A company needs a director to handle all the company processes and take important decisions. In India, a private limited company plays a significant role in boosting the economy’s growth rate. The director is essential during the company’s incorporation and post-incorporation process. There are many rules to becoming a company director, and one must abide by them.
Adding a Director – Overview
A director is an individual elected by the shareholders of a company to oversee the company’s affairs in accordance with the Memorandum of Association (MOA) and Articles of Association (AOA). Any person seeking to become a director must possess a Digital Signature Certificate (DSC) and Director Identification Number (DIN).
Anyone above the age of 21 is eligible to become a director of a company. The AOA of a company should include provisions for adding a director. The Companies Act, 2013 outlines the procedure that a company must follow to appoint a new director. A private company must maintain a minimum of two directors at all times, with a maximum limit of fifteen directors.
As per the Companies Act, 2013, the director of a company is defined as a person who the board members of the company appointed. The board of directors includes members elected by the company shareholders to manage the different affairs of the company. A company must be managed with the help of proper individuals, and the company’s director plays a significant role in this process. One must be aware of the director’s background when choosing a director. Who Can Be A Director Of the Company
The company entrusts the board of directors regarding any decision and the company’s plan to expand further. Another definition of the director is an individual who operates, manages, administers, controls, or directs the company; or a person who the shareholders of the company elect; or who are experienced and authorised to manage the company is known as the About director of a company in india .
However, different norms must be followed when a person wants to become a company director. The person also requires a DIN (Director Identification Number) to become a company director. Anyone above 18 can obtain this number from the DIN Cell. The central government provides this number to a person who will be a director or existing director, an eight-digit number.
Types of Directors of the Company
Based on the different needs of the company, there are specific directors. One person cannot handle the company alone, so multiple directors focus on different things of a company or an institution. There can be directors focusing on management, finance, or company operations. Multiple directors help in making the decision process easy and effective. The following are the three basic types of directors a company has: –
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Managing Director of the Company
The board members of the company appoint a managing director, and he looks towards the management and different affairs of the company.
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The Executive Director or Whole-Time Director of the Company
An executive director or a whole-time director is a person who manages the company full-time with responsibility, and he works as a full-time employee of the company.
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Ordinary Director of the Company
An ordinary director is a person who attends the company’s board meetings. He also helps in the decision-making in the board meetings and participates in matters in front of the company. The ordinary director is neither a full-time director nor a managing director.
Maximum Number of Directors of a Company
There are many different kinds of directors a company can have. But, there are certain norms regarding the minimum and maximum directors of a private limited company. One must know that only a living person can be appointed as the director of a company. A business entity or a corporate body cannot act as the director of a company.
However, the company can have a maximum of fifteen directors. The number of directors can also be increased by passing a special resolution. The minimum types of directors in different kinds of companies are as follows: –
- For a one-person company: – There can be a minimum of one director.
- For a limited company: – There can be a minimum of three directors.
- For a private limited company: – There can be a minimum of two directors.
However, now there is a change in the norms, a private limited company earning a turnover of more than INR 300 crores and having a paid-up capital in shares of more than INR 100 crores are required to appoint a women director in the company.
Who Cannot be the Director of a Company?
There are many norms when choosing a director of the company. According to section 151 of the Companies Act, 1993, the following person can’t be a director of any company: –
- A person who is less than the age of 18 years.
- A person who is considered bankrupt.
- A person who is prevented from becoming a director or promoter of the company or is prohibited from taking part in any company processes under the following given circumstances: –
- The court disqualifies them.
- They are prohibited by FMA (Financial Management and Accountability Act 1997) or Registrar.
- They have committed any crime.
- They have been convicted of an offense concerning the company’s management, formation, or promotion by any illegal means.
- A non-natural person can’t be a director of a company.
- A person who the board members of the company do not accept.
- A person prevented from becoming a director under the Limited Partnerships Acts 2008.
