Who is the Director of the Company?
Every company, whether it is Private, Public, or OPC, shall have directors in place. However, the Composition of Directors and types of directors appointed in a company depends upon the nature of the company. Director has been defined under Companies Act 2013, which means the director appointed to the board of a company. Directors are responsible and in charge of management and its activities. Collective Group of the director is called the Board of Directors.
The company, at the time of Incorporation, states the objects the company wants to achieve on its Memorandum. Therefore company being the artificial person cannot achieve the objects on its own and therefore authorized the board of directors to act on its behalf. Directors are said to be the brain of the company whose main target is to act and think strategically.
Board of Directors shall be responsible for making strategic objectives and policies for the company as well as monitors the progress achieved compared to standards set. Board is accountable to the shareholders and other external stakeholders for the activities of the company. Let's discuss in detail about the Directors and its role & responsibility in a Company henceforth.
Types of Directors
Following are the different types of directors appointed in a Company:
Every Company must have at least one director on its board that has stayed at least 182 days in the preceding year.
Independent Director means a director other than MD, whole-time director or Nominee director. Following classes of companies shall appoint at least two independent directors in its board:
• If the paid-up share capital of public company exceeds INR 10 Crore
• If the turnover of public company exceeds INR 100 Crore
• If the public company has an outstanding loan, debentures, and deposit of amount exceeding INR 50 Crore
Small Shareholder Director
Every listed company must have at least one director elected by small shareholders. Small shareholder means such shareholders holding shares of the nominal value of less than INR 25000
Following class of companies shall have at least one women director in its board:
• Every listed company
• Every public company with paid-up capital exceeding INR 100 Crore
• Every public company with turnover exceeding INR 300 Crore
Such directors are not appointed on board however the board of the company acts on their directions
These directors are appointed by outsiders or mainly lenders of the company such as shareholders, creditors, financial institution or banks who have lent the money.
Executive directors have a significant interest in the company and who devote their time and working hours to the activities of the company. Executive directors can be whole-time directors or managing director such as they manage the affairs of the company
These directors have no interest in the affairs of the company.
Composition of Directors
As per the Companies Act:
The Composition of directors such as minimum or maximum directors depends upon the type of company in which the director is being appointed. Section 149 of Companies Act 2013 governs the minimum number of directors such as:
Every Public Company shall have a minimum of 3 directors on its board.
Every Private Limited shall have a minimum of 2 directors in its board
One Person Company can have a minimum of 1 director, and the same person is allowed to be its member.
- The above-stated company can appoint a maximum of 15 directors in its board provided it can appoint directors exceeding 15 by passing Special Resolution in General Meeting.
As per LODR:
Listed Companies are regulated by the Companies Act and SEBI (Listing Obligation & Disclosure Requirement). Thus following is the Composition of directors for the listed company:
- The board of a listed company shall have at least one women director.
- More than 50% of the directors of the listed entity shall be Non-Executive Directors.
- If the listed entity has a non-executive director as its chairperson on its board, one-third of the board shall consist of independent directors
- If the listed entity doesn't have a non-executive director as its chairperson on its board, half of the board shall consist of independent directors
- If the non-executive chairperson is a promoter or connected to the promoter in any way, at least half of the board shall comprise of independent director.
Term of Directors
Following are the terms of office of the director that depends upon the type of director such as:
Such director can hold the office for five continuous years provided that only one term of such five years is allowed. He shall not hold office for exceeding two consecutive terms.
Small Shareholders Director
These directors can be appointed for three consecutive years and are not liable to be retired by rotation
Additional director shall be appointed up to the earlier of date of next AGM or the last AGM held.
These directors hold the office till the director in whose place they are appointed joins the office back.
Duties of Director
The directors have to perform several duties, such as:
- Director is bound to act as per the by-laws of Article and Memorandum of the company
- Director shall work towards the best interest of the company and for its members, employee, and shareholders
- The intention of the director shall be honest throughout his tenure
- Director, while exercising his duty, shall act with reasonable care, due diligence, and independent judgment.
- Director shall not be indulging in such activity that may benefit him or his family but is not in the interest of the company
- Director cannot assign his job or duty to another person
Liabilities of Directors
Directors can be held liable for following acts of directors:
- If the director indulges in an activity that benefits the particular employee, but it is against the interest of the company, such an act is to be said wrongful act which is against the fiduciary trust
- Directors are responsible for the acts done outside the permissible limits of Memorandum and Article.
- If the company suffers any loss or damage for the act of directors, he shall be held liable for such loss occurred
- Directors are said to be the trustee of the company's fund and property; they are liable for any misuse or secret profit they made.
Procedure For Removal, Resignation, and Appointment of Directors
Removal of Directors:
As per Companies Act 2013, directors can be removed from their office before the expiry of their tenure provided the director is not appointed by Central Government. The directors can be removed under the following two circumstances:
1) Suo-Moto Removal of Directors
Company is authorized to remove the directors from his place in the following ways:
- A shareholder can pass Ordinary Resolution in General Meeting for the removal of directors
- Send the seven days special notice to all the directors for conducting Board Meeting for the approval of the following agendas:
• Notice of EGM
• Removal of director
• Resolution for the conduct of EGM
- Send clear 21 days' notice to conduct EGM for the approval of removing the director from his place.
- Directors to be removed shall be given the opportunity of being heard before passing a resolution in EGM.
- During the meeting, members are required to cast their votes in a meeting. The majority of votes shall be cast in favour of a resolution to approve the removal.
- Within 30 days of passing the resolution, file DIR-12 to ROC for intimating the director’s removal. Attach the Certified copy of Board resolution and the ordinary resolution passed.
- Once the forms are filed, the name of the director will be struck off from the Company's Master Data from MCA.
2) Director doesn’t attend the Board Meeting
In case the director doesn't attend the meeting for 12 months even after giving them notice, he will be deemed to vacate the office. Form DIR-12 will be filed on his name, and then his name shall be removed from Master data of a company on MCA.
Resignation of Director
If the director willing to resign from the company, shall give his resignation to the company thereafter company shall make sure that directors don't fall below the minimum limit and shall follow these steps to remove the name of director from the register of director:
- Send the seven days notice to conduct a board meeting to discuss the agenda and whether to approve the resignation or not.
- Conduct the duly held board meeting of directors and pass the necessary resolution for the approval of the director's resignation
- After passing the board resolution, a director who is resigning shall intimate his resignation to ROC by filing Form DIR-11
- The company shall file the resignation to ROC through form DIR-12 by attaching the necessary documents such as Resignation Letter and Certified Copy of Board Resolution as its attachment.
Appointment of Directors
The company can appoint directors following these steps under Companies Act:
- Call the board meeting to approve the following agendas:
• Approve Notice of EGM
• Approval of appointment of directors
• Fix the day, date and venue for conducting EGM
- Send the notice of EGM of clear 21 days
- Conduct the duly held meeting of members and pass the necessary resolution for approval of his appointment
- The company shall file DIR-12 to ROC for intimating the appointment of such director within 30 days of appointment.
- Following documents shall be annexed with the form as a mandatory attachment:
• Appointment Letter
• Certified Copy of Resolution passed
• Notice of EGM
Frequently Asked Questions
The following persons are appointed as an independent director in its board:
- Any person who possesses relevant expertise and experience and is a person of integrity
- Any person who is not a promoter of the company or its subsidiary, holding or associate.
- A person who is not related to any person involved in a company such as director, promoter, its holding or subsidiary company
- A person who has no pecuniary relationship with the company or its promoter, director, holding or subsidiary. Pecuniary relation means the one connected with money.
- A person himself is not appointed as a director or any KMP in the company in the preceding three years.
Once the director has tendered his resignation and the same is accepted by the company, directors cannot be held liable after the resignation is accepted. However, the resigned director is held liable for every offence that occurred during the tenure of his directorship.
A person cannot be appointed as a director in more than ten public companies, and a maximum directorship he can hold is 20 companies (Private plus Public Companies)