Directorship is a massive responsibility in private limited companies. Read this article to find out who can be a director in a corporate body.
In India, numerous private limited company has captured significant market shares in their specific sectors. This success is hugely credited to the Directors who play a massive role starting from the incorporation stages to activities that are a part of the post-incorporation stage. This article will teach you about all factors that govern the duties of Directors who are entrusted to run a Brief Understanding Director In Private Limited Company
Importance of the Director
When we refer to the Companies Act (2013), we find the meaning of the terminology “Director”. A Director is someone who forms the company’s Board. Similarly, when we hear the term “Board of Directors”, it simply infers a collection of these people who are elected by the company’s shareholders to look after the administrative and financial affairs of the business.
We must remember the fact that companies are separate virtual legal entities protected under the legislation, therefore, it is essential to reconcile related events through an agency of human beings. For this reason, Directors are designated through whom the company predominately operates its ventures.
In a nutshell, the managerial aspects of any private limited company are handed over to a group of members who are referred to as the Board of Directors.
There is the second description of a company director where we learn that the Director is a person who monitors, controls and passes commands to coordinate the internal processes. He/she is a member of that company and has been employed by collecting consent from the shareholders to supervise and suggest improvements to the company’s policies and principles. Legal jurisdiction is strictly maintained while electing a Director as this person is held responsible for the performance of a business.
Fitting the Role of a Private Limited Company Director
If you wish to become a Director of a company then at first you must register yourself to fetch the DIN or Director Identification Number. A designated body known as the DIN cell assigns a unique DIN code to anyone aged above 18 who applies for the same. In this article, Vakilsearch has attempted to provide solutions to all of you who are wondering how to obtain the Director Identification Number in India.
Categorisation of Directors
From the previous section, you have received a baseline idea regarding who can be a director in private limited companies. Now, let us discuss the types of Company Directors one after another.
In private limited companies, an individual is elected as a Managing Director through various pathways. Here are the probable ways:
- Agreement signed with the company
- Election conducted among the existing Board of Directors
- Execution of a company’s Articles of Association
- Resolution enacted in one of the General meetings
Once, you are elected as a managing director, you receive substantial authority in influencing the company’s commercial affairs.
The term “ordinary director” is attached to the name of a Board member who witnesses the Company’s Board meetings and regularly contributes to the arguments presented before the group of Directors. Ordinary Directors do not belong to the category of Executive Directors or Managing Directors.
The person marked as an executive or whole-time Director, works for the commercial entity as a full-time employee. He/she authorizes the key administrative actions by predicting their subsequent effects.
The Company’s Board of Directors appoints an additional director between consecutive annual general meetings. The election method is regulated according to the prerequisites of the company’s Articles of Association. These directors are required to report to the office till the date fixed for the upcoming annual general meeting. The total volume of additional directors and actual Directors must not surpass the allowed strength restricted for the private limited company’s Board of Directors.
Directors who passively contribute to the Company’s performance by sharing their field expertise and do not hold commercial interest in the course of business, are termed professional directors. They have degrees and work experience that favour their candidature for such professional roles. Large companies hire them to solve pressing issues.
Financial institutes and equity investors who award debt and equity support to companies usually put forward an obligation to employ one of their personnel as a Board member of the respective corporate body. These nominated individuals operate as nominee directors.
Apart from all these types, there are even alternate directors. They are the people who substitute ordinary directors when they fail to contribute for a timeframe of more than 90 days. We witness the election of nominee directors generally for NRIs (Non-Resident Indians) and foreign corroborators linked to a business.
Limitations Set in the Number of Directors
A business entity or corporate body cannot be exhibited as a company Director. A company may appoint fifteen human beings as Directors (maximum limit). To expand this limit, you shall request a special grant.
In the list below you get to know about the minimum requirements in the case of the number of directors:
- Limited companies must have at least three Directors on paper.
- For private limited companies, there have to be at least two operational directors.
- One person company works with one Director while executing its projects.
The Companies Act does not restrict a qualified individual living overseas from becoming the Director of a private firm in India. The same rule applies to NRIs. But the major catch is that to be eligible of turning up as a future Director, the concerned individual must spend at least 182 days of the previous year within Indian territories as per Section 149(3) of the Companies Act.
Private limited companies: https://www.mca.gov.in/content/mca/global/en/home.html may or may not appoint any women as Directors but all listed companies producing a share capital (paid-up) of more than ₹100 crores must incorporate one woman Director at the least. If the company registers a turnover of more than ₹300 crores then also this rule comes into play.
Directors of a company are held responsible for the business’ accomplishments, they are elected wisely. Different directors meet different expectations of the promoters. In this article, you have learned about the various ways each of them contributes to an institute’s growth over time. To read relevant articles on business, stick to the regular updates posted on our website.
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