These were some brief points because a person cannot be considered a director of a company. Apart from this, if the person follows the laws properly and fits into the company’s rules and regulations, and protocols, he can be considered a director of the company.
There are many laws given by the different Acts which help the board members of the company to choose the right director for one’s company. These laws can be studied in-depth to know more about the different rules and regulations when choosing a director of a company.
Why Add/Change Directors?
Here are some common reasons why a company may consider adding or changing directors:
- Bringing in New Talent: As the company expands, it may need to enhance its board with fresh talent to meet new challenges.
- Preventing Ownership Dilution: Appointing additional directors allows shareholders to delegate extra operational responsibilities without losing strategic control.
- Addressing Inefficiency: If existing directors are ineffective due to reasons such as family issues, health problems, retirement, or other personal reasons, the company may opt to appoint new directors.
- Meeting Statutory Requirements: Sudden events like the death or retirement of directors may leave the company below the required statutory limit. In such cases, immediate appointments are necessary to meet the statutory minimum (a minimum of two directors for a private limited company).
Documents Required to Appoint a Director
To appoint a director, the following documents are needed:
- PAN card of the director
- Identification proof (Voter ID, driving license, Aadhaar card, etc.)
- Proof of residence (utility bills, rental agreement, etc.)
- Passport-size photograph
- Digital Signature Certificate (DSC)
Who Can be a Director of Company?
Apart from being a natural person, there are specific eligibility criteria for becoming a director:
- Age Limit: Directors must be at least 18 years old and capable of entering into a contract. The prescribed age limit for Full-Time, Independent, and Managing Directors is 21 to 70 years.
- Nationality: While there are no restrictions on nationality for directors in a Private Limited Company, at least one board member must be an Indian national to incorporate a company in India.
- DIN Requirement: Individuals aspiring to be directors must have a valid Director’s Identification Number (DIN), a unique number for each person, to maintain records with the Ministry of Corporate Affairs.
- Valid Directorship: According to Indian laws, an individual can only be a director in up to 20 companies simultaneously, with a limit of 10 public companies. Directors must ensure compliance with these thresholds to avoid exceeding them and may need to resign from positions in excess companies if necessary.
FAQs
1. What qualifies a person as director of a company?
Any individual aged 21 or above can be designated as a director. However, entities like corporations, companies, firms, associations, or other artificial persons cannot be appointed as directors.
2. Who can be considered to be a director of a company?
The eligibility criteria to become a director include the following: The individual must be at least 21 years old. The individual should not have an unsound mind. The individual should not be an undischarged bankrupt or declared insolvent. The individual should not have been sentenced by a court and convicted for more than six months.
3. Who can be called a director?
A director is an individual elected by a company's shareholders to manage the company affairs as per the Memorandum of Association (MOA) and Articles of Association (AOA).
4. Can a employed person be a director of a company?
Yes, an employed person can be a director of a company. Being employed does not disqualify an individual from serving as a director.
5. Can a salaried person be a director?
Yes, a salaried person can be a director of a company. Directorship is not limited by employment status, and individuals receiving a salary can still hold directorial positions.
6. Can a director receive salary from two companies?
Yes, a director can receive a salary from two or more companies simultaneously. However, it is essential to ensure compliance with any legal or contractual obligations regarding multiple directorships and compensation arrangements.
Conclusion:
Hence, this was some brief information about the types of directors and the eligibility criteria for selecting a director. One can make more effort to know more about the different criteria for selecting a director with the help of the internet and law firms near you. However, with the help of the internet, many law firms are based on the internet. One can make a call and take tips from law firms. There are many excellent law firms on the internet.
One of the best law firms in India is situated in Chennai, known as ‘Vakilsearch.’ We can help get more knowledge about the different laws while deciding on a proper director for a company. We can also help file an ITR, legally save taxes, solve court cases, register a company, and many other services. Vakilsearch is India’s leading legal, tax, and compliance services platform. Their services are majorly appreciated by their clients.
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