LEGAL DEFINITIONS AND TYPES OF DIRECTORS
The ‘director’ is the supreme executive authority in the company, who is entrusted with the management and control of the company’s affairs. Generally, a company has a team of directors, which are ultimately responsible for the entire management of the company’s state of affairs. These teams of directors are collectively known as the ‘[1]or in special committee meetings organised for certain particular purposes. Also, it is noteworthy that a director has to work in compliance with the provisions of the 2013 Act.
discusses the composition of directors in a company i.e. the composition of a Board of a company should be as follows:
- Public company:
Minimum number of directors – 3 (three) and
Maximum number of directors – 15 (fifteen)
Also, at least 1/3rd(one-third) must be independent.
- Private company:
Minimum number of directors – 2 (two) and
Maximum number of directors – 15 (fifteen)
- One person company (OPC):
Minimum number of directors – 1 (one)
In every company, a maximum of 15 directors can be appointed. And if a company wants to have more than 15 directors then it can be done by passing a special resolution in the company.
- Executive directors are internal professionals i.e. they are internal to the organization and are involved in the daily functions of the company. Any person who is a full-time employee of the company (i.e. whole-time director) or who is responsible for the day-to-day operations of the company (i.e. managing director) will be called an Executive Director. Thus, an Executive Director can be designated as Managing Director and whole-time Director. Generally, an executive director is paid more than a non-executive director because they are believed to have rich expertise and experience in their field. He is usually responsible for the executive functions in the management and administration of the company. Certain skills are required for a person to be an executive director.
- Whole Time Director – Director + Whole Time Employee of the company = Whole Time Director. As per Clause 2(94) of[2]– “whole-time director includes aDirectorin thewhole-time employmentof the company. He is also an executive director of the comNon-executive directors are external professionals.
- Non executive Directors - The Companies Act, 2013 does not define non-executive directors but we can understand the meaning from the definition of executive directors. Directors who are not involved in the day-to-day functions or activities of the Company are called non-executive directors. Despite not being involved in the day-to-day business they are still on the Board. The reason is that the Board needs their inputs in certain areas, or because there may be a legal requirement to have them on the Board. Non-executive directors come to the company only to make certain decisions at the Board meeting. Two types of Non-executive directors are –Independent Director – Directors who have knowledge or network in a particular area or a particular field can be termed as independent directors. Usually, companies hire ex-officials for such roles because they have the industrial expertise and the experience which is required to run a company smoothly. Women directors can also be appointed as independent directors. Independent directors help maintain transparency, which is an especially relevant factor, especially in the corporate regimeAs per[3]deals with a Nominee director. If it is authorized by the Articles of Association (AOA) of a company then the Board may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or any agreement or by the Central Government or the State Government under its shareholding in a Government company. If the Articles of Association of a Company authorizes it, only then can a nominee director be appointed by the Board.They represent the stakeholders on the board of directors. To put it in simple terms, a nominee director is a representative of the stakeholder who protects the stakeholder’s interest. Their job is to see that the company does not function in a manner detrimental to the interest of the stakeholders they represent.
- Additional Director- Provisions of[4]1) of the Companies Act, 2013 deal with the Additional Director. Where there is heavy pressure of work on the Board of directors then the Board of directors can appoint an additional director, if authorized by the Articles of Association of that company.An additional director can be a managing or a whole-time director. An additional director can also be considered a rotational director. The powers and rights of the additional directors will be the same as other directors of the Company.
- Alternate Director - Provisions of[5]deal with Alternate directors. When a director of a company is not in India for more than (3) three months then an alternate director can be appointed on the original director’s behalf. An alternate or an alternative director acts on behalf of the director who is not in the office due to being away for more than 3 months. Thus, the alternate director exercises his duties for a limited time only i.e. only till the time the principal director returns to his duties. In other words, alternate directors are appointed by the Board as a replacement for a director who is going to be away from India and is unable to attend board meetings. Even though a director can be present through video conferencing, at times the shareholders might find the need to have a physical presence on the Board, which is when an alternate director gets appointed.If, in the absence of an independent director, an alternate director is to be appointed on his behalf, then that alternate director also needs to be independent. Further, an alternate director cannot be appointed as an alternate director for some other director in the same company.
- Casual vacancy director -Provisions of[6]deal with a casual vacancy director. Before understanding who is a casual vacancy director, it is important to understand the meaning of casual vacancy. Casual vacancy means a vacancy in the office due to the reasons of death, resignation, disqualification, incapacity, and removal. Thus, a director assuming office due to any of these reasons will be considered as a casual vacancy director. The vacancy arising in the office of the director shall be considered as a casual vacancy if such a director was appointed by a shareholder in a general meeting. Only the shareholder will have to make a valid appointment with such a director. The concept of a casual vacancy director applies only to public companies.
