Companies Act, 2013 defines directors under Section 2(34) Now learn more about the types of director and their roles
There are different types of directors chosen in a firm. The Companies Act 2013 defines a director under Section 2(34) as a director appointed to the Board of a company; this primer will be divided into four sections, i.e., Minimum Requirements, Functions, Appointment, and Residuary Types. The latter three sections deal with the types of directors, while the first section deals with minimum requirements for all Company Law Directors.
1. Minimum Requirements
The minimum requirements can be based on two broad grounds, composition and eligibility
1.1 Composition
- All public companies should have a minimum of 3 directors maximum of 15 directors, and 1/3 of them must be independent directors
- All private companies must have a minimum of 2 directors and a maximum of 15 directors
- To have more than 15 directors, a special resolution must be passed by Section 114.
1.2 Eligibility of Directors
Any person other than the following would be eligible to be a director
- Auditory of the company.
- A previously banned director.
- A minor under 16 years of age.
- Any person declared to be bankrupt or insolvent.
2. Type of Directors Based on Functions Performed
Types of directors are two types – executive directors and non-executive directors.
2.1 Executive Directors
Executive directors are present internally and are involved in the company – s.149(12). They are two types – Managing Directors and Whole-Time Directors
Managing Director – A director who is the CEO and entrusted with substantial management powers under s. 2(54) . Whole-Time Director – A director employed on a whole-time basis, not the CEO of the company, and is under a special contract, appointed under s.2(94)
2.2 Non-Executive Directors
Non-executive directors are external professionals and are uninvolved in the everyday activities of the company – s.149(12). They are of two types – independent directors and nominee directors.
Independent Directors – They are appointed to ensure transparency and provide expertise. Must have the following qualifications
- Industrial expertise and knowledge
- Must not have any stock options or stake in the company
- It can only be appointed for a maximum of 5 years and for two terms, with a minimum cooldown of 3 years between the term sheet.
Nominee Directors – Representative of the stakeholders appointed to the board of directors. Must have the following requirements – s.149(7) and s.161(3)
- Must be appointed if provided in the Articles of Association (AoA)
- Tata v. Cyrus – Must have unfettered discretion to protect the interests of both the company and the shareholders
3. Types of Directors Based on Appointment
The Companies Act 2013 allows for three types of directors based on appointment to deal with contingencies – Additional Director, Alternate Director, and Casual Vacancy Director
3.1 Additional Director
A company may appoint an additional director under s.161(1) to deal with unexpected or additional work. Hence, it must fulfill the following requirements.
- Must be provided for in the AoA
- Cannot serve beyond the next Annual General Meeting
- Paul v. City Hospital – Additional Directors cannot be appointed in special circumstances to strengthen the majority. You can make the Directors in company law Under CPC Act by consulting experts in your field.
3.2 Alternate Director
- Can be appointed under s.161(2) in the absence of the director for more than three months to act on his behalf if provided under AoA
- Can only serve till the managing director returns, cannot serve beyond that point
- Must be a like-for-like replacement – only an independent, alternate director may fill in for an alternate director.
3.3 Casual Vacancy Director
- Can be appointed under s.161(4) on the death, resignation, disqualification, or incapacity of a director
- Need not be provided for under AoA
- Can only serve till the term of the director who has vacated.
- This only applies to public companies.
4. Miscellaneous Types of Directors
This section deals with classification of directors based on categories that may overlap with earlier categories. This section covers residential directors, women directors, and small shareholders directors.
4.1 Residential Directors
- Provided in s.149(3) that every company must have at least one director who resides in India for at least 182 days in a year
- For newly incorporated companies, the requirement shall apply proportionally (50%) to the end of the FY
4.2 Women Directors
- Provided for in s.149(1), requires three types of companies to have a minimum of one women director
- Every listed company
- Every public company without a paid-up share capital of 100 cr or a turnover of 300 cr.
- Companies registered before the Companies Act, 2013: https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf shall appoint women directors within a year of this act coming to force, while new companies post-2013 act shall appoint women directors within six months of registering.
4.3 Small Shareholders Director
- There is no mandate to appoint a small shareholders director under s.151, left up to the company’s discretion
- Companies must fulfill two criteria to be eligible to appoint a small shareholders’ director
- It must be a public company
- It must have at least 1000 or more small shareholders.
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