DIRECTORS

Directors refer to the part of the collective body known as the Board of Directors, that is

responsible for controlling, managing and directing the affairs of a company. Directors are

considered the trustees of the company’s property and money, and they also act as the agents in

transactions that are entered into by them on behalf of the company.

Directors are expected to perform their duties and obligations as rationally diligent persons with

skill, knowledge, and experience as the person carrying out functions of a director and of that

himself. He/she plays multiple roles in the company, such as an agent, as an employee, as an
officer and as a trustee of the company.

Minimum and Maximum Number of Directors in a Company

The Companies Act, 2013 ('Act') prescribes the minimum and maximum number of directors in a

company. The minimum number of directors is as follows:

 In the case of public limited companies - 3 directors

 In the case of private limited companies - 2 directors

 In the case of One-Person Companies - 1 director

Qualifications of Directors
he Companies Act of 2013 does not prescribe specific educational or professional qualifications
of directors.
Share qualification

The company’s articles provide that each director must hold a specific quantity of shares,
referred to as “qualification shares.” It is mandatory for a director to acquire the required number
of these shares within two months of their appointment.

Qualification Required to be a Director

Only a natural person can be a director in a company. Thus, an artificial person, such as a

company, corporation, firm, entity or association, cannot be appointed as a director. The

following persons are eligible to be appointed as a director in a company:

someone shall not be eligible to become a director of a corporation if he

 is an undischarged insolvent or has applied for it

 has been convicted for any offence and sentenced to imprisonment for a minimum period of six
months and five years haven’t passed
 Any order disqualifying the director, for appointment as a director by the tribunal
 He has not paid any calls in respect of any shares of the company held by him and 6 months have
elapsed from the date of payment
 has been convicted in respect of an offence addressing related party transactions
 has not been allotted a Director identification number
 accepts directorships exceeding the permitted number of directorships

Appointment of directors

Types of Directors

Residential Director

As per the Act, every company needs to appoint a director who has been in India and stayed for

not less than 182 days in a previous calendar year. Such a director will be a residential director.
Independent Director

an independent director is a non-executive director without a relationship with a company which

might influence the independence of his judgment.

The tenure of the independent directors is five consecutive years

Every listed public company must have at least one-third of a total number of directors as

independent directors.

Following unlisted public companies need to appoint at the least two independent directors:

 Public Companies with Paid-up Capital of Rs.10 Crores or more,

 Public Companies with Turnover of Rs.100 Crores or more,

 Public Companies with total outstanding loans, deposits, and debenture of Rs.50 Crores or
more.

Women Director

A company, whether be it a private company or a public company, would be required to appoint

a minimum of one woman director in case it satisfies any of the following criteria:

 The company is a listed company and its securities are listed on the stock exchange.

 The paid-up capital of such a company is Rs.100 crore or more with a turnover of Rs.300

crores or more.
Additional Director

A person could be appointed as an additional director and can occupy the post until the next

Annual General Meeting.

Alternate Director

Alternate director refers to personnel appointed by the Board, to fill in for a director who might

be absent from the country, for more than 3 months.

KEY MANAGERIAL PERSONAL

 Chief Executive Officer, manager or Managing Director

 Company secretary

 Whole-Time Director

 Chief Financial Officer

Chief Executive Officer, Manager or Managing Director

The Chief Executive Officer and Managing Director are responsible for running the company.
The Managing Director has authority over all company operations.

Under the Act, the Managing Director is defined as a director having substantial powers over the
company management and its affairs.
Company Secretary

A company secretary is responsible for looking after the efficient administration of the company.
They take care of the company’s compliance and regulatory requirements.

Whole-Time Director

Under the Act, a Whole-Time Director is defined as a director who is in whole-time employment

of the company. A Whole-Time Director means a director who works during the entire working
hours of the company

Chief Financial Officer

A Chief Financial Officer is responsible for handling the company’s financial status.

