Directors in a Private Limited Company: Types, Appointment, Responsibilities, Minimum and Maximum Number of Directors

Introduction

At present, this is the first choice for every businessman, a Private Limited Company. One of the main members of such companies is their directors. They play a very significant role in the management and oppression of the company. Various types of directors are prevailing in a company, which include independent directors, managing directors, whole-time directors, etc. all the above have different roles, and accordingly, they have been appointed. There are different duties of the director in a private limited company. 

The role of directors in Pvt. Ltd. companies are essential to maintaining a well-governed organisation, where they uphold corporate policies and safeguard stakeholders’ interests. As part of the leadership, company directors in India are accountable for aligning the company’s goals with statutory obligations, ensuring sustainable growth and operational integrity. According to the Companies Act, 2013 the duty of a director in a private limited company is described under Section 166. To find out more about the directors and their duties, stay tuned to the blog below.

Eligibility Criteria for Directors

Selecting directors for a private limited company involves specific eligibility requirements to ensure effective governance and legal compliance. From age and citizenship standards to legal qualifications, these criteria help safeguard the company’s integrity and align with the Companies Act, 2013, ensuring that directors are both qualified and legally fit to manage the organisation’s affairs.

Age and Citizenship Requirements

To qualify as a director in a private limited company, an individual must meet certain eligibility criteria for directors in Pvt. Ltd. companies. The minimum age for becoming a director is 18 years, though in practice, candidates are often above 21. Both Indian citizens and foreign nationals are eligible, provided they meet the company’s provisions.

Legal Disqualifications

Certain director qualifications in India prevent individuals from serving as directors if they fail to comply with specific standards outlined by the Companies Act, 2013. Disqualifications include situations like bankruptcy, criminal convictions, or a history of non-compliance with corporate laws. Companies must also ensure their AOA (Articles of Association) includes provisions for appointing new directors.

Types of Directors in a Private Limited Company

Private limited companies can benefit by having different kinds of directors, who might bring varying perspectives and abilities to the board.

•  An executive director is someone with a position in the operational management, who has very active roles in the making of decisions so that the organisation remains well aligned with strategic goals 
• A non-executive director brings an external point of view and tends towards governance and oversight; that is valuable in bringing independent advice 
• For many compliance and governance purposes, independent directors are needed due to their lack of involvement in daily operations and because they bring a dispassionate view of the situation in major decisions 
• Nominee directors serve as agents for specific stakeholder interests, such as investors or financial institutions; as such, the views held by such directors regarding the decisions arrived at by the company are respected. This balance of governance is promoted by such directors through oversight strategies and operational efficiency.

Appointment of Directors in a Private Limited Company

In the case of a private limited company, steps for appointment of directors have been taken as critical since they will be addressed in the course of seeking regulatory compliance and defining what a director should do in an organisation.

The most important thing here is the need for consent from the board of a given company to appoint a director, and along with him, specific duties he shall perform as a director in the said company. 

The candidate has to obtain a Digital Signature Certificate (DSC) and a Director Identification Number (DIN). Both these are required for filing to the relevant authorities and will be necessary to comply with the e-filing provisions of the Ministry of Corporate Affairs. These can be procured by submitting identification documents along with an online application form. 

Once these requirements are satisfied, the company files Form DIR-12 with the ROC. This act legally records the appointment and makes corporate governance transparent. The following is a step-by-step procedure to appoint a director:

• Observe the Articles of Association

Determine if the AOA permits the appointment of directors. If it does not, then amend the AOA to include such a provision.

• Board Resolution

Obtain board approval for appointing a new director, which serves as the sanctioning authority 

• Board Approval

Appoint a new director. The board is the appointing authority and also the sanctioning authority.

• General Meeting

Resolution of a general meeting is a process through which a director is appointed. This may be at an Annual General Meeting (AGM) or in an Extraordinary General Meeting (EGM), in case the appointment is required to be made in between the Annual General Meeting.

In case of appointment through EGM, a board meeting has to be conducted to pass a resolution for conducting EGM and then the appointment resolution to be passed. File MGT-14 with ROC within 30 days of resolution.

• DSC Application

Arrange for DSC of the proposed director, so that filing could be done securely and authenticated.

• DIN Application

If not already secured, the intending director shall obtain a Director Identification Number (DIN). He shall file his DIN along with a declaration of his eligibility under the Companies Act, 2013.

• Obtain Consent from the Intending Director

The intending director shall give his consent to the appointment in Form DIR-2 before his formal appointment.

• File with the Registrar of Companies (ROC)

1. Form DIR-2 and DIR-12, or details of the appointment must be filed with the ROC within 30 days after the appointment 
2. This filing provides legal proof about the appointment and transparency about how the company is being governed 
3. This ensures that Indian private limited companies maintain a legitimate and operationally sound procedure about the appointment, which eventually allows new directors to come on board without any fuss.

Roles and Responsibilities of Directors

Under the Companies Act of 2013, directors in a private limited company are entrusted with specific duties and responsibilities to uphold integrity, accountability, and the company’s best interests. 

