When we talk about a company, Board of directors of company are important persons who are responsible for operating a business operation of company. Accordingly, there are different types of directors whose role differs from one to another. Let us go through different types of director with their other aspects.
Before that we need to understand what, is a Director?
As per the Companies Act, 2013 means a director appointed to the Board of a company. In literal sense, it is natural person who has certain qualifications and/or experience which adds up to the growth of company.
The collective group of these individual directors are referred as Board of Directors of company. Now we know director definition, we will go through different types of director with their other aspects:-
As per the Companies Act, 2013 “Managing Director” means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.
There appointment is made as per Section 196 and can be appointed for maximum five (5) years and subject to approval by members of company.
Note that a Managing Director is Executive director, as they are involved in day to day operations and decision of the company.
An alternative director is director who fills up the place of a Director till he resumes the company’s Board. There is no definition given under The Companies Act, 2013. However, there is certain provisions which states the conditions to appoint a alternate director, which states as follows:-
The Board of Directors of a company may, if so authorised by its articles or by a resolution passed by the company in general meeting, appoint a person, not being a person holding any alternate directorship for any other director in the company [or holding directorship in the same company], to act as an alternate director for a director during his absence for a period of not less than three months from India.
The person shall not be appointed as an alternate director for an independent director unless he is qualified to be appointed as an independent director under the provisions of this Act.
Alternate director shall not hold office for a period longer than that permissible to the director in whose place he has been appointed and shall vacate the office if and when the director in whose place he has been appointed returns to India.
The term of office of the original director is determined before he so returns to India, any provision for the automatic re-appointment of retiring directors in default of another appointment shall apply to the original, and not to the alternate director.
As per the Companies Act, 2013 a director can only be appointed by members of the company. However, till there appointment is approved by members, the Board of company an appoint a director as additional Director.
However, it should be noted that the term of Additional Director is till the conclusion of any ensuing General Meeting. If the Additional director fails to get approved by members in upcoming general meeting whether a Annual General Meeting or Extra-ordinary General Meeting, the term of additional directors ends and retires as being director of company.
Note that the approval from members in any subsequent meeting shall be the next general meeting or the date on which the general meeting should have been held in case company fails to convene general Meeting.
A Nominee Director is a director who is appointed as nominee who watches the working of company or the operations or activity for which they are appointed. Again, there is no definition prescribed under The Companies Act, 2013.
The Board may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government company.
As per The Companies Act, 2013 a whole-time director includes a director in the whole-time employment of the company. So, any director who is on permanent payroll of the company is referred as whole time director.
There appointment is made as per Section 196 and 203 and can be appointed for maximum five (5) years and subject to approval by members of company.
As per “Independent Director” means an independent director other than a managing director or a whole-time director or a nominee director and who falls into below given criteria:-
(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 per cent. 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 during the current financial year:
Provided that 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 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 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) as referred above.
(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;
Provided that in case of a relative who is an employee, the restriction under this clause 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 power of the company; or
(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 per cent. or more of the total voting power of the company; or
(f) who possesses such other qualifications as may be prescribed.
As per The Companies Act, 2013, a listed company have liberty to appoint a small shareholder director.
Note that not less than one thousand small shareholders or one-tenth of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders and small shareholder director shall always be Independent Director.
A director who is woman is referred as Woman Director. As per section 149 of The Companies Act, 2013, below given companies should have atleast woman director:-
(i) every listed company;
(ii) every other public company having –
(a) paid–up share capital of one hundred crore rupees or more; or
(b) turnover of three hundred crore rupees or more
A director who has stayed in India for atleast 182 days in during a financial year is referred as 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.
Executive Director: As per Rule 2(1)(k) of the Companies (Specification of definitions details) Rules, 2014 “Executive Director” means a Whole Time Director as defined in clause (94) of section 2 of the Companies Act, 2013.”
Whole Time Director: As per Clause 2(94) of Companies Act, 2013 ““whole-time director” includes a Director in the whole-time employment of the company.
In Simple Words; A person who is DIRECTOR + Whole Time Employee of the Company indirectly shall be considered as Executive Director due to (2)(1)(k) whether designated by Company as executive Director or not.
Role of the executive director is to design, develop and implement strategic plans for the organization in a manner that is both cost and time-efficient. The executive director is also responsible for the day-to-day operation of the organization, which includes managing committees and staff as well as developing business plans in collaboration with the board. In essence, the board grants the executive director the authority to run the organization. The executive director is accountable to the chairman of the board of directors and reports to the board on a regular basis – quarterly, semiannually, or annually. The board may offer suggestions and ideas about how to improve the organization, but the executive director decides whether or not, and how, to implement these ideas.
the non-executive directors are not involved in the day to day activities of the company and hence it is all the more important to understand what exactly are the roles and responsibilities of a non-executive director and also the liabilities associated with it.
However, one can take reference from a Judicial case of Chaitan M. Maniar v. State of Maharashtra 2004 ALL MR, it was observed that for the acts of some unscrupulous persons, the non-executive directors, who are not concerned with the day to day functioning of the company cannot be held responsible unless the active participation of the director is substantiated by concrete material or instances or particulars.
Disclaimer: – The above article is prepared keeping in mind all the important and basic question as well as provision of the Companies Act, 2013. The contents of this article are for information purposes only and does not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
(The Author is Corporate Consultant and provides varied array of services including Start-ups mentor, Secretarial, Legal, Trademark, taxation, Audit, GST, Book keeping and other ancillary advisory service in Delhi, Chandigarh as well as The National Capital Region (NCR) and can be contacted through email id:- email@example.com and Contact Number: 91-8178515005)