Company To Have Board Of Directors under Section 149 of Companies Act, 2013

COMPANY TO HAVE BOARD OF DIRECTORS

1. Number of Directors

Every company shall have a Board of Directors consisting of individuals as directors

Company Minimum Maximum
Public Company 3  

15

Private Company 2
One Person Company 1

Company may appoint more than fifteen directors after passing a special resolution.

2. Woman Director

The following class of companies shall appoint at least one-woman director-

i. Every Listed Company,

ii. Every other public company having-

    • Paid-up share capital of Rs 100 crore or more; or
  • Turnover of Rs 300 crore or more

> A Company shall comply with the provisions within a period of six months from the date of its incorporation.

> Any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy whichever is later.

> The amount existing on the last date of latest audited financial statements shall be considered for calculating the paid-up share capital or turnover.

3. 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.
  • In case of a newly incorporated company the requirement shall apply proportionately at the end of the financial year in which it is incorporated.

4. Independent Director

i. Applicability to companies

S.NO Company Number of Independent Directors
1. Listed company At least One third of total number of directors as independent directors
2.      (i) Public Companies having paid up share capital of ten crore rupees or more At least two directors as independent directors.

If a company ceases to fulfil any of three conditions for three consecutive years, it shall not be required to comply with these provisions until such time as it meets any of such conditions.

         (ii) Public Companies having turnover of one hundred crore rupees or more
        (iii) Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees
  •  Any fraction contained in such one-third number shall be rounded off as one.
  • The company must appoint a higher number of directors if higher number of independent directors is required by audit committee.
  • Any intermittent vacancy of an independent director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy whichever is later.
  • The amount existing on the last date of latest audited financial statements shall be considered for calculating the paid-up share capital or turnover or outstanding loans, debentures and deposits.
  • A joint venture, wholly owned subsidiary and dormant company are not required to appoint an independent director even if they meet the criteria.

ii. Who is an Independent director?

An independent director means a director other than a managing director or a whole-time director or a nominee director, –

a) Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience

b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate company;

(ii) who is not related to promoters or directors in the company, its holding, subsidiary or associate company;

c) who has or had no pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten percent. of his total income or such amount as may be prescribed, with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year

d) none of whose relatives—

(i) is holding any security of or interest in the company, its holding, subsidiary or associate company during the two immediately preceding financial years or current financial year:

However, the relative may hold security or interest in the company of face value not exceeding fifty lakh rupees or two per cent of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may be prescribed;

(ii) is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors, in excess of such amount as may be prescribed [ Amount prescribed is fifty lakhs’ rupees] during the two immediately preceding financial years or during the current financial year;

(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company, for such amount as may be prescribed [ Amount prescribed is fifty lakhs’ rupees] during the two immediately preceding financial years or during the current financial year; or

(iv)has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to two per cent. or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii)

None of whose relatives is –
S.NO Particulars Time Period Allowable Limit
i Holding any security of or interest in company, its holding, subsidiary or associate during 2 immediately preceding Financial Year or current Financial year Hold Security or interest in the company of-

Face Value not exceeding Fifty Lakh rupees or

2% of the paid-up capital of company, its holding, subsidiary or associate

ii Indebted to the company, its holding, subsidiary, associate or their promoters or directors of such holding company during 2 immediately preceding Financial Year or current Financial year However, Indebtness allowed of upto fifty lakh rupees
iii Given a guarantee or provided any security in connection with the indebtedness of any third person company, its holding, subsidiary, associate or their promoters or directors of such holding company during 2 immediately preceding Financial Year or current Financial year However, Guarantee or security allowed of upto fifty lakh rupees
iv Any other pecuniary transaction or relationship singly or in combination with the transactions referred above company, its holding, subsidiary or associate However, transaction or relationship of less than two percent of gross turnover or total income singly or in combination with the transactions referred above is allowed

e)   who, neither himself nor any of his relatives—

(i) holds or has held the position of a key managerial personnel or is or has been   employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;

In case of a relative who is an employee, the restriction shall not apply for his employment during preceding three financial years.

(ii) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of—

(A) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or

(B) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;

(iii) holds together with his relatives two per cent. or more of the total   voting of the Company;

(iv) is a Chief Executive or director, by whatever name called, of any non-profit organisation that receives twenty-five per cent. or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two percent or more of the total voting power of the company;

f) Possess appropriate skills, experience and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the company’s business.

iii.  Declaration by Independent Director

Every independent director shall-

  • At the first meeting of the Board in which he participates as a director and
  • Thereafter at the first meeting of the Board in every financial year or
  • Whenever there is any change in the circumstances which may affect his status as an independent director, give a declaration that he meets the criteria of independence.

iv. Remuneration to Independent Director

  • An independent director may receive remuneration-

> by way of fee provided under 197(5)

> Reimbursement of expenses for participation in the Board and other meetings and

> Profit related commission as may be approved by the members.

  • An independent director shall not be entitled to any stock option.
  • If a company has no profits or its profits are inadequate, an independent director may receive remuneration, exclusive of any fees payable under sub-section (5) of section 197, in accordance with the provisions of Schedule V.

v. Tenure

  • The independent director shall be appointed for a maximum term of 5 years.
  • Reappointment shall be made on passing of special resolution by the company and disclosure of such appointment in Board Report.
  • The term shall not be more than 2 consecutive terms.
  • However, he shall be eligible for reappointment after an expiration of 3 years of ceasing to be an Independent Director.He shall not be appointed in or be associated with the company in any other capacity, either directly or indirectly during the said period of three years.

vi. Liability

  • Independent director,
  • Non-executive director not being promoter or key managerial personnel, shall be held liable for the acts of omission or commission which had occurred with

> his knowledge,

> attributable through Board processes, and

> with his consent or connivance or where he had not acted diligently.               

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