Rights and Duties of Directors, Duties of Directors in a Company, Directors Liability in a Company, Ebizfiling

All you need to know on Rights and Duties of Directors in a Company

Director Meaning, Rights and Duties of Director in a Company, and Directors Liability in a Company

A company is an ethereal and invisible artificial person. A living person has a mind and hands with which he carries out his acts, allowing him to make any decision and have knowledge and intention. A corporate entity, on the other hand, as an artificial person, lacks all of these characteristics. As a result, it must act through a living human. The directors are in charge of the company’s operations. This article will cover all the information on the Rights and Duties of Directors.

 

Introduction

Certain tasks and responsibilities come with the post of Director of a Private Limited Company, Limited Company, or OPC (One Person Company). Many company directors are unaware of the tasks and responsibilities that are expected of them and only occupy the post as a namesake. As a result, organizations with strong and ethical Boards of Directors will emerge, benefiting all of the company’s stakeholders.

 

In regard to the companies, directors have a fiduciary responsibility. As a result, the Director must use his or her authority for the profit of the firm or in its best interests. A director must also prioritize the company’s interests over their own personal interests. As a result, a Director who acts honestly but against the company’s best interests is in violation of duty.

Director Meaning

A Director is defined by Section 2 (13) of the Companies Act of 1956 as “any person exercising the position of Director, by whatever name called.” Their appointment, duties, retirement rights, and salary are all covered under the Articles of Association.

 

Know More: Type of Directors for a Company

Rights and Duties of Directors in a Company

In order to create policies that would yield high results, directors must have a vision. To achieve high levels of success, they must set the company’s goals. They must be able to conduct the company’s objectives. Then there is the director’s function and responsibilities. Directors have various safeguards in place to protect themselves and the company’s interests. Below is the description of the Rights of Directors.

  • Director’s Individual Rights

  1. Inspection of books of accounts.

  2. Right to receive board meeting notices.

  3. The right to obtain circular resolution draft.

  4. The right to a sitting fee.

  5. The right to speak in General Meetings.

  6. Inspection of board meeting minutes is a legal right.

  7. He has the right to record his dissent.

  8. Right to vote and participate in Board meetings.

  9. The ability to claim travel, lodging, and other expenditures.

  10. The right to call board meetings.

  11. Right to request an alternate director from the board of directors.

  • Collective Rights in a Company

  1. Right to prohibit share transfers

  2. The right to choose a Chairman

  3. Right to nominate a Managing Director and make dividend recommendations

  4. Investment approval authority.

Duties of Director in a Company

The Board of Directors functions as the Company’s agent. However, when acting for the Company, the Director must fulfill the following responsibilities:

  • Act in good faith and in accordance with the Company’s Articles of Association

  • To act in the best interests of the Company and its stakeholders in order to promote the Company Act’s objectives.

  • Exercise due and reasonable care when performing obligations.

  • To make independent decisions.

  • Not to get engaged in a situation where his interests are at odds with the Companies.

  • He is unable to delegate his duties to anyone else.

  • To avoid gaining an unfair advantage or profit.

Director’s Liability in a Company

The directors may be held jointly or collectively accountable for any and all conduct detrimental to the company’s interests. Although the Director and the Company are separate entities, the Director can be held liable on the Company’s behalf in the following circumstances:

  • SEBI can take legal action against directors who fail to make the required disclosures under the SEBI (Acquisition of Shares & Takeovers) Regulations, 1997, and SEBI (Prohibition of Insider Trading) Regulations, 1992.

  • Share application cost refunds or excess share application fees.

  • To cover the cost of qualification shares.

  • Civil Liability for Misrepresentation in a Prospectus.

  • Any present or previous Director (during the defaulter’s time period) shall be liable to pay the tax shortfall as well as any penalties unless a Director or Former Director can establish that the non-recovery or non-payment of taxes is due to gross negligence or violation of duty.

  • If the majority of shareholders participate in “fraud on the minority,” or discriminatory behaviour, the directors and the corporation maybe held accountable. As a result, this is a precious clause that Directors should be aware of and try to exploit as much as possible.

  • A company is required by the Companies Act to acquire insurance to protect itself from losses caused by its directors. A director may also obtain insurance to cover damages suffered owing to the company’s liability, with the corporation charging the price.

Conclusion

The board of directors is the heart and soul of the firm, and they are crucial to its success. Because more power comes with more responsibility, firm management should be in the hands of competent people who know how to utilize their power wisely. A board of directors governs the firm, and all of the corporation’s decisions are made in an organizational meeting.

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Author: zarana-mehta

Zarana Mehta is an MBA in Finance from Gujarat Technology University. Though having a masters degree in Business Administration, her upbeat and optimistic approach for changes led her to pursue her passion i.e. Creative writing. She is currently working as Content Writer at Ebizfiling.

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