Directors in Company Law

Directors under Company Law

Introduction of Director as per Companies Act, 2013

The Directors are defined under the Companies Act, 2013 ( Act ). As per section 2, sub-section (34) of the Act. Director means “a Director appointed to the Board of a Company”.

A Director is a natural person appointed by the Company to give directions to the Company in which he/she is appointed. Such directors are also known as Authorized Person of the Company.

What are the Types of Directors under the Companies Act, 2013 ?

A Director is a natural person who has been appointed to manage the business affairs of the Company. Collective body of the Directors known as the Board of Directors, who are responsible for, managing, controlling & directing the business affairs of the company.

Residential Director

As per the Companies Act, 2013, each and every company needs to mandatorily appoint a director who has been in India and stayed for atleast 182 days in a previous calendar year.

First Director

If there is no provision as such in the Article of Association of the Company about the appointment of First Director, then the Subscriber to the Memorandum of Association of the Company, shall be deemed to be the First Director of the Company.

Additional Director

An Additional Director is a Director who is appointed by the Board of Directors to assist in the management and decision-making process of the company.

They have the same powers and responsibilities as other directors and play an important role in helping the company achieve its goals and objectives.

They may bring specific skills, expertise, and perspectives to the table and may be appointed on a permanent or temporary basis.

The appointment of an additional director is subject to approval by the shareholders of the company.

Under the Companies Act, 2013, a person can be appointed as an Additional Director and can hold office upto the date of the next Annual General Meeting (AGM). If the AGM is not conducted as per the act, such term would conclude on the date on which such AGM should have been conducted.

Women Director

As per the Companies Act 2013 in India, a Women Director refers to a female member of a company's board of directors who has been appointed in accordance with the provisions of the act.

The Companies Act 2013 mandates that certain classes of companies must have at least one woman director on their board.

This is aimed at promoting gender diversity and increasing the representation of women in leadership positions in the corporate sector.

The appointment of a women director must be approved by the shareholders of the company and is subject to certain qualifications and eligibility criteria as specified in the act.

A Company need to appoint at least one Women Director if :

It’s a Listed Company or

It’s a public company having paid up share capital of Rs. 100 crore or more, or turnover of Rs. 300 crore or more.

Independent Director

An independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director:

who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;

who is or was not a promoter of the company or its holding, subsidiary or associate company;

who is not related to promoters or directors in the company, its holding, subsidiary or associate company.

Along with that, various other restrictions as to neither he nor any of his relatives should have any prescribed percentage of the pecuniary or other kind of interest in the company, etc.

Applicability of Independent Directors

As per the Companies Act 2013, all listed public limited companies are mandatorily required to have at least one-third of the total number of directors as an independent directors. Unlisted public companies should appoint at least two independent directors in the following situations:

If the paid up share capital is in excess of Rs.10 crores;

If the turnover is in excess of Rs.100 crores;

If the total of all the outstanding loans, debentures and deposits is in excess of Rs.50 crores.

Small Shareholder’s Directors

A listed company may have one director elected by such small shareholders in such manner and with such terms and conditions.

“Small Shareholders” means a shareholder holding shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed.

Managing Director

The Companies Act, 2013 (‘Act’) defines a managing director as a director who has  substantial powers of managing the company affairs by virtue of either an agreement with the company, articles of association or a resolution passed in its general meeting or board of directors.

Alternate Director

Alternate Director is a director who is appointed by the Board, in the place of a director who might be absent from the country, for more than 3 months.

Nominee Director

A Nominee Director is a director in a Company who has been appointed by banks, financial institutions, or investors to form part of the Board of Directors.

Executive Director

An Executive Director is the full-time working director of the company. They look after the business affairs of the company and have a higher responsibility towards the Company. They need to be diligent and careful in all their dealings.

Non-Executive Director

A Non-Executive Director is not involved in the day to day working of the Company. He/she might participate in the planning or policy-making process to come up with decisions that are in the best interest of the company.

Whole-Time Director

As per the Companies Act, 2013, a “whole-time director” includes a director in the whole-time employment of the company.

Every listed company and other public company, whose paid-up share capital is Rs. 10 Crore ( Ten crore  rupees ) or more need to appoint Whole-Time Director.

What is the Eligibilty of Director Under Companies Act?

As per the Companies Act 2013 in India, the eligibility criteria for being a Director of a company are as follows:

• Age: A Director must be at least 18 years of age.
• Background Check: A person convicted of an offense or subject to a penalty in relation to the Companies Act or any other financial law is disqualified from being appointed as a Director.
• Qualifications: There are no specific educational qualifications required to be a Director under the Companies Act 2013.
• Experience: There are no specific experience requirements to be a Director under the Companies Act 2013.
• Conflict of Interest: Directors must declare any conflict of interest and cannot participate in the discussion or voting on a matter in which they have a personal interest.
• Shareholding: There is no minimum shareholding requirement to be a Director under the Companies Act 2013.
• DIN: A Director must have a Director Identification Number (DIN) issued by the Ministry of Corporate Affairs.
• Disqualification: A person is disqualified from being appointed as a Director if they are an undischarged insolvent or have been found to be guilty of fraud or misfeasance.

It is important to note that these eligibility criteria are subject to change and may be amended from time to time. Companies should ensure that they comply with the latest provisions of the Companies Act 2013 and other applicable laws and regulations when appointing Directors.

Who can be Director in Company as per Companies Act?

As per the Companies Act, 2013, the following individuals are eligible to be appointed as directors in a company:

• Indian Citizens: Indian citizens who are at least 18 years of age and have not been disqualified under the Companies Act or any other law can be appointed as directors.
• Companies: Companies can also appoint directors on behalf of it as nominee, provided they have a valid license to do so and are not disqualified.
• Foreign Individual: Foreign Individual can also be appointed as directors, subject to the provisions of the Foreign Exchange Management Act, 1999.

However, there are certain disqualifications as specified under the Companies Act that make individuals ineligible to get appointed as directors, such as:

• If they are Insolvent or bankrupt.
• If they are convicted for certain offenses.
• If they have not filed Annual Return or Financial Statements as per the Act.
• If they are ineligible to act as a director under any other law.

It is important to note that the appointment of directors is subject to certain regulations and rules, and it is advisable to seek legal advice before making any appointments.

Disclaimer: The information provided above is not intended to constitute legal advice, accounting advice or any other advice of a professional nature. The content should not be used as a substitute for professional advice. You should always consult your own professional for advice before making important personal or professional decisions. Your reliability on this data provided above is solely at your own risk.