The term Director is used for a person who leads or supervises a company. They are the ultimate decision-makers and thus responsible for the operations of the company. The director reports directly to a vice president or the CEO to let them know its progress.
Requirement and eligibility
Any individual who wants to be a director or proposed to be a director for the first time shall apply for DIN mandatorily. The ratio for DIN goes 1:1; that is, each individual shall hold only 1 DIN else a penalty for a contravention shall be charged. It’s to be noted that any other number prescribed u/s 153 shall also be considered DIN; for example, a partner having a DPIN must not apply for DIN since it is equivalent to it.
Types of director
- Residential director
As per the provision of section 149, every company needs to appoint at least 1 director who is a resident in India.
- Independent director
The purpose of having an independent director is to improve corporate credibility and enhance the company’s governance standards by having a person of integrity. In simple words, an independent director is a director who does not hold any interest in the company, which might affect his judgment’s independence. The term they hold up can be a maximum 2 term having 5 consecutive years each. However, after 2 terms, they shall be having a cooling period of 3 years. Following companies need to engage at least two independent directors:
- Public companies with a paid-up capital of Rs.10 crores or more,
- Public companies with a turnover of Rs.100 crores or more,
- Public companies with total outstanding loans, deposits, and debenture of Rs.50 crores or more.
- Small shareholder directors
A listed company, by themselves or upon the notice of small shareholders, shall have their representative known as small shareholders director. Minimum 1000 small shareholders or 10% of the total number of the small shareholder, whichever is lower, shall apply for the director.
- Women director
A private company may appoint a minimum of one woman director, but the public company must have at least 1 women, director, in case it satisfies any of the following criteria:
- The company is a listed company; or
- The company’s paid-up capital is Rs.100 crores or more, with a turnover of Rs.300 crores or more.
- Additional director
A person with expertise in a field that can be beneficial for the company could be appointed as an additional director and occupy his post until the next Annual General Meeting. Such AGM should have been held lawfully, whichever is earlier.
- Alternate director
The alternate director refers to a person appointed by the Board to fill in the temporary vacancy of a current director who might not be available in India for more than 3 months.
- Nominee directors
Nominee directors are representatives of a director or a group of stakeholder. They could be appointed by a specific class of shareholders, banks or other lending institutions, third parties through contracts, or the Central Government.
Section 164 of the Companies Act 2013 assign with the disqualification of Directors. The following conditions can be reