Directors hold a central position in governing and managing companies in India, where they supervise, regulate, and guide various facets of a company’s functioning. This article delves into the diverse categories of directors, as outlined in the Companies Act, of 2013, and illuminates their multifaceted functions within an organization.
Explanation About Directors
The term “Directors” collectively encompasses the individuals constituting a company’s Board of Directors. They shoulder the crucial duty of overseeing, managing, and steering the company’s operations, acting as custodians for its assets and finances while representing it in a spectrum of business dealings.
Limit of Directors in a Company-Section 149(1)
Every company shall have a minimum:
- 3 directors in the case of a public company
- 2 directors in the case of a private company
- 1 director in the case of a One Person Company
A company can appoint a maximum of 15 directors. A company may appoint more than fifteen directors after passing a special resolution.
Director Types in Indian Company
Mentioned below are the distinct kinds of directors in a company in India
Executive Directors: The individual serves as a full-time director within the company, carrying greater responsibilities and facing heightened expectations. In all interactions with the company’s employees, they are expected to demonstrate effectiveness and precision.
Non-executive Directors: On the other hand, they assume the role of a non-executive director, uninvolved in the company’s day-to-day operations. Occasionally, they receive invitations to contribute to the development of plans or policies. Their role is to encourage executive directors to generate choices and solutions that align with the company’s best interests.
Initial Director: The initial directors are typically listed in the Articles of Association (AOA). According to Regulation 60 of Table F under the Companies Act, 2013, the subscribers to the memorandum, or a majority of them, are responsible for naming the initial directors in writing.
Nominee Director: Directors can be appointed to the board by various entities, including financial institutions, government bodies at the state or federal level, shareholders, third parties through contractual arrangements, or any other individual with vested interests.
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The nomination of a director becomes essential for loan agreements or government investments in a government company. The Board retains the authority to designate a Nominee director, adhering to the stipulations laid out in the Articles of Association.
Alternate Director: An alternate director is a distinct category of director within a private limited company. In instances where a director is absent or abroad for a duration exceeding three months, the company has the prerogative to designate a replacement director.
Such a director assumes the title of an “alternate director” and can be appointed if the company’s Articles of Association (AOA) permit it or if a resolution is proposed during a general meeting.
Managing directors: The company’s managing director holds the authority to make pivotal decisions. For public companies or their subsidiaries with a share capital exceeding five crore rupees, the appointment of a managing director is mandatory.
Resident Directors: As per legal requirements, every company must designate a director who has spent a minimum of 182 days in India during the preceding calendar year.
Additional Directors: An additional director is instated during a board meeting through the adoption of a board resolution or a resolution circulated among board members. Their appointment is valid until the subsequent Annual General Meeting (AGM) of the company. If the AGM is not convened, the additional director is considered to have resigned. Furthermore, an individual who has not previously served on the board cannot be appointed as an additional director.
Rotational Director: Private companies are not legally obligated to appoint rotational directors unless expressly stipulated in their articles of association. In the absence of specific provisions in the AOA, directors are selected by the shareholders during a general meeting.
Woman Director: Every listed company and other public company having the following limits as of the last date of the latest audited financial statements, shall appoint at least one woman director:
- Paid up share capital of Rs. 100 crores or more or
- Turnover of Rs. 300 crore or more
Further, if there is any casual vacancy then it shall be filled up within 3 months from the date of such vacancy or not later than the immediate next board meeting, whichever is later.
Independent Directors: Every listed public company shall have a minimum of 1/3rd of the total number of directors as independent directors (fraction is to be rounded off to one).
As per Rule 4, public companies with the following limits as of the last date of the latest audited financial statements shall also have at least 2 directors as independent directors:-
- Paid-up share capital of Rs. 10 crores or more
- Turnover of Rs. 100 crore or more; or in aggregate
- Outstanding loans/borrowings/ debentures/ deposits/ exceeding Rs. 50 crore or more
Further, if there is any casual vacancy of an independent director then it shall be filled up by the board of directors within 3 months from the date of such vacancy or not later than the immediate next board meeting, whichever is later.
Once the company covered under above sub-rule (i) to (iii) of Rule 4, ceases to fulfil any of three conditions for three consecutive years then it shall not be required to comply with these provisions until such time as it meets any of such conditions.
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Definition of an Independent Director: According to Section 149 (6) an independent director must have the following qualifications:
- (a) Person of integrity and possesses relevant industrial expertise and experience
- (b) Shall not be a promoter or related to the promoter of the company or its holding, subsidiary or associate company
- (c) Not have any material or pecuniary relationship during the last two financial years or during the current financial year with the company or its promoters/ directors/ holding/subsidiary/ associate company
- (d) The relatives of such a person should not have had any pecuniary relationship with the company or its subsidiaries, amounting to 2% or more of its gross turnover or total income or Rs. 50 lacs or such higher amount as may be prescribed, whichever is less, during the last two financial years or in the current financial year;
- (e) He must not either directly or any of his relatives:
- (i) hold or has held the position of a KMP or is or has been an employee of the company or its holding, subsidiary or associate company in the last three financial years
- (ii) is or has been an employee or proprietor or a partner, in any of the last three financial years in
- (A) A firm of auditors or PCS or cost auditors of the company or its holding, subsidiary or associate company
- (B) Any legal or consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such a firm
- (iii) Holds together with his relatives two per cent or more of the total voting power of the company
- (iv) Shall not be a Chief Executive or director, by whatever name called, of any NPO that receives 25% or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds 2% or more of the total voting power of the company
- (f) other qualifications under Rule 5 as an independent director.
Small Shareholders Director: According to section 151 of the Act every listed company may have one director elected by such small shareholders.
“Small shareholder” means a shareholder holding shares of nominal value of a maximum of twenty thousand rupees or such other sum as may be prescribed.
Directors in Causal Vacancy: If any vacancy is caused by death or resignation of a director appointed in the GM, before the expiry of his term, the Board of Directors can appoint a director to fill up such vacancy who shall hold office only up to the term of the director in whose place he is appointed.
Summary: A corporation’s operations are conducted exclusively through its directors, often regarded as the intellectual core of the company. These directors function as emissaries for their respective firms, and their collective contributions are indispensable for the company’s prosperity.
The 2013 Act has conferred specific rights upon the Board of Directors, allowing them to wholeheartedly commit to the company’s well-being.
In order to prevent the misuse of these powers, the Act imposes various constraints alongside these rights. Directors assume a diverse range of roles and wield distinct authority within their organizations. The separation of powers in a transparent system not only facilitates effective governance but also bolsters efficiency while guarding against the potential for power abuse.
