5% of the total voting power. The test is on voting power, not on the number or face value of shares, so shares carrying enhanced or restricted voting rights are measured by what they can vote rather than by what they cost. It is also a beneficial ownership test, so shares held in another name for the director's benefit count, and shares held by him for someone else's do not. "Whole-time bona fide employee" excludes a director whose employment is nominal, however the appointment is described. "Director" is not defined here on its own terms but by section 2(20) of the Companies Act, 2013.
A director who works full time in the company and beneficially owns shares carrying 4% of the total voting power may receive benefits from the fund. A colleague on the same board who is equally a whole-time employee but beneficially holds shares carrying 8% of the voting power may not, and neither may a non-executive director holding nothing at all, because he is not a whole-time bona fide employee.
You meet it when a director is admitted to the fund or a benefit is paid out to him, where the trustees have to satisfy themselves on his employment and his beneficial shareholding.
A director of a company, as defined in section 2(20) of the Companies Act, 2013 (18 of 2013), may only receive benefits from the fund, if he is a whole-time bona fide employee of the company and does not beneficially own shares in the company carrying more than 5% of the total voting power.