Director in Company
What is the meaning of Board of Directors and Director in a Company?
As a company is a separate legal entity and artificial legal person created by law which act only through the agency of natural persons / human beings. So, the company is managed by a body of persons who are called “Board of Directors”. So the Board of Directors means a group of those individuals who are elected by the shareholders of a company in order to manage the affairs of the company.
And “Director” is a person who is elected by the shareholders of a company in order to direct the company’s policies; the person appointed or elected according to rules & Regulations, or who are authorized to manage and direct the affairs of a company.
And Only an individual living person can be Director of a company. A body corporate, business entity or other company can not be appointed as Director of a company.
What are the different types of directors?
A company can have different types of directors such as:
A “Managing Director” refers to a Director who, by a resolution passed at its annual general meeting, or by its Board of Directors or by the virtue of the Articles of Association of the company or by an agreement with the company or, is entrusted with the substantial powers of the management of the affairs of the company.
A Whole-time Director is one who is in full-time employment of the company.
An Executive Director is also one who is in full-time employment of the company. He can be a whole time director or Managing Director.
An “Ordinary Director” refers to a Director who participates in the matters that are put before the Board of Directors and attends the Board meetings of a company. These Directors are neither the Whole-time Directors, Executive Directors or Managing Directors.
An independent director in relation to a company, means a director other than a Whole Time Director, Managing Director, Or Nominee Director. The following companies have to appoint at least two independent directors:-
A} Public Companies having Paid up Share Capital-Rs.10 Crores or More;
B} Public Companies having Turnover- Rs.100 Crores or More;
C} Public Companies have total outstanding loans, debenture and deposits of Rs. 50 Crores or More.
Any Individual can be appointed as Additional Directors by a company under section 161(1) of the New Act.
As per Section 161(2) A company May appoint, if the articles confer such power on company or a resolution is passed (if any Director is absent from India for atleast three months).
- An alternate Director cannot hold the office longer than the term of the Director in whose place he has been appointed.
- Additionally, he will have to vacate the office, if and when the original Director returns to India.
- Any alteration in the term of office made during the absence of the original Director will apply to the original Director and not to the Alternate Director.
A person, who is not appointed to the Board, but on whose directions the Board is accustomed to act, is liable as a Director of the company, unless he or she is giving advice in his or her professional capacity.
They can be appointed by certain shareholders, third parties through contracts, lending public financial institutions or banks, or by the Central Government in case of oppression or mismanagement.
Person who are Qualified to be appointed as Independent Directorship?
A) Who, in the opinion of the Board , is a person of integrity and possesses relevant experties & experience;
B) i) Who is or was not a promoter of the Company or its Holding, Subsidiary or Associate Company;
ii) Who is not related to Promoters or directors in the company, its Holding, Subsidiary companies;
C) Who has or had no Pecuniary (relating to Money) relationship with Company and its its Holding, Subsidiary companies or their promoters, directors during the two immediately preceding financial years or during the current financial year;
D) none of whose relatives has or had pecuniary relationship with company, its Holding, Subsidiary companies or their Promoters, directors -amounting to 2% or more of its gross turnover or total income; -or fifty lakhs or such higher amount as may be presrcibed, whichever is lower. During the two immediately preceding financial years or during current financial year.
E) Who neither himself nor any of his relative-
1. Holds or has held the position of KMP or has been employee of the Company or its its Holding, Subsidiary companies in any of the 3 financial years;
2. He or his relative has an employee or proprietor or a partner in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed- as a auditor firm, Company Secretary in practice, Cost Auditor, Legal Consultant of the company or its Holding, Subsidiary companies;
3. Holds with relatives 2% or more of the total voting power of the Company;
4. He or his has not be Chief Executive or Director of any Non Profit Organization that receive 25% of its receipt from the Company or its Holding, Subsidiary companies or its Promoters or directors or that NGO holds 2% or more of the total voting power of the Company.
F) Who possesses such other qualification as may be prescribed. Tenure of Director:- an independent director hold office for a term up to 5 consecutive years, -Also eligible for reappointment by passing Special Resolution and also require its reappointment in Boards Report. -He shall not hold office for more than 2 Consecutive terms, but shall not be eligible to appoint after expiration of 3 Years of ceasing to become an independent director. Remuneration to Independent Director:- An independent director shall not be eligible for any stock option as per section 149(9) of Act. But they may receive remuneration by way of fee provided under section 197(5) of the Act. Sitting fees for Board meeting and other committee meeting shall not be exceed Rs. 1,00,000 per meeting.
What is requirement of Maximum and the Minimum Number of Directors in a Company ?
A company can, however, have a maximum of fifteen Directors and it can be increased further by passing a special resolution.
Minimum Number of Directors:
- Private Limited Company – 2 Directors
- Limited Company – 3 Directors
- One Person Company – 1 Director
Maximum Number of Directors:
A company can have maximum of 15 directors but the same can be increased by way of passing special resolution.
Requirement of Women Director:
There has been a change in law, according to which, every listed public company and other public limited company which are not listed but having a
- paid-up share capital of Rs. 100 crore or more
- having a turnover of Rs. 300 crores or more
are required to appoint at least one woman Director. But there is no women Director requirement for a private limited company registration.
If any director contravenes the provisions of this section such director shall be punishable with fine which shall not be less than Rs.1,00,000/- but which may extend to Rs.5,00,000/-.
Is there any requirement of special qualification for directors?
To be appointed as director in a company no formal or special education, experience, or skill is required. But in some cases the articles of association (AOA) of the company may impose a shareholding qualification for the directors which must be complied with by all the directors.
Section 165 of Companies Act 2013 restricts any director from holding office as
director in more than 20 companies at the same time including any alternate directorship,
But further provided that the maximum number of public companies in which a person can be appointed as director shall not exceed 10.
So in simple language, total number of directorship an individual can hold is in 20 companies but in public companies can not exceed more than 10 companies and director ship in holding or subsidiary (which is private limited company) of a public limited company shall be counted as directorship in public limited company.
In case of contravention to the maximum number of directorship, the person shall be punishable with fine which shall not be less than 5000 rupees but which may extend to 25000 rupees for every day after the first during which the contravention continues.
Can Directors take Salary / Income from company?
A director can receive an income or payment from company in following ways
1. Directors’ Salary
If the company also employs you in a role other than a director, it can pay you a salary like any other employee. It is also required to pay you the superannuation guarantee that is currently at the rate of 9.5%.
2. Directors’ Fees
Directors’ fees are compensation for services performed as director of company. Director is entitled to receive directors’ fees, if he is :
- not also an employee of the company; and
- satisfy certain procedural requirements.
For example directors are paid sitting fees for attending Board meetings.
3. Payment Through Dividends
Companies declare Dividends for their shareholders and Directors are entitled to receive dividends if they hold shares.