Types of Directors in Company Law.

Introduction

The term ‘Directors’ refers to the members of the Board responsible for overseeing, managing, and directing a company’s operations. They act as trustees for the company’s property and funds, and serve as agents in transactions on behalf of the company. Directors play various roles within a company, including employee, agent, trustee, and officer. This blog provides a detailed understanding of the types of directors in company law, particularly in relation to a Private Limited Company, as outlined in the Companies Act 2013.

Limitation of Number of Directors

Section 149 of the Companies Act of 2013 defines the number of directors.

• A minimum of no. of directors in any Private Limited Company – 2 Directors

• A minimum of no. of directors in any Public Limited Company – 3 Directors

• The maximum no. of directors that a firm can designate –  15 Directors

• A minimum of no. of directors in any One Person Company (OPC) – 1 Directors

After passing a special resolution in a general meeting, a firm may select more than 15 directors without the approval of the federal government.

Different types of Directors in Company Law

1. Executive Director

• Role: Actively involved in the day-to-day management of the company.
• Responsibilities: Managing the operations, implementing board decisions, and ensuring the company meets its goals.
• Examples: CEO, CFO, COO.

2. Non-Executive Director

• Role: Not involved in the daily operations; focuses on policy-making and planning.
• Responsibilities: Provides independent oversight, offers expertise, and ensures corporate governance.
• Examples: Board members who are not part of the management team.

3. Independent Director

• Role: A type of non-executive director who is independent of the company’s management and ownership.
• Responsibilities: Ensures unbiased decision-making, protecting minority shareholders’ interests.
• Legal Requirement: In some jurisdictions, regulations require companies to appoint a certain number of independent directors.

4. Nominee Director

• Role: Appointed to represent the interests of a specific stakeholder, such as a creditor, a large shareholder, or a parent company.
• Responsibilities: Ensures the interests of the appointing party are considered in the company’s decisions.

5. Alternate Director

• Role: Appointed as a substitute for a director who is unable to attend board meetings.
• Responsibilities: Acts in place of the primary director and holds the same responsibilities during their temporary appointment.

6. Shadow Director

• Role: A person not formally appointed as a director whose instructions the board follows.
• Legal Implications : Can be held liable for the company’s decisions as if they were a formally appointed director.

7. De Facto Director

• Role: A person who acts as a director without being officially appointed.
• Legal Implications: Can be treated as a director under the law, particularly in cases of liability.

8. Managing Director

• Role: Usually the senior executive director responsible for the company’s overall management.
• Responsibilities: Has authority over daily operations and reports directly to the board.

9. Alternate Director

• Role: Appointed to act temporarily in place of a director who is absent.
• Responsibilities: They exercise the duties of the absent director during their temporary appointment.

10. Resident Director

• Role: Required in some jurisdictions, this director must reside in the country where the company is incorporated.
• Responsibilities: Ensures local compliance with regulations and tax laws.

Qualifications and disqualifications of directors

Basic Qualifications

• Age Requirement : A director must usually be at least 16 years old (some jurisdictions set the minimum at 18).
• Legal Capacity : The individual must be legally capable of entering into contracts and not disqualified from being a director due to legal reasons, such as bankruptcy.
• Experience : While no formal academic qualifications are necessary, companies often expect directors to have relevant experience, expertise, or knowledge in business management, law, or finance. Companies often look for individuals with skills suited to the business they oversee.

Disqualifications

• Undischarged Bankruptcy : Undischarged bankrupts cannot serve as directors unless a court grants them permission.
• Disqualified by Court : Individuals can be disqualified by a court for prior misconduct, such as fraud or failing to fulfill the duties of directorship in a previous company.
• Criminal Convictions : Some jurisdictions restrict individuals with certain types of criminal convictions from becoming directors, especially if the convictions relate to financial or corporate fraud.
• Mental Health Conditions : In some cases, individuals who have been declared unfit due to mental health issues may be disqualified from directorship.

Additional Requirements (in some jurisdictions):

• Residency Requirements : Some countries require companies to have at least one director who resides in the country of incorporation.
• Director Identification Number (DIN) : In countries like India, directors must apply for a Director Identification Number (DIN).

Responsibilities of a Director

• Act Carefully: You need to make careful, informed decisions for the company.
• Best Interest of the Company: Always make choices that benefit the company, not yourself personally.
• Follow the Law: Make sure the company follows all legal requirements, like taxes and employment laws.

Director’s Liabilities

• If the Director knowingly participated in the fraud(s) while conducting business, he could personally be held accountable for the company’s debts or other obligations.

• If the Director fails to acquire the qualification shares within the specified time limit and the company goes into liquidation after that time has expired, the Official Liquidator will demand payment for the shares he was due to purchase.

• A director is not personally accountable for any of the company’s debts unless someone can prove fraud on their part.

• Every director of a private business is jointly and severally liable for paying any tax owed by the private company for income from a previous year that the company has not paid under the Indian Income Tax Act.

Conclusion

Directors are like the brain of a company, and a company can only function through them. They play a crucial role in representing and leading the business. The Companies Act of 2013 gives directors certain rights to help them do their jobs well, but it also sets limits to prevent misuse of power. Directors have different roles and responsibilities, and dividing these duties helps keep the system clear and fair, preventing any one person from having too much control and making the company more efficient.