Companies often have both executive directors and non-executive directors on their boards. These two categories of directors are the most common. The appointment of “non-executive directors” is often made by businesses on the basis of the candidates’ subject matter knowledge or active occupations, while “executive directors” are typically people who are hired by the company. The term “executive director” does not have a clear meaning under the Companies Act of 1956. According to the Companies Act, 2013 (the Act), a director who works full-time for a business is referred to as an “executive director.” In most cases, “directors” of a corporation are full-time employees who have roles as directors or executive directors. Their job titles may include things like “Director of Sales,” “Director of Production,” “Director of Research and Development,” “Director of Marketing,” etc.
These directors often do not have a big impact on the day-to-day operations of the business where they are employed. This article explores the provisions of the Act and the Rules published under it that apply to the nomination of an Executive Director or a full-time Director of a company, and it gives a thorough checklist for doing so. Additionally, the article discusses the Rules promulgated under the Act that pertain to the nomination of an Executive Director or a full-time Director.
Required Competencies for the Position of Executive Director
Executive Directors are the most senior-level administrators and professionals inside a business, and they are responsible for managing the Board of Directors. They are responsible for overseeing the day-to-day operations, the financial administration, and the long-term strategy of a firm. The task of aiding in the selection of the company’s chief executive is delegated to the Non-Executive Directors of the board.
An Examination of the Role Played by the Executive Director
Executive directors are in charge of the overall strategy of the firm, whilst non-executive directors are more concerned with the day-to-day operations of the organisation.
In addition to this need, these directors need to be able to communicate the goal and vision of the organisation. Such directors are expected to have strong administrative and leadership skills in order to effectively manage the teams they are responsible for.
There are several different buckets into which the duties of an Executive Director might be placed, including the following:
- Being responsible for the organization’s values, vision, and mission statement.
- Managing employee relations (including recruiting, firing, and professional development);
- Managing human resources (HR), benefits, and labour relations;
- Managing money (including budgets, accounts payable, accounting systems, and tax returns); and
- Developing growth plans.
Executive Director Appointment Checklist Requirements
Even though everyone has entertained the idea of running a charitable organisation or seeing their ideal business plan come to fruition, very few people are aware of the steps that must be taken to establish the executive leadership that is required to make these dreams a reality.
In light of this, a detailed list of credentials for the job of executive Director may be found further down in this article. This paper will aid you in making an educated choice on the appointment of an Executive or full-time Director by analysing numerous key clauses of the Companies Act. This material may be found here.
- Director Identification Number: In order for a candidate for full-time Director to have their candidature taken into consideration, they are required to register for a Director Identification Number. In order to make an application for the post, they must first ensure that they have complied with section 153 of the Companies Act.
The procedure of applying for a Director Identification Number requires the completion of a lengthy application form, the submission of supporting papers, and the payment of a processing charge. Once the Registrar of Companies (ROC) provides the applicant with a one-of-a-kind identifier, the process will be considered finished. - Method for Organising Appointments: Due to the absence of a stipulation on the appointment of a full-time Director, this body is tasked with the responsibility of making the choices. In this aspect, the Board has the ability to appoint them while they are still serving. Additionally, the board of directors of the corporation may decide to entrust him or her with additional responsibilities, which may be delegated to him or her by the corporation.
- Board endorsement is necessary: The terms and conditions of the appointment, the salary to be granted, and any other factors germane to the Director must be mentioned in the notice calling the meeting at which such an appointment will be considered by the Board.
- Letter of Engagement: It is advised that the terms of appointment specifically define the duties, responsibilities, and power of the ED (Executive Director), since the Companies Act does not. It is the Managing Director, not the ED, who is in charge of the majority of the company’s management duties.
- The hiring of either an Executive Director (ED) or a Whole-Time Director: The Companies Act allows both private and public organisations the ability to nominate an ED in addition to a Director who works full time. In the event that they make that decision, I will have no influence over it.
- Tenure: If someone is going to be reappointed to a job, the appointment cannot be publicly announced more than one year before the end of the person’s current term. This rule applies whether the position is held in a public or private organisation. The length of an ED should not be longer than 5 years. It is necessary for the shareholders as well as the Board of Directors to provide their approval for a reappointment before it can be made official.
- Minimum Age Limit: People over the age of 70 or under the age of 21 are frequently not eligible for employment (or reemployment) by companies. It is possible for the Board of Directors to make an exception and nominate someone who is older than 70 if they pass a special resolution.
- Consent: Their approval is necessary in order to proceed with the selection of the applicant for the position of Executive Director.
- Companies Act conformity with the requirements of Part I of Schedule V: In order to be considered for the position of ED of a public company in India, a candidate must be able to demonstrate that they meet all of the following requirements:
- Have never been detained under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act;
- Have never been convicted of a crime or fined more than Rs. 1000;
- Have never been detained under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act[1];
- Be at least 21 years old but younger than 70;
- Be a resident of India.
- Acceptance on the part of stockholders: If the firm is listed on a public market, the terms and conditions of the appointment must first be authorised by the Board of Directors, and then they must be ratified by the shareholders at the next annual meeting.
- Backed by the India Government at the Union Level: If the requirements of Part I to Schedule V of the Companies Act are significantly altered in any way, then the approval of the Central Government is also necessary.
- The total amount of available positions on the board: The maximum number of firms for which a single person may serve in the role of Director is twenty. Included in this are directorships for alternatives. Verification of the individual’s position as Executive Director of the company is necessary on the part of the corporation.
- Electronic Submissions of Forms and Returns Filing: In order to nominate a director in this capacity, a company is required to file e-form DIR-12. E-form MR-1 must be submitted by public enterprises within the first sixty days following the appointment at the latest.
- Recording in the Company’s Register the Shareholdings of Directors, Key Management Personnel, and Other Company Employees. In order to designate an ED, a company has to add the required information to the Register of Directors and Key Managerial Personnel and Their Shareholding.
- Expressing an Interest or a Concern for Something: The individual who has been nominated for the position of Director is obligated to reveal any personal or financial interests that they have in the firm (or companies) that they will be directing. Form MBP-1 needs to disclose that he owns shares in the company. At the very first meeting of the Board in which the Executive Director is present, this information has to be presented to the members of the board.
- Additional Requirements, Criteria, and Conditions: The applicant has to fulfil all of the state’s statutory requirements, which include the following but are not limited to them:
They are not allowed to have been found to be insolvent or to be in a situation that may lead to a discharge, nor are they permitted to have ever delayed payments to creditors or engaged into a composition with such creditors at any point in time. They could not have been found guilty at any point in time. In most cases, the compliance of a person is checked by looking through their statement of agreement.
Conclusion
While the aforementioned considerations will be helpful in the selection of an Executive Director for a Non-Profit Organisation, it is equally important to define the functions and obligations of both the organisation and the Director before beginning the search for a candidate. I make sure that the applicant’s objectives and the organization’s goals are both in line with one another. In the process of hiring a new worker, there should be no loose ends left untied because failure is not an option.
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