Difference Between Managing Director and Whole time Director

MANAGING DIRECTOR WHOLE-TIME DIRECTOR

Meaning A managing director refers to the A whole-time director, is a full time

officer of the company .
Powers of Possesses substantial powers of
Management management, which are not of
routine nature.
Appointment Resolution is passed at the board
meeting. Consent of the
shareholders is not required.
Simultaneous Managing Director cannot exist
employee of the company
Does not possess substantial powers of
management.
A special resolution is passed at the
AGM.
A Whole Time Director can be appointed
 MANAGING DIRECTOR WHOLE-TIME DIRECTOR

Existence with simultaneously with the manager simultaneously with the managing
manager in any company. director and manager.
Holding appointments Can be appointed as managing Cannot be appointed as a whole-time
in a number of director in more than one director in more than one company, as he
companies company, but not more than two is the whole time employee of the
companies. company.

Managerial Remuneration

The total managerial remuneration payable by a public company, including managerial director
and whole time director and its manager shall not exceed 11% of the net profit for the financial
year.

APPOINTMENT OF DIRECTORS

APPOINTMENT OF FIRST DIRECTORS

The first directors are generally nominated by the promoters of the company, and their names are
mentioned in the articles of association of the company.Where no provision is made in the
articles of a company for the appointment of the first director, the subscribers to the
memorandum who are individuals shall be deemed to be the first directors of the company.

APPOINMENT OF DIRECTORS BY SHAREHOLDERS

The directors must be appointed by shareholders in the general body meeting. Before such
appointment, the members must be informed by either email or through postal communication at
least seven days before the meeting about the candidature of the person as anew director.

APPOINTMENT OF DIRECTORS BY THE SHAREHOLDERS

A) ADDITIONAL DIRECTOR
An “Additional director” is an individual appointed by a company’s board of directors after its
initial formation.

B) ALTERNATE DIRECTOR

Alternate director is a personnel who is appointed by the Board of Directors, as a substitute to a

director who may be absent from India, for a period which isn’t less than three months.

C) Appointment of director in case of casual vacancy

“casual vacancy in the office of a director” refers to a director’s office being vacated before his
term of office expires in the usual course of business. It might be as a result of: Director’s death
Director’s resignation

APPOINTMENT OF DIRECTORS BY THIRD PARTIES

The articles may permit the third parties for the appointment of director as their nominee.
The third party means the Vendor, Banking Company, Finance Corporation and Debenture
holders.

Appointment of Directors by Proportional Representation

In this system, the minority shareholders may become in a position to have their
representation in the Board of Directors. Such appointment is made once in three years

Appointment of Directors by tribunal

The tribunal may appoint the directors.The appointment of directors is made to prevent the
affairs of the company which are oppressive to any member or which are prejudicial to the
public or company’s interest.

REMOVAL OF DIRECTORS

A director of a company may be removed in the following ways: 1. Removal by

Shareholders

2. Removal by Central Government

3. Removal by Court.

1. Removal by Shareholders (Sec. 284):

The shareholders may remove the director before the expiry of term of his office for
negligence and fraud. But for that, a special notice must be given to the company at least
fourteen days before the meeting.
Removal by Central Government
The central government, if it is of the opinion that the affairs of the company are being
conducted in a manner prejudicial to public interest, it may apply to the court for an order to
remove the directors.

3. Removal by Court
The court is also empowered to remove the director on an application for prevention of
oppression or mismanagement.

Resignation by the Directors

A director may resign from his office by giving a notice in writing to the company and the
company shall with in 30 days from the receipt of notice intimate the same to the registrar.

Powers of Directors

According to Companies Act 2013, the Board of Directors of a Company has the following
powers in the Company.

