The director of a company has not just been hired nominally; each individual on the board has a designated set of duties that need to be performed to the maximum
A director of a Pvt ltd company or a limited company or a one-person company must fulfil certain duties and responsibilities. Sometimes, a new director is unaware of these duties. In this article, you will understand that the duties of a director are necessary for the functioning of a company, which in turn will have a strong board of directors.
The Companies Act of 2013 has a list of roles and responsibilities for a company’s director. However, before we get into that, let us first understand the role of a company’s director.
For all practical purposes, a director is an individual that performs the duties and responsibilities of a director as per the provisions of the Companies Act, 2013. They are trustees of the company’s assets and perform the role of an agent in the transactions of the company.
According to the law, the number of directors in different types of companies is as follows:
- One-Person Company – Minimum 1 director and a maximum of 15 directors
- Private Limited Company – Minimum 2 directors and a maximum of 15 directors
- Public Limited Company – Minimum 3 directors and a maximum of 15 directors
However, in all the above cases, the no. of directors may exceed 15 by passing Special Resolution.
Duties of a Director
Typically, directors must use their skills and experience to perform the functions of a director. If need be, a director must play different roles in the company – an officer, a trustee, an agent, etc.
All the directors of various companies registered under the ROC of India must fulfil some mandatory obligations. The fact is that the directors of many startups fail to educate themselves about these duties. As a result, they end up making some costly mistakes in the end.
Many will forget to educate themselves on these, but any director of a company, whether one person, private or public should be aware of his/her duties before becoming one. None of what follows will be ground-breaking. After all, you should know that, as a director, you need to act in the best interests of the company. Nonetheless, here are the duties listed of directors.
Best Interests
At all times, the director must act in the best interests of the company, particularly above personal interest. Even a director acting honestly but not in the best interests of the company is in breach of duty.
Proper Use of Assets
A director is in charge of the assets of the company and is the signatory in case of the transfer of any assets of the company. The director must not take advantage of this power.
Keep Information Confidential
As a director, you have access to all important information about the operations and financials of a company. This should remain confidential and not be shared with anyone unless it is for the benefit of the company.
Attend Meetings
A director must attend as many board meetings as possible. Any director absent for more than three meetings in a calendar year will be automatically terminated from the board.
Not to Exceed Powers
The Memorandum of Association (MOA) of a company defines what a company can do, while the Articles of Association (AOA) state the powers given to its directors. The directors must ensure that it stays within the boundaries of both.
What Happens if I Don’t Uphold Director’s Duties?
Being a director carries significant responsibilities as outlined in the legally binding Companies Act 2006. Failure to fulfil these obligations can lead to legal repercussions, including fines and potential criminal action. Moreover, negligence resulting in financial losses for the company may require you to personally compensate for damages. Various parties such as the company, employees, vendors, competitors, investors, and customers have the right to pursue legal action for misconduct or negligence. Directors’ and Officers’ insurance exists to mitigate these risks by covering legal defence and compensation expenses in such disputes, excluding coverage for intentional fraudulent or criminal behaviour.
What is a Director’s Responsibility During Insolvency?
If a company faces insolvency, there are significant changes in play. As a director, it’s crucial to grasp how liquidation affects your duties:
In insolvency, your allegiance shifts from shareholders or members to creditors, necessitating prioritisation of their interests.
Your foremost task is halting company operations immediately to prevent further debt accumulation, as persisting could result in personal liability and potential charges of wrongful trading, leading to disqualification.
Additionally, it’s vital to recognise that neither assets nor company funds are personally owned, even if you initially contributed your own capital. While you may become a creditor during formal insolvency proceedings, there’s no guarantee of full reimbursement.
Seeking guidance from a specialised accountant in corporate recovery and insolvency before making any decisions is advisable. Their expertise ensures actions align with creditor interests while mitigating personal risks.
How to Become a Company Director in India
Embarking on a journey to become a company director involves a strategic blend of education, experience, and networking. Here’s a step-by-step guide to charting your course:
- Complete Your Education : Start by getting a bachelor’s degree, preferably in business, accounting, or finance. Consider pursuing higher academic credentials such as an MBA to stand out
- Specialised Training: Organisations like the Institute of Directors offer valuable programs to enhance your practical skills, increasing your chances of securing a director position
- Get Hands-on Experience: Gain relevant experience by managing projects, honing leadership skills, and volunteering on nonprofit boards. This practical exposure prepares you for the multifaceted responsibilities of a director
- Get Mentorship: Build a relationship with a current director who can mentor you. Learning from an experienced professional provides insights into the intricacies of the role and enhances your skills
- Investor Relations: Cultivate relationships with investors in your industry, as they often influence director appointments. Develop a compelling presentation to showcase your value and network with current directors for potential recommendations
- Commitment to Learning: Stay informed and enhance your employability by committing to ongoing learning. Join associations that offer conferences and educational opportunities tailored for directors.
Key Skills for a Company Director
The following skills are crucial for a company director to have:
- Management Skills: Effectively supervise and delegate tasks to optimise resources and productivity
- Communication Skills: Strong written and verbal communication skills are crucial for articulating corporate strategies and expectations
- Strategic Decision-Making: Make informed decisions that impact the company’s present state and future growth
- Analytical Abilities: Extract relevant insights from data to make strategic decisions and address organisational challenges
- Adaptability: Be flexible and responsive to changes in the workplace and industry
- Innovation: Foster a creative mindset to enhance productivity and drive organisational success
- Sensitivity: Demonstrate compassion and empathy to build stronger professional relationships and a supportive workplace
- Visionary Leadership: Present objectives, establish strategic plans, and provide resources to align the organisation towards common goals.
Conclusion
It is vital that as the director of any company you keep all the information about it confidential. If your company is listed on any of the stock exchanges in India, then confidentiality assumes greater significance. You might be charged for insider trading for unethical actions and omissions barred by law: https://www.mca.gov.in/mcafoportal/showCheckCompanyName.do
Frequently Asked Questions
What are the 7 duties of a director?
Act within their powers
Promote the success of the company
Exercise independent judgement
Exercise reasonable care, skill and diligence
Avoid conflicts of interest
Not accept benefits from third parties
Declare interests in transactions or arrangements.
What is the power of directors in a Pvt Ltd company?
Directors possess the authority to issue additional shares within the company, in accordance with the company's constitution and pertinent corporate regulations. This enables the company to secure fresh capital through equity financing, thereby expanding both its total assets and ownership structure.
What is the minimum number of directors in a private limited company?
A private company must appoint a minimum of two directors, while a public company must have at least three. The maximum number of directors allowed for any company is 15. Upon appointment, a director is responsible for fulfilling all duties and functions outlined in the Companies Act, 2013.
What is the legal position of directors in a company?
he Companies Act of 2013 characterises a managing director as a director who holds significant authority in managing the company's affairs, either through an agreement, articles of association, or a resolution passed in a general meeting or board of directors.
Can a director be an employee?
Yes, a person serving as a director in one company can simultaneously hold an employee position in another company. The Companies Act of 2013 doesn't explicitly prohibit directors from also being employees in separate companies.
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