According to Section 2 (20) of the Company Act 2013, “Company means a company incorporated under this Act or any previous Company Law”. In general, a company is an artificial person, created by law that has a separate legal entity, perpetual succession, common seal, and has limited liability,
A company is operated by the Board of Directors, who are appointed by the shareholders of the company with the intention to promote the business they are handling. They are also responsible to manage all the operations of the company.
The Board of Directors are the key shareholders of the company. They play an important role in the company’s structure and work. This article is dedicated to locating all of the company’s agents who act behind the mask of a Company. It shall exhaustively deal with the definition of the term Director, the qualifications, appointment, powers, and functions of the Director, and other managerial personnel.
According to Chapter XI, Section 149 of the Companies Act 2013, every company must have a Board of Directors. The Board of Directors is the highest authority in any company. Further, Section 179 of the Companies Act 2013 lays down the power of the directors to make decisions for the Company.
DUTIES OF DIRECTORS:
Under Section 166 of the Companies Act, 2013:
- A Company’s director must follow the company’s Articles of Incorporation.
- The directors of a company must work in good faith to advance the company’s objectives for the benefit of its members as a whole, as well as in the best interests of the firm, its employees, shareholders, the community, and environmental preservation.
- A company’s directors must exercise independent judgment and exercise necessary and reasonable care, skill, and diligence in carrying out their obligations.
- A director shall not be involved in any scenario in which he has a direct or indirect interest that conflicts, or may conflict, with the interests of the company.
- A director of a company shall not make or seek to make any undue gain or advantage for himself or his family, partners, or acquaintances, and if such director is found guilty of doing so, he shall be obliged to pay the company an amount equal to such gain.
- A director of a company may not assign his office. If a director of the company makes any such assignment, it shall be void and shall be punished with a fine of not less than one lakh rupees and not more than five lakh rupees.
TYPES OF DIRECTORS:
There are different types of Directors based on the functions they perform:
Executive and Non-Executive Director
- Executive Director:
The Executive directors are responsible for the general operation of the company. They are appointed by the company to deal with matters related to the company’s growth, development, and performance. These directors have a wide variety of responsibilities and are required to manage all of their organization’s activities. An executive director is often paid more than a non-executive director since they are seen to have extensive skill and experience in their industry. They are generally in charge of the executive functions in the company’s management and administration.
Executive Directors are further divided into 2 categories:
a. Managing Director:
A managing director is an executive with significant managerial authority. This authority is granted to him/her by the Articles of the company, an agreement with the company, a resolution passed at the company’s general meeting, or by the Board of Directors. It provides strategic advice to the board and chairperson. He/She is mostly involved in preparing and implementing comprehensive business plans to facilitate achievement by planning cost-effective operations and market development activities.
b. Whole time Director:
A whole-time director is a director rendering his/her services on a whole-time basis to the company. Further, when a whole-time employee is appointed as a director, such a person occupies the position of whole-time director of the company. Department of Company Affairs has confirmed this position vide letter number. 2/19/63- PR dated 29.06.1964, which stated that a full-time employee of a business who is simultaneously appointed as a director of the company is in the position of whole-time director. The point of view is also valid in the event of an alternate director. As a result, the nomination of an employee as an alternate director is controlled by Sections 314, 269, 309, and 198 of the Companies Act, 1956.
2. Non-Executive Director:
A Non-executive director is a member of a company who does not hold an executive office. Non-executive directors act as independent advisors and are not responsible for the daily operations of the company. However, they can be involved only in the planning policy-making process, challenging the executive directors to make decisions that are in the company’s best interests. Non-executive directors come to the company only to make certain decisions at the Board meeting.
The Non-Executive Director can be further divided into 2 categories:
a. Independent Director:
A person seeking to become the company’s independent director must meet specific requirements outlined in Section 149(6) of the Companies Act, 2013, which specifies that an independent director is someone who is not a managing director, whole-time director, or nominee director. There are some requirements to hire an independent board of directors, they are as follows:
- According to the Board’s judgment, such a person of integrity with the necessary skills and experience.
- A person who earlier or in present must not be a promoter of the company or its holding, subsidiary, or associate company or who is not linked to promoters or directors of the company.