- Residential director - Provisions of[7]deals with the residence of a Director. The new Companies Act introduced this concept of Resident Director. The Act makes the residence of a Director in India mandatory. It states that every Company shall have at least 1 Director who has resided in India for a total period of not less than 182 days in the previous financial/ calendar year. This provision applies to all companies, both private and public.In the case of Companies that are newly incorporated, the requirement of 182 days shall apply proportionately at the end of the financial year in which it is incorporated – (provisoto section 149(3) inserted w.e.f. 7-5-2018).Declaration of a Resident Director is not required. A Resident Director is like any other Director and he is required to attend at least 1 Board Meeting in a year.
- Women director - The Companies Act, 2013 made it mandatory for certain companies to appoint a woman director. As per the provisions of[8]of the Act and Rule 3 of the Companies (Appointment & Qualification of Directors) Rules, 2014 – The Companies that need to appoint a women director are as follows –Every listed company.Every public company having paid-up share capital of Rs. 100 crores or moreEvery public company which has a minimum turnover of Rs. 300 crores or more.The time limit for an appointment – The existing Companies (i.e. old companies under the previous Companies Act, 1956) shall appoint women directors within 1 (one) year from their commencement. The new Companies (i.e. under the new Companies Act, 2013) have to appoint women directors within 6 (six) months from the date of their incorporation. If this provision is violated then it is punishable under Section 172 of the Companies Act, 2013.The women director can be appointed during the time of registration of the Company or after the incorporation of the Company by the Board of Directors and the shareholders.Any intermittent vacancy of a women director shall be filled by the Board of Directors within 3 months from the date of such vacancy, or not later than the immediate next board meeting, whichever is later.Declaration of a woman director is not required.
- Small Shareholders Director -Any person who holds shares of the nominal value of not more than Rs. 20,000 in a Public Company is called a small shareholder. These small shareholders are allowed to elect a director in a listed company. Thus, directors elected by these small shareholders are called Small shareholders Directors. According to Section 151 of the Companies Act, 2013 every listed company may have 1 (one) director elected by such small shareholders.Thus, a small shareholder director can be appointed by a Company if –The Company is a Public Company;The Company has at least 1000 or more small shareholders; Only if these two criteria exist, the listed company can have one director elected by a small shareholder.
- Shadow Director -shadow director is nowhere mentioned in the Companies Act, 2013. A shadow director is someone who is not appointed officially as a Director of the company but the Board follows his directions and orders. They are very influential just like any other Director of a company but they manage to avoid the liability that arises thereof. They give orders and their orders are followed but they do not have any managerial position in the company. Such Directors are known as Shadow Directors.[9]defines “officer” which is similar to a Shadow Director. It means “any person under whose directions or instructions the Board of Directors or any one or more of the Directors are accustomed to act”. Also, under Section 2(60) (v) – a similar kind of person is mentioned known as an “officer in default”. The Shadow Director can also be an officer in default.
- ↑ https://taxguru.in/company-law/board-meeting-companies-act-2013.html" rel="follow external noopener noreferrer" target="_blank board meetings
- ↑ https://taxguru.in/company-law/presidents-assent-companies-act-2013.html" rel="follow external noopener noreferrer" target="_blank Companies Act, 2013
- ↑ http://ebook.mca.gov.in/Actpagedisplay.aspx?PAGENAME=17545" rel="noreferrer noopener follow external" target="_blank Section 161(3) of the Companies Act, 2013
- ↑ https://taxguru.in/company-law/additional-director-section-1611-companies-act-2013.html" rel="noreferrer noopener follow external" target="_blank Section 161(
- ↑ https://taxguru.in/company-law/alternate-director-section-1612-companies-act-2013.html" rel="noreferrer noopener follow external" target="_blank Section 161(2) of the Companies Act, 2013
- ↑ https://lexcomply.com/Procedure-under-Companies-Act-2013.php?page=Casual-Vacancy-in-Office-of-Director&key=MjI=" rel="noreferrer noopener follow external" target="_blank Section 161(4) of the Companies Act, 2013
- ↑ https://ca2013.com/149-company-to-have-board-of-directors/" rel="follow external noopener noreferrer" target="_blank Section 149(3) of the Companies Act, 2013
- ↑ https://indiankanoon.org/doc/794224/" rel="noreferrer noopener follow external" target="_blank Section 149(1)
- ↑ https://ca2013.com/section-259-officer/" rel="follow external noopener noreferrer" target="_blank Section 2(59) of the Companies Act, 2013