What do we understand by “directors of a company”?
A director of a company is a person appointed or elected as a member of the board of directors, and along with other directors having the roles and duties for strategizing and implementing the company’s policies. A director does not need to be a shareholder or an employee of the company, he/she may just hold an office of a director.
Directors Roles and Responsibilities:
They act on the purview of resolutions that are made in the director meetings which lay down their powers that are derived from the articles of association. They are the company’s agents; they enter into contracts with third-parties which create a binding obligation between them. Directors cannot vote by proxy and cannot absolve themselves of their responsibility for the delegated duties.
Shareholders shall sue the directors for the consequences of the acts that are fraudulent or beyond the powers vested in them, even when appointed validly or not, they are individually and collectively liable for the acts and/or negligence of the Company.
Kinds of Directors with Their Qualifications
Resident Director: Under Section 149 of the Companies Act, 2013, an appointment of one resident director is necessary by the “Board of Directors” of a company, who has lived in India for more than 181 days in the previous calendar year. It requires all companies to comply with the section 149 within a period of one year.
Woman Director: Section 149 of the Act, further, states the requirement of certain categories of companies to appoint at least one woman director on the board.
Independent Director: Section 149 (4), states that a listed company is required to have at least 1/3rd independent directors of the total number of directors. Independent Directors are those directors’ who do not have a material or pecuniary relationship with the company or related persons. They do not own shares in the company, they only seek sitting fees. Section 149(6) demarcates the conditions for the qualifications of an independent director as follows:
- Person of integrity and relevant experience
- Person must not be a promoter or in any relation with the directors or promoters of the company and its associate, subsidiary or holding company;
- There must be no pecuniary relationship by the person with company, or its holding, subsidiary or associate company, or a relation with the promoters or directors from the last two years of his/her appointment
- Person does not have relatives who have a relationship that is pecuniary with the company, and its holding, subsidiary or associate company, its promoters or directors, which overall amounts a 2 % in the preceding two years of the person’s appointment.
- who possesses such other qualifications as may be prescribed.
The shareholders must approve that such appointment of independent directors.
Additional Directors: Under section 161, the Article of Association confers powers on the Board of Directors of the company for the appointment of additional directors. Here, the proposed Director must be qualified in order to be appointed in a General Meeting.
Nominee Director: The “explanation clause” of section 149 refers that a nominee director is a person who is nominated by way of any agreement or by such appointment by any government to represent its interest of the company as to the law as applicable for the time in force.
Alternate Directors: As prescribed under section 161(2) of the act, Alternate Directors are individuals that are appointed to attend a board meeting on behalf of one of the principle director of the company who would be otherwise unable to attend. The concerned individual must be qualified for the position and must not hold any directorship and remains in office till the principle director is able to attend.
Procedure for Appointment of Directors
Subject to the provision under section 152, Chapter XI, of the Companies Act, 2013, specific requirements for the appointment of directors are laid down as follows:
- The Articles of Association contains the provisions for appointment of directors, but in case, where no such provision exists, the shareholders will be deemed as the first directors of the company until directors are considered for appointment;
- A director is to be appointed in the general meeting, followed by an explanatory statement for such appointment, that has to annexed as notice in the general meeting which shall include the board’s opinion of statements which should fulfill the conditions specified under this act with regards to such appointments;
- Under section 153 and 154, Once the appointment procedure of Directors have been finalized, the Proposed Directors have to obtain a Director Identification Number , viz provided on the post on submission of the application of the proposed Director of a company, that is allotted by the Central Government;
- A declaration must be furnished by the proposed directors, specifically stating that he/she is not disqualified to be a director and that such appointments were consented; here consent implies that being appointed a director and taking charge of the office are two different things, where such consent has to be filed with the Registrar of Companies within 30 days of appointment.