These include:

• Adherence to Company Articles: Directors must act in line with the Articles of Association, ensuring all actions are aligned with company bylaws 
• Good Faith and Purpose: Directors must act in good faith, promoting the company’s objectives and serving the best interests of both the organisation and its shareholders 
• Care and Diligence: They are expected to exercise their duties with due care, skill, and diligence, maintaining independent judgement throughout 
• Avoidance of Conflicts of Interest: Directors must avoid any situation where personal interests could conflict with those of the company, whether directly or indirectly 
• No Undue Personal Gains: Directors should refrain from gaining undue benefits for themselves, family, or associates, and if found guilty, they may be liable to repay these gains to the company 
• Non-Delegation of Responsibilities: Directors cannot delegate their responsibilities to others, and any attempt to do so is deemed void.
• Consequences for Non-Compliance: Violations of these duties can result in penalties, with fines ranging from one to five lakh rupees.

Key Responsibilities

• Fiduciary Duties: Directors have fiduciary responsibilities, including loyalty, acting in good faith, and prioritising the company’s interests 
• Strategic Planning and Decision-Making: Directors play a crucial role in shaping the company’s strategic direction, contributing to business development and key decision-making 
• Compliance and Governance: Directors are responsible for ensuring the company adheres to statutory requirements, accurate financial reporting, and effective corporate governance practices.

Minimum and Maximum Number of Directors

According to the Companies Act, 2013, a private limited company must have at least two directors, which ensures proper governance and decision-making capability within the company. The directors may be individuals or a combination of individuals and corporate entities, but at least one of them must be an Indian resident, meaning that he has stayed in the country for at least 182 days during the previous calendar year. A private limited company cannot have more than 15 directors at a time.

However, if the company wants more than 15 directors, the same can be done with the special resolution. Under this, the shareholders through a vote will approve that the company can have extra directors in its board and increase its board size according to its wish.

Process for the Resignation and Removal of the Director

The resignation and removal of a director in a private limited company involve specific procedures mandated by law to ensure transparency and fairness. This process safeguards the interests of both the company and its stakeholders while adhering to regulatory compliance. 

Directors of a private limited company may be removed through the ordinary resolution at the AGM or an EGM. This is how the procedure happens:

• Special Notice: There should be special notice in relation to the removal of a director by passing an ordinary resolution, accompanied with a copy of which will be delivered to the director to be removed.
• Right to Be Heard: The director can take his argument to the assembly. When a director offers a written representation to prove why the director must leave, such must be given to all members of the group. In a situation wherein this cannot be done with the distribution to members, the director may give a copy of his written representation which shall be read in assembly.
• Resolution and Voting: A resolution shall come into effect upon majority voting during an assembly.
• Registration at Registrar: Within 30 days of his withdrawal the company must furnish to the Registrar form no. 32, with a copy of its resolution.

Resignation by Director

A director can resign from his post and submit his resignation letter in the prescribed form that is in a written mode of resignation. The following procedure must be adopted by the company:

• Intimation at Registrar : When they receive notice of resignation, the intimation must be submitted by him about his resignation. They should submit such intimation to the registrar through notice issued in Form DIR-12, within the span of 30 days of his resignation.
• Reporting in Directors Report: The resignation is to be reported in the Director’s Report in the next general meeting and has also to be published in the website of the company.
• Information about Resignation: The resigning director should forward a copy of the notice of resignation along with reasons for resignation, to the Registrar.

Resignation of Directors without Request or Compulsion

Directors can offer to resign by giving written notice. The company needs to follow the filing procedures and inform the relevant parties about the resignation.

Removal by the Board

If the board initiates the removal of a director, then a board resolution is required followed by that of the shareholders. It involves sending a notice to the concerned director and procedure as stated under removal by an AGM or EGM.

Renumeration of the Board of Directors

 The directors of a private company can receive a package of remunerations that can incorporate salaries, bonuses, allowances, and other benefits, depending on the directorship role, experience, or the financial situation of the company.

Further benefits are allowances, health insurance plans, retirement plans, or other benefits to supplement the benefits package. Besides this, directors also participate in profit-sharing agreements, according to which they receive the company’s profits based on their performance and contributions to the firm. The share of profits can be drawn in different forms, including bonuses, depending on profit margins achieved, or equity stakes, since such a participation of the director’s equity in profits is aligned with corporate prosperity. 

Conclusion

In a private limited company, directors provide the organisation with the strategic direction and obey legal rules and regulations. Their general roles include fiduciary functions such as strategic planning and governance roles that must be played for the good and effectiveness of the firm. 

These individuals must satisfy certain qualification criteria, among which include age, being a citizen, and lack of any legal disqualification. Various critical processes form the appointment process that can range from the obtaining of approval from the board and to the Article of Associations’ compliance up to its necessary compliance with regulation through filling out appropriate documentation.  

We at Vakilsearch acknowledge that legal complexities along with those of a business compliance could be one thing which will challenge all and sundry. It’s the reason why we are providing complete service according to the needs of your business. Therefore, you can simply concentrate on your area of operation.