Rights and Duties of Directors in a Company

A company is an artificial person that can’t think or act on its own. A real person has a mind and hands to make decisions and take actions. A company, being artificial, doesn’t have these abilities, so it needs people to act for it. Directors are the ones responsible for running the company. This article will explain the Rights and Duties of Directors.

Introduction

The “Duties of Directors” refer to the specific tasks and responsibilities that individuals holding the position of Director in a Private Limited Company, Limited Company, or OPC (One Person Company) are expected to fulfill. It is unfortunate that some directors may not be fully aware of these duties and simply hold the position in name only. However, organizations that have competent and ethical Boards of Directors will thrive, ultimately benefiting all the stakeholders involved.

“In business, directors have a fiduciary duty, meaning they must use their authority in the company’s best interests. They must prioritize these interests over their own. Acting honestly but contrary to the company’s best interests would breach this duty.”

Definition of Director

A Director is someone who holds a position of authority in a company, as defined by section 2 (13) of the Companies Act of 1956. Their appointment, responsibilities, retirement rights, and salary details are all mentioned in the Articles of Association, which is a legal document that outlines the rules and regulations of the company.

Know More: Type of Directors for a Company

Rights and Duties of Directors in a Company

To create effective policies that lead to positive outcomes, directors need to have a clear vision. They are responsible for setting the company’s goals and ensuring that they are achieved. Directors also have specific functions and responsibilities that they must fulfill. To safeguard themselves and the company’s interests, directors have certain measures in place. The following is a description of the rights that directors possess.

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 can be held responsible together or separately for any actions that harm the company’s interests. Even though the director and the company are different, the director can be held accountable for the company in these situations:

• 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.