Directors

Directors

    Definition  : Directors are appointed by shareholders to manage the company’s affairs.

    Nature of Relationship  : Directors act as agents of the company, with fiduciary duties to act in the best interest of the company and its shareholders.

    Legal Status  : Directors can be classified as employees and are subject to statutory obligations and duties under the Companies Act.

 

Composition of Board of Directors

    Minimum and Maximum Number  :

    Private companies must have at least 2 directors.

    Public companies must have at least 3 directors, and the maximum can vary.

    Types of Directors  :

      Executive Directors  : Involved in daily operations.

      Non Executive Directors  : Provide oversight and do not engage in day to day management.

      Independent Directors  : Non executive directors who do not have a material relationship with the company, ensuring impartiality.

    Diversity and Inclusion  : Companies are encouraged to maintain diversity in the board composition, including gender diversity.

 

Appointment and Removal of Directors

 

    Directors are appointed by the shareholders at the Annual General Meeting (AGM) or through a resolution.

    Companies can also appoint additional directors to fill casual vacancies.

    Removal  :

    Directors can be removed by an ordinary resolution after giving them an opportunity to be heard.

    Special resolution is required in certain cases (e.g., removal of a director before their term expires).

  

    4. Disqualification of Directors

    Grounds for Disqualification   (as per the Companies Act):

    If declared insolvent or bankrupt.

    If convicted for any offense involving moral turpitude or fraud.

    If a person has been disqualified under any law for the time being in force.

    If a director is found to be of unsound mind by a competent authority.

    Duration of Disqualification  : Disqualifications can be temporary or permanent, depending on the circumstances.

 

    5. Director Identification Number (DIN)

    Requirement  : Every director must obtain a DIN, which is a unique identification number.

    Application Process  : DIN is applied for online through the Ministry of Corporate Affairs (MCA) portal.

    Validity  : DIN remains valid as long as the director holds office and must be updated if there are any changes in personal information.

 

    6. Powers of the Board

       The board has the authority to manage the company’s operations and make decisions on behalf of the company.

    Approving financial statements.

    Appointing and removing key managerial personnel.

    Declaring dividends and managing capital structure.

    Limitations  : Powers can be limited by the company’s Articles of Association or specific shareholder resolutions.

 

    7. Duties of Directors

    Fiduciary Duties  : Directors must act in good faith and in the best interest of the company.

    Duty of Care  : Directors must exercise reasonable care, skill, and diligence in their decision making.

    Compliance  : Directors are responsible for ensuring that the company complies with laws and regulations.

    Avoidance of Conflicts of Interest  : Directors should disclose any potential conflicts and refrain from participating in decisions where they have a personal interest.

 

    8. Number of Directorships

  

     The Companies Act specifies the maximum number of directorships a person can hold (e.g., 20 companies, including a maximum of 10 public companies). This regulation aims to ensure that directors can effectively fulfill their responsibilities without being overburdened.

 

    9. Board Committees

    

      Audit Committee  : Oversees financial reporting and compliance.

      Nomination and Remuneration Committee  : Handles the appointment and remuneration of directors and key personnel.

      Stakeholders' Relationship Committee  : Addresses stakeholders' grievances and enhances engagement.

    Functioning  : Committees are required to report back to the board, and their members typically include directors with relevant expertise.

    Regulatory Compliance  : Certain committees are mandated under the Companies Act, ensuring corporate governance standards.

 

Understanding the legal position and responsibilities of directors is essential for effective corporate governance. The framework established by the Companies Act sets out clear guidelines for the composition, appointment, duties, and disqualification of directors, fostering accountability and transparency in company management.