Director and Board of directors:
As per Section 2(34) of the Companies Act (CA), 2013 a director is an individual who is appointed to the Board of the company. As per Section 2(10) of the CA Board or Board of Directors in the company means the altogether body of the directors of the company.
A company is a legal artificial person that acts through its board of directors. The Board of Directors is the name given to the group of directors. The Board of Directors is in control of the company’s operations. The Company’s Board of Directors is chosen by following the procedures outlined in the Companies Act of 2013 and the company’s Articles of Association. Members of the Board are Directors. A board of directors is nothing but a group of people chosen by shareholders to represent them.
According to Section 149 of the Companies Act, 2013 the Board of Directors of each company shall comprise only individuals. Simply put, a corporate body, firm or association cannot be appointed as a director.
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Number Of Directors and Composition of board:
The minimum and maximum number of the directors in a company is stated under section 149(1) of the companies act. The minimum number of directors in a private limited company is 2, for public companies it is 3 directors and an OPC shall have a minimum of 1 director. The maximum number of directors cannot be more than 15 in a company.. Only by passing a special resolution in the general meeting the company can raise the number of directors beyond 15.
Additional measures aimed at enhancing diversity and assuring participation by individuals from traditionally underrepresented communities are increasingly being implemented by boards. Individuals having a diverse set of leadership abilities, backgrounds, experiences, and opinions benefit boards. Creating and maintaining a board skills matrix can assist businesses in keeping track of individual directors’ skills, attributes, and capacities, as well as the board’s overall capabilities.
Section 149(1) of the companies act along with Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 states that; All listed companies or public companies with a paid-up capital of Rs 100 crore or a turnover of Rs 300 crore; must have at least one female director on the board. Board of directors must have a combination of executive and non-executive directors and a minimum fifty percent of the board of directors shall constitute non-executive directors also with at least one woman member.
If the board chairperson is a non-executive director, then at least one-third of the board of directors shall constitute independent directors. If the listed entity has an executive chairperson, then at least half of the board of directors shall comprise independent directors.
Powers of the Board of directors
The board of directors is the top most authority in any and every company. According to Section 179 of the Companies Act 2013, a company’s directors have the authority to make any and all decisions, and thus exercise all of the power that the company has.
Companies Act, 2013 states under section 179 that the power of board of directors are:
- The Board of Directors can exercise all such powers for which the company is authorised.
- The Board of Directors can take all actions on matters in which the company has authority.
Accordingly while exercising the powers the board by passing a resolution in a board meeting can:
- Borrow funds
- Invest funds
- Approve merger, demerger, amalgamation and reconstruction.
- Give guarantees, loans or provide securities in respect to shares.
- Diversification of the business.
- Acquire or control another company by taking over substantial stake.
- Issue securities such as debentures.
Restrictions on The Board of Directors:
While exercising the powers vested in the board of directors, the board must follow the provisions and rules of :
- The Companies Act
- The Memorandum of Association
- The Articles of Association
- Any Regulation made by the company during general meetings.
Some of the other restrictions on the Board of directors are:
- Without the consent of the shareholders board cannot sell, lease or dispose of any undertaking.
- Board cannot borrow money more than the paid up capital and free reserves of the company.
- Without the prior consent of shareholders, the Board cannot invest the amount of compensation received by way of compulsory acquisition of the undertaking as a result of the merger, amalgamation in anything other than trust securities.
- Without the prior approval of shareholders, the board cannot remit or give any time for repayment of any debt due to a director.
Although a company is incorporated and has its own identity, it is run by its Board of Directors, who serve as the company’s brain. The directors are the heart and soul of any company and are the key to its success.
The directors are held liable and responsible in case of any mis happenings and mismanagement. Boards of Directors can have various responsibilities, from accepting company budgets and financial reporting to developing large-scale human resource strategies.
The author, Sushant Gangurde is a legal analyst @Taxblock India private limited and aims to educate and inform the masses about various tax laws and financial planning.
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