Directors are notably an essential part of the company. If you want to know more about their legal position in the company, you can read this article.
Have you ever thought about how a company can make decisions? Is it even possible for an artificial person to make decisions and implement the same? Well, no. The board of directors is the central brain behind these actions, plans and implements. Directors are the individuals who make every single decision associated with the company. They are the ones who are well aware of how a company should work. Directors are hired with the intention of taking care of every single affair related to the company.
Directors play several roles in a company, and we will discuss the same in this article.
Who is a Company Director?
A company director is a professional person who knows how to run and manage a company. As per Section 2(34) of the Companies Act 2013, a director is an individual assigned to an organisation’s noteworthy board of an organisation. Considerably, no artificial person or entity is allowed to be a director. Instead, a person can only play the role of a company’s director.
Directors are commonly considered as the mind and will of their respective companies. It is because they are highly knowledgeable of how to control the overall functioning and behaviour of the company. Every director needs to work in various capacities so that the company can function effectively.
According to the Companies Act 2013, the company directors must perform various duties and responsibilities. The provisions of this Companies Act clearly define the powers, roles and conduct of the director in an organisation. Section 149 of the Companies Act has also discussed some legal requirements. They are mentioned below:
- Public company: For a public company, it is mandatory to have at least 3 and a maximum of 15 directors.
- Private company: In a private company, there should be at least 2 and a maximum of 15 directors.
- One-person company: There should be a minimum of 1 director in the one-person company.
- Out of the directors appointed for a firm, at least a single woman director or 1 director should have resided in India for 182 days.
- According to the proviso of Section 49(1) belonging to the Companies act, there is a chance of increasing the directors’ numbers if you want to. However, a special resolution needs to be passed in some instances.
- The maximum limit of 15 directors does not apply to government companies.
- Also, the limit of 15 directors does not apply to non-profit companies that are not licensed. Also, these companies should be coming under the Companies Act’s Section 8.
As notified by the Companies Act 2013, the Board of Directors plays a significant role in the company. Also, they have been referred to as the company’s primary agent. They are also the rightful trustees of the assets held by the organisation. This notifies that the directors have a huge role to play in the growth as well as the welfare of the company.
Who is Worthy of Being a Director?
A person is worthy of being appointed as a director only if she has issued a DIN, i.e. the Director Identification Number, by Section 153 of the Companies Act, 2013. However, in 2017, the Central Government came up with an amendment that it can issue an identification number to the individual who shall play the role of a DIN.
Anyone who wants to be the company director should fill up the application for DIN’s allotment to the Central Government. The concerned person must visit the official MCA portal to understand the procedure.
The Companies Act has not made any professional qualification mandatory for becoming a director. However, if it is mentioned in the AOA of the company, then the same needs to be followed. Also, the director cannot become a shareholder until they wish to do the same wholeheartedly.
According to the significant Section 164(1) of the Companies Act, some factors would make it impossible for a person to become a company’s director. They are mentioned below:
- If the competent court has declared him/her as the one with an unsound mind.
- If the individual is notably an undischarged insolvent.
- If the person has already applied to be removed as insolvent, the application process is still yet to be completed.
- If the court has convicted them for any offence.
- If the tribunal has passed any noteworthy order telling that the individual should not be appointed as the director in any company.
- If the individual has not made the payment concerning the shares, then their position as a director of the company stands cancelled.
- If they are not regularly complying with Section 165(1) or Section 152(3) of the notable Companies Act.
Various Types of Directors in a Company
Organisations may have certain types of directors, each of which is listed below. Read on to know more about the same:
1. Shadow Director
A Shadow Director is essential to the company’s Board of Directors. They can influence the company’s decisions strongly. However, these actions are done securely by the shadow director while being in the backdrop. He doesn’t play the role of a formal director for the company, but their influence on the company is quite much.
2. De-facto Director
Some individuals are not qualified to be official directors of the company. This is because, in some cases, they might not be able to meet specific criteria. In these scenarios, they are not formally considered the company’s directors, but they perform the director’s tasks. However, you cannot expect them to have the kind of authority and power that an official director has in the company.
3. First Director
The first directors of the company are appointed by its promoters. As their name suggests, these are the very first individuals who join the Board of directors.
4. Additional Directors
An additional director is an individual who can perform the authority and functions of the company up to the next Annual General Meeting. It has to be noted that a person who doesn’t get appointed as a director in the Annual General Meeting doesn’t have the right to be appointed as an additional director.
5. Ad-hoc Directors
If there has been a death of the director or if they have resigned from the designation all of a sudden, the ad-hoc director takes the role. The noteworthy Board of Directors appoints this individual. Until the original director takes that place, these ad-hoc directors continue serving in their place.
6. Alternative Directors
If any director is absent for over three months, the alternative director will come in his place. The Board of Directors also appoints an alternative director. This director stays at the original director’s place until he returns or the expiry date comes up.
7. Executive Directors
The Executive directors are the ones who keep the charge of the company’s day-to-day management. They are also commonly referred to as the company’s whole-term directors. You can find executive directors in the roles of marketing directors, finance directors etc.
8. Non-executive Directors
As the name suggests, the non-executive directors are quite the opposite of the executive directors. They are not involved in the company’s day-to-day functioning. They don’t have any executive positions in the organisation. But, they do have an independent voice that can provide the Board of directors with their own perspective.
9. Directors as agents
As we have discussed above, a company can’t act in its own capacity. It would certainly need assistance from someone who could act on the company’s behalf. The director signs as well as curate the contracts on th behalf of the company. This way, the directors are referred to as the against of the company.
10. Directors as trustees
Directors also play the role of a trustee in a company. It is because he looks upon and administers every work that could be in the company’s interest. A trustee is someone you can trust for the company’s assets. Not only this, a trustee would always perform in a way that could lead to the company’s growth. Also, a trustee always exercises certain powers like accepting or rejecting the transfers, allotting the shares, making calls etc. Every director performs such roles in the company, and thus, they can be referred to as the trustee.
11. Directors as managing partners
One of the major functions of a company’s director is that they represents the will and wants of the shareholders. They are notably known to act in the place of the shareholders and their goals. Due to the same reason, they tend to have a lot of vast powers. Their functions have a proprietary nature. This makes them the managing partner of the company.
Conclusion
There hasn’t been much clarity based on the legal position of directors. However, it has to be noted that they are genuinely bound by the law just in case they misuse or exceed their powers in the company. Directors have an identity of their own. They possess a good number of characteristics in the form of managing directors, trustees and agents in the company. If you need to get some more information regarding the directors of the company and if you need any legal help in the company’s formation, you can get in touch with the legal experts of Vakilsearch.
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