Directors as per Companies Act 2013

In the bustling world of business, the role of directors holds paramount importance.

Governed by the Companies Act of 2013, directors play a pivotal role in steering the ship of a company towards its objectives while upholding legal and ethical standards.

Let's delve deeper into who exactly directors are as per the Companies Act, 2013, and the responsibilities they shoulder.

Directors under the Companies Act, 2013:

According to the Companies Act, 2013, a director is an individual who has been appointed to the board of directors of a company.

This Act sets the legal framework within which companies operate in India, outlining the duties, responsibilities, and powers of directors.

Directors are entrusted with the task of managing the affairs of the company, making decisions that impact its growth, profitability, and sustainability.

Roles and Responsibilities:

Directors are not mere figureheads; they are the custodians of the company's interests.

The Act mandates directors to act in the best interests of the company, its shareholders, employees, and other stakeholders. Their primary duties include:

1. Fiduciary Duty:

Directors owe a fiduciary duty to the company, which is one of the highest standards of care recognized by law.

This duty requires directors to act honestly, in good faith, and in the best interests of the company at all times.

They must prioritize the company's interests above their personal interests or the interests of any other party.

This duty ensures that directors act with loyalty and integrity, safeguarding the assets and resources of the company.

2. Duty of Care:

The duty of care requires directors to exercise reasonable care, skill, and diligence while performing their duties.

Directors are expected to make informed decisions based on available information, conducting thorough due diligence where necessary.

This entails staying informed about the company's affairs, understanding its business operations, financial position, and risks, and actively participating in board meetings and decision-making processes.

By exercising due care, directors can minimize risks and contribute to the company's long-term success.

3. Duty to Act within Authority:

Directors must act within the powers conferred upon them by the company's articles of association, memorandum of association, and the law.

They must familiarize themselves with the company's governing documents and comply with legal requirements, including regulatory filings and reporting obligations.

Directors should refrain from exceeding their authority or acting beyond the scope of their powers. Any actions taken ultra vires (beyond their authority) may be considered void or invalid, exposing directors to legal liabilities.

4. Duty to Avoid Conflicts of Interest:

Directors must avoid situations where their personal interests conflict with the interests of the company.

This duty requires directors to disclose any actual or potential conflicts of interest promptly and transparently.

Conflicts of interest may arise in various forms, such as financial interests, business relationships, or familial ties.

When faced with a conflict, directors must act impartially, prioritizing the company's interests over their personal interests.

They should refrain from participating in decision-making related to the conflict and, if necessary, recuse themselves from relevant discussions or votes.

5. Duty to Promote the Success of the Company:

Directors have a duty to promote the success of the company while considering the long-term impact of their decisions on various stakeholders.

This duty encompasses a broader responsibility to create sustainable value for shareholders, employees, customers, suppliers, and the community at large.

Directors must adopt a strategic and holistic approach, balancing short-term objectives with the company's long-term interests.

They should consider environmental, social, and governance (ESG) factors, ethical considerations, and stakeholder interests when making decisions.

By promoting the company's success in a responsible and sustainable manner, directors contribute to its growth, resilience, and reputation in the marketplace.

Types of Directors:

Under the Companies Act, 2013, directors may be classified into different categories based on their roles and responsibilities:

Executive Directors: These directors are involved in the day-to-day management of the company's operations.

They hold executive positions such as CEO, CFO, COO, etc., and play an active role in decision-making and implementation.

Non-Executive Directors: Non-executive directors do not engage in the day-to-day management of the company but provide oversight and strategic guidance.

They bring diverse expertise and experience to the board and ensure that the company's interests are safeguarded.

Independent Directors: Independent directors are non-executive directors who are not affiliated with the company or its promoters.

They provide impartial judgment and act as a check on the board's decisions, particularly those involving potential conflicts of interest.

Eligibility Criteria for Directors:

Minimum Age Requirement:

According to Section 149(1) of the Companies Act, 2013, an individual must be at least 18 years old to become a director of a company. 

This criterion ensures that directors possess the maturity and legal capacity to fulfill their duties effectively.

Sound Mind and Legal Capacity:

Directors must be of sound mind and not disqualified by law to act as directors. 

Individuals declared as insolvent or those found to be of unsound mind are ineligible to hold the position of a director.

Director Identification Number (DIN):

Obtaining a Director Identification Number (DIN) is a prerequisite for appointment as a director. 

Every individual intending to become a director must apply for a DIN, which serves as a unique identifier throughout their directorial tenure.

Residency Requirement:

At least one director of a company must be a resident in India, as per Section 149(3) of the Companies Act, 2013. 

