Director is an employee of the Company. So often they wonder what is their personal liability. Here I list down few things which you should always keep in mind.

Ensure that all the annual compliance is done:

As you all would be aware, if directors do not get the annual compliance of Company done with the ROC for a period of 3 years, they are disqualified from the Company and cannot be appointed for a further period of 5 years. This rule is very stringent. They are answerable to the shareholders of the Company. ROC can even strike off the Company suo motto by giving 30 days’ notice.

If the Company gets strike off due to director, director is personally liable. He would become responsible for paying the huge penalty as he did not take care of it. Company may suffer huge losses.

Also, the Company may end up losing its goodwill if the Company is doing business and gets strike off.

Revival of the Company is a long process. Also, I am very sure you always want your DIN no to be active. For that please ensure that the compliance is done on time. Forms to be filed with ROC like AOC-4 & MGT-7.

Power to approve the Financial statements and Board report:

Directors sign the Finance statements and Board report of the Company. Hence, they should ensure that the details and the records mentioned there are correct. All the reporting has been properly done. If the Company has violated anything, then it is mentioned in the report. Directors are responsible for signing the wrong/incorrect financial statements. Always have a double check.

Few specific duties of the director

  • To disclose his shareholding in the company.
  • He must disclose if he is interested in any contracts signed by the company.
  • He must ensure that the loans taken and given are within the limits of Companies Act. Detailed article can be referred here
  • Ensure that 4 meetings are held in a year and the minutes records are properly maintained.

Director will be responsible for all of the following acts.

  • If director enters into any contract beyond its powers.
  • If he secretly takes any profit from the company.
  • Negligence for not performing the duties.
  • If he provides any wrong information in the prospectus of the company.
  • Where he acts on his own personal name and not in the name of the company.
  • Failure to file any returns with ROC or Income tax.
  • Failure to issue share certificates
  • Failure to provide the annual accounts and Board report.
  • If he is a director in more than 20 companies, the it is a default and he has to resign from other companies to not go beyond 20.

Director is even personally responsible for any criminal liabilities. He has to ensure that Corporate Governance committees are properly formed and be vigilant enough for considering all the above points. Any violation can lead to penalties.

Author Bio

Qualification: CA in Practice
Company: Co-founder of Budding Business & Makwana Sweta & Associates
Location: Mumbai, Maharashtra, India
Member Since: 20 Aug 2017 | Total Posts: 62
A Practicing Chartered Accountant with over 4 years of rich experience in Company Law, Audits, Accounts & taxation. She is a writer at her own blog She is keen in streamlining business accounts of the Company and provide Startup consultancy. View Full Profile

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June 2021