The Director of a company is appointed by the members of the board and they have the responsibility for determining and implementing the policy of the company. They are appointed in the private or public limited company to manage the financial and business activities to ensure that all the legitimate functions and obligations of the business are met. The Directors act on the basis of the decisions that were made at the board meetings and their powers are derived from the Articles of Association and the corporate legislation. A Director, not necessarily have to be a stockholder or an employee of the company and simply hold the board of directors. As a representative of the company, they can combine the business with valuable contractors, like the suppliers, buyers and the lenders. They have a key role in the process of incorporation and post-incorporation of the company.
Becoming a Director
The Ministry of Corporate Affairs considers a person as a Director only because of the Director Identification Number. Regardless of the citizenship, anyone above eighteen years can apply for the Director Identification Number.
Types of Director
A company or business has many different types of Directors who responsibilities and roles are different from the other. They are,
Managing Director: As the name suggests, the Managing Director is the one on the virtue of an agreement with the company or resolution passed by the board or meeting and the AOA of a company has to look after the managerial affairs of the business.
Executive Director: The Executive Directors are also known as the Whole time Director is a full time Director of the company who has a specific decision making role in the areas of operations or marketing or finance.
Professional Director: The Professional Directors are the Directors who have the professional qualifications and have no interest in the financial sector of the company. To utilize their expertise in the company’s management, the Board of members appoints the Professional Directors.
Additional Director: These Directors are appointed only between the 2 annual general meetings by the Board of the company, and they hail the posting only up to the date of the next annual meeting. Only a fixed number of Additional Directors must be appointed by the company according the AOA.
Ordinary Director: This Director is appointed by the company only to attend the Board meetings and participate in the matters that happen between the Board of Directors. They are neither a Managing Director nor an Executive Director.
Nominee Director: The Nominee Directors are appointed by the Board because the banks or the financial institutions who offer equity assistance or debts for the company, imposes the Board to appoint a representative on their behalf.
Alternative Director: In the absence of the original Director, the Alternate Director as the Director of the company, but not less than 3 months in the country. They are either appointed to the overseas collaborators or NRIs of the company.
Number of Directors
The number of Directors appointed by the company depends on the type of the organization. A business entity or a corporate body cannot be selected as the Director of the company, only a natural living person is appointed for the position. A maximum of fifteen members can become the Director of the Company and if they wish to increase the number of Directors in their company, they have to pass a special resolution. The minimum number of Directors, appointed in One Person Company is only one, the Private Limited Company can have a minimum of two Directors and the minimum number of Directors appointed in a Limited Liability company is three.
Requirements for a Director
According to the Companies Act of 2013, there is no restriction on appointing an NRI or a foreigner as the Director of the Company, but under Section 149(3) all the companies must have atleast one Director who must be in the country not less than 182 days in the calendar year. And the Schedule V of the Act enforces a mandatory rule that the person appointed for the post of the Director of a company must have completed 21 years and has not attained seventy years.
A person who has attained the age of seventy can be appointed as a Director with approval of the shareholders, and hence the Central government approval is not required if the company abides by the approval of the shareholders.
Women Director: The Limited companies and the listed companies that have paid one hundred crore rupees of share capital and more, or that have made a turnover of three hundred crore or more must have atleast one woman Director on their Board, but it is not necessary for the Private Limited Company.
Disqualification of Directors: A person can be disqualified for the post of the Director because of several reasons, like being an un-discharged insolvent, convicted by the Court, who has not filed the annual return and financial statements and bankruptcy.
The requirements, rules and regulations of a company’s Director can be seen on the official website of the Ministry of Corporate Affairs.
Responsibilities of a Director
The Director of the company is responsible for the performance of the business and they have to see to that all the business strategies that were discussed by the Board are enforced in the business. They have to determine policies and strategic objectives of the company and appoint the senior management to improve the efficiency of the firm. Each stage of progression in the business must be monitored by the Director and they have to inform the details to the other relevant members of the business. However, they have to follow the provisions and restrictions that are stated in the Articles of Associations (AOA) that restricts the powers of the Director.
The main duty of a Director is to act according to the best interest of the business, and those who fail to follow are in breach of their duty. They are given the signatory authority and are responsible of the assets of the company, so have to be aware of all the financial transactions and transfers that are taking place in the company and they should not use their power for any unofficial activities. All the confidential matters and details of the company are known by the Director, hence should not share the official matters with the outsiders of the company at any cost especially matters that concern the finance and operations of the company.
The main duty of the Director is to attend all the Board meeting held by the company, those who fail to attend more than three meetings in the calendar year is terminated from the Board. And the Directors are responsible if the company fails to fulfill the statutory duties and they have to pay for the penalties.
Liabilities of a Director
The Directors are responsible for making the company to follow the regulations and policies, and they are liable for the cost of the negligence and frauds. To protect themselves from these kinds of financial consequences, they can get insurance. In general, they are asked to give the personal guarantees for the financial liabilities, loans and overdrafts. At times the creditors claim the Directors for the debt of the company and they have certain limitations of how much they can borrow from the company.
Anand Rajendran, CEO of Uptra Consultancy Services, a leading provider of legal services, including company registration. He is the Head of Communications at Uptra Consultancy Services, India’s largest online legal services facilitator.