A resident director is one who has stayed in India for a total period of not less than 182 days in the previous calendar year.

Disqualifications:

Certain circumstances may disqualify an individual from being appointed or continuing as a director, such as conviction for certain offenses, non-compliance with filing requirements, or being declared as a wilful defaulter.

Conclusion:

In essence, directors are the pillars on which the corporate governance structure rests.

They are entrusted with significant responsibilities and are expected to uphold the highest standards of integrity, transparency, and accountability.

By understanding the roles and responsibilities outlined in the Companies Act, 2013, directors can effectively steer their companies towards sustainable growth while fulfilling their fiduciary duties to all stakeholders involved.

📘 FAQs on Directors under the Companies Act, 2013

 

1. Who is a Director under the Companies Act, 2013?

A Director is a person appointed to the Board of a company who is responsible for managing the affairs of the company as per the Companies Act, 2013 and Articles of Association.

 

2. What is the minimum and maximum number of directors in a company?

• Private Company: Minimum 2
• Public Company: Minimum 3
• One Person Company (OPC): Minimum 1
• Maximum: 15 (can be increased with a special resolution)

 

3. Is there any qualification required to become a director?

There are no specific educational qualifications prescribed, but the person:

• Must be at least 18 years old
• Must have a valid Director Identification Number (DIN)
• Should not be disqualified under Section 164

 

4. What is a DIN (Director Identification Number)?

DIN is a unique 8-digit number issued by the MCA to any person intending to become a director in a company. It's mandatory before appointment.

 

5. How is a director appointed?

• First directors are named in the Articles of Association.
• Other directors are appointed by shareholders in the general meeting or by the Board in case of casual vacancies.

 

6. What is the tenure of a director?

• A director holds office as per provisions in the Articles or until removed or resigned.
• In case of Independent Directors, tenure is up to 5 years (eligible for reappointment for another 5 years).

 

7. What are the types of directors?

• Executive Director
• Non-Executive Director
• Independent Director
• Managing Director (MD)
• Whole-Time Director (WTD)
• Nominee Director
• Additional Director
• Alternate Director

 

8. Can a company appoint a foreign national as a director?

Yes, a foreign national can be appointed as a director if they obtain a DIN and comply with FEMA and MCA guidelines.

 

9. What are the duties of a director?

As per Section 166, a director must:

• Act in good faith
• Avoid conflicts of interest
• Exercise reasonable care and diligence
• Not achieve undue gain
• Follow Articles and provisions of the Act

 

10. When is a director disqualified?

A director is disqualified under Section 164 if:

• He is of unsound mind
• He is an undischarged insolvent
• He is convicted of an offense and sentenced to >6 months
• He has failed to file financial statements for 3 consecutive years

 

11. Can a director be removed?

Yes, a director can be removed by:

• Shareholders via ordinary resolution
• Tribunal, in case of misconduct or fraud

 

12. What is Form DIR-12?

DIR-12 is filed with the MCA for the appointment, resignation, or removal of a director.

 

13. Are directors liable for company debts?

Generally, directors are not personally liable, unless there is fraud, negligence, or violation of fiduciary duty.

 

14. Can a director hold directorship in multiple companies?

Yes, but the maximum number is 20 companies, out of which not more than 10 can be public companies.

 

15. What is the role of an Independent Director?

An Independent Director is not involved in day-to-day operations and provides unbiased oversight, particularly in listed companies. At least 1/3 of directors must be independent in listed companies.

16. Can a private company appoint more than one managing director in a Company?

Yes, a private company can appoint two Managing Directors, provided:

 

✅ Legal Provisions & Clarifications:

1. Section 2(54) of the Companies Act, 2013 defines a "Managing Director" as a director entrusted with substantial powers of management.

🔹 The Act does not restrict the appointment of more than one Managing Director.

2. Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 also do not prohibit having multiple managing directors.
3. As per MCA Clarifications & Legal Practice, a company may appoint:
• Two Managing Directors, or
• One Managing Director and one CEO, or
• Managing Director and Whole-Time Director, etc.

 

⚖️ Important Conditions:

• The Articles of Association (AoA) must permit the appointment of more than one MD. If not, amend the AoA first.
• Board and shareholder approval is required as per the company’s internal governance.
• Comply with Section 196 and Schedule V if remuneration is proposed.
• File Form DIR-12 and Form MR-1 (if applicable) with the MCA.

 

📝 Summary:

✅ Yes, a private limited company can legally appoint two Managing Directors, subject to internal approval, AOA compliance, and filing requirements under the Companies Act, 2013.

Read more on: Format of Shorter Notice of Board Meeting