- Who has or has had no financial link with the firm, its holding, subsidiary, or associate company, or their promoters or directors, during the two most recent fiscal years or the current fiscal year;
- Neither of whose relatives has or has had a pecuniary relationship or transaction with the company, its holding, subsidiary, or associate company, or their promoters or directors, amounting to 2% or more of the company’s gross turnover or total income, or fifty lakh rupees, or a such higher amount as may be prescribed, whichever is less, during the two, immediately preceding fiscal years or during the current fiscal year;
b. Nominee Director:
A Nominee Director is appointed to represent his/her interest in the Company by the financial institution, banks, or investors with an agreement by the administration, or any other person. The Company does not have the authority to nominate or dismiss Nominee Directors. Only the organization that has appointed such directors can remove them. The Nominee Director cannot be considered as an Independent Director of the company.
3. Based on the Appointment
The Directors can be classified into 3 categories based on their appointment as follows:
a. Additional Director
According to Section 131(1) of the Companies Act 2013, The Board of Directors has the power to appoint an additional director. The Additional Director must be appointed in the General Meeting, otherwise, they will not be considered as the Additional Director. The Additional Directors are appointed only until the next Annual general meeting of the company or the due date of the next Annual Meeting, whichever is earlier.
b. Alternate Director
According to Section 161 (2) of the Companies Act 2013, the Company can appoint an alternate director if the Articles of the company authorize so or by way of passing a resolution in the company’s general meeting. The purpose of appointing an alternate director is if the existing director is unable to attend meetings or he/ she is not present in India for more than three months, then the alternate director shall attend the board meeting on behalf of the existing director. The tenure of the alternate director is till the term of the existing director returns back to India.
c. Casual Vacancy Directors:
A casual vacancy occurs when an office becomes vacant owing to death, resignation, disqualification, incompetence, or removal. As a result, a director who takes office for any of these reasons shall be regarded a casual vacancy director. If a director was appointed by a shareholder at a general meeting, the vacancy in the office of the director is regarded as a casual vacancy. Only the shareholder has the authority to designate such a director. This can be only found in public corporations and not in private entities.
OTHER TYPES OF DIRECTORS:
a. Small Shareholder Director:
Section 151 (1) of the Companies Act of 2013, defines a small shareholder as one who has shares with a nominal value of less than Rs. 20,000. A Small Shareholders Director is a director who is elected by these shareholders. According to Subsection (1), A listed company may have one director elected by such small shareholders in such manner and with terms and conditions as may be prescribed.
b. Woman Director:
Under Section 149 (1) of the Companies act, it is now mandatory to appoint at least one woman director as the board member of the company. However, this rule is restricted to certain types of companies only. If there is any sort of non-compliance with this rule, then the Company is charged with fine a of Rs 10,000/- (Rupees Ten Thousand Only) which can be further extended to Rs 1,000/- (Rupees One Thousand Only) per day.
The woman director can be appointed at any time during registration of the company or even after incorporation and shall hold the office till the next annual general meeting of the company from the date of her appointment. She can also resign from the office at any time by giving notice to the company.
c. First Director:
First Directors are who hold office from the date of incorporation of the company. They are not appointed in General Meeting, the promoters of the Company appoint the First Director. The subscribers to the memorandum who are individuals are considered to be the company’s first directors until the directors are duly appointed. There must be a minimum of three (3) directors in public companies, two (2) in private companies, and one (1) director in the one-person company.
d. Residential Director:
A Residential Director is a director who has spent at least 182 days in India during the preceding calendar year. The resident director must have a local address in the nation and must be currently residing in the country.
e. Shadow Director:
A shadow director is someone who is directly in charge of a firm or a department inside a company. Therefore, a person is not considered a shadow director just because the directors act on expert advice supplied by him.
The directors are the core of the company, and they are the key to its success. As power comes with greater responsibility, corporate management should be in the hands of responsible individuals who can utilize their authority in the right manner. The Companies Act, 2013 has given certain powers to the Directors so that they can contribute their best to the company. Along with these powers, the Act also imposes certain restrictions to avoid any misuse of such powers.