A company under the companies’ jurisprudence is a legal and a juristic person, separate from its members. The directors and collectively constitute the highest decision making body under the Companies Act known as Board of Directors.
Appointment of directors and understanding the different types of directors becomes a major concern while forming a company for startups. A general query is raised in regard to different types of directors and their role in the company.
To bring out a clear view about different positions of directors, we have jotted down the major concern of start-upsin this regard which would help start-ups to understand the concept in better and easy way.
Minimum Directors Required in Company:
- One Person Company- One Director
- Private Limited Company- Two Directors
- Public Limited Company- Three Directors
Maximum 15 directors can be appointed under any format of Company. However, by passing a Special Resolution, company can increase the number of directors beyond 15.
The board of directors of a company is primarily responsible for:
- determining the company’s strategic objectives and policies;
- monitoring progress towards achieving the objectives and policies;
- appointing senior management;
- accounting for the company’s activities to relevant parties, e.g. shareholders.
DIFFERENT TYPES OF DIRECTORS AND THEIR ROLES:
Resident Director:Every company shall have at least one director who stays in India for a total period of not less than one hundred and eighty-two days during the financial year but in case of a newly incorporated company the requirement of such director shall apply proportionately at the end of the financial year in which it is incorporated.
Women Director: Every listed company and every other public company having:-
(a) paid–up share capital of one hundred crore rupees or more; or
(b) turnover of three hundred crore rupees or more:
shall appoint at least one women director as the member of the Board of directors.
Independent Directors: A director other than a Managing Director, Whole Time Director or Nominee Director. Their roles broadly include improving corporate credibility and governance standards functioning as a watchdog, and playing a vital role in risk management. Independent directors play an active role in various committees set up by company to ensure good governance Every listed company shall have at least one-third of the total number of directors as independent directors and the following companies shall appoint at least two Independent Director:
- Public companies having Paid up Share Capital of Rs.10 crores or more;
- Public companies having Turnover- Rs.100 crores or more;
- Public companies have total outstanding loans, debenture and deposits exceeding Rs. 50 crores.
Executive Director: They can be either a Whole-time Director of the company or a Managing Director.
- Whole-time Director- One who devotes his whole time of working hours to the company and has a significant personal interest in the company as his source of income
- Managing Director- One who is employed by the company as such and has substantial powers of management over the affairs of the company subject to the superintendence, direction and control of the Board
Non-executive Director: Director who is neither a Whole-time Director nor a Managing Director.A non–executive director typically does not engage in the day-to-day management of the organization but is involved in policymaking and planning exercises.
Additional Director: If the article confers, the Board of Directors has power to appoint any person as an additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier. The additional director shall not be the person who has failed to get appointed as a director of the company in general meeting.
Alternate Director: A company may appoint, if the articles confer such power on company or a resolution is passed, if a director is absent from India for not less than three months.
Points to be noted:
- An alternate Director cannot hold the office longer than the term of the Director in whose place he has been appointed.
- He will have to vacate the office, if and when the original Director returns to India.
- Any alteration in the term of office made during the absence of the original Director will apply to the original Director and not to the Alternate Director.
- In case of independent director, the person shall be appointed as an alternate director who is qualified to be appointed as an independent director under the provisions of this Act.
Nominee Director: If the article of a company gives power, the Board may appoint any person as a director nominated by any institution or under any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government company.
Small Shareholder Director:A listed company may upon notice of not less than one thousand small shareholders or one-tenth of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders. A listed company can by its own appoint such small shareholder director.
Shadow Director: A person, who is not appointed to the Board, but on whose directions the Board is accustomed to act, is liable as a Director of the company, unless he or she is giving advice in his or her professional capacity.
Though shadow directors are not appointed as director on the board of a company, are referred as directors because they are also liable to non-compliance done by the company.
A founder or holder of controlling or majority stock of a private firm who is not a director and does not openly participate in the firm’s governance, but whose directions or instructions are routinely complied with by the employees or other directors. In the eyes of law, he or she is a de facto director and is held equally liable for the obligations of the firm.
It is to be noted that a person other than a director on the board of the company cannot attend the board meeting thus; a shadow director cannot be counted in the quorum of the board meeting.
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