 Power to make calls in respect of money unpaid on shares

 Call meetings
 Issue shares, debentures, or any other instruments in respect of the Company.
 Borrow and invest funds for the Company
 Approve Financial Statements and Board Report
 Approve bonus to employees
 Declare dividend in the Company
 Power to grant loans or give guarantee in respect of loans
 Authorize buy back of securities
 Approve Amalgamation/Merger/ Takeover
 Diversify the business of the Company

Duties of Directors

Statutory duties

1. To verify the truthiness of a prospectus

2. to determine the amount of minimum subscription
3. to see that all money received from application is deposited in a scheduled bank
4. to purchase and pay for their qualification shares
5. to keep the register of members
6. to convene annual general meeting and extraordinary general meeting
7. to keep the register of mortgages and charges
8. to give necessary information and explanation to the auditors
9. to submit statement of affairs during the winding up of the company

General duties

1. He shall act in good faith

2. Director of a company shall exercise his duty with due and reasonable care and skill and
Diligence
3. Director of a company shall not assign his office to anybody
4. Director of a company shall not attempt to achieve any undue gain or advantage
Directors rights

1. director has a right to access to a company’s statutory registers, minutes and accounting
records
2. Directors Are entitled to claim reimbursement of all reasonable expenses
3. directors are entitled to get remuneration
4. Directors have a right to discharge their duties without interference from Co directors
5. right to participate in the strategic management
6. right to receive notice of meetings
7. To remain in office until he resigns or properly removed
8. Director has the right to hold any number of directorship
9. All directors have equal right to attend board meetings
10. Directors can take independent professional advice

Liability of directors

 Liability to the outsiders

 liability to the company
 criminal liability
liability to the outsiders

1. as an agent:
Directors act like the agent of the company he may be held liable to the outsiders in the
following cases

 if the directors enter into any contract within any outsider in their personal name
 if they have knowingly entered in tune ultravirus contract
2.Misleading prospectus

The director is personally responsible to compensate every subscriber for any loss he may have
sustained by reason of an untrue prospectus

3.With regard to allotment

 irregular allotment: That is allotment before minimum subscription is received

 Failure to repair the application money in cases of excess application
Liability to the company

1) Ultra vires act: Directors are supposed to act within the limit of companies act
memorandum articles of association. If the company and if the Directors act
beyond this limits and the company suffer any loss ,Directors will be held
responsible
2) breach of fiduciary duty: When did director act dishonestly to the in the rest of
the company he will be held liable
3) Negligence: If the director act negligently in discharge of their duties and
consequently shall be liable for any loss or damage resulting therefrom
Criminal liability

following are the cases of criminal liability

1) Prospectus contain an untrue statement

2) if the application money is not deposited in scheduled bank
3) If the allotment is not fault with the registrar
4) If the register of members and debenture holders is not maintained
5) if the annual general body meeting S not called within specified
6) failure to obtain director identification number
7) if shares are allotted without receiving minimum subscription
If false declaration of solvency of the company is made

Legal Position of Directors in a Company

Directors as Agents
A company cannot act by itself in its own capacity. It would always need someone to act on its
behalf. A company can only act through directors, and this hence makes it a principal and agent
relationship. This relationship gives the directors the power to act and make decisions on behalf
of the company. Any contract or transaction made on behalf of the company makes the company
liable and not the directors. No liability occurs upon the directors, they only sign and make
contracts on the company’s behalf.
Director as a trustee

In a company, a director is regarded as a trustee as well. A director is known as a trustee because

he administers the assets and works toward the interests of the company. A trustee is someone
who can be entrusted with the company’s assets and performs towards achieving the company’s
goals rather than for their personal advantage. Besides these, a trustee is given powers like
allotment of shares, making calls, accepting or rejecting transfers, etc., which are known as
powers in trust.

Director as a managing partner

The directors of a company represent the shareholders’ will and wants. They tend to act on
behalf of the shareholders and their goals. Due to this, they enjoy vast powers and can perform
many functions that are proprietary in nature.

Director as an employee/officer

Shareholders elect directors in a general meeting held by the company. Once the director is
elected, he then enjoys the rights and powers that are given to him as per the Act. These powers
and rights cannot be taken away by the shareholders and they cannot interfere in the decision-
making of the directors as such. Since directors possess such powers and rights, they cannot be
termed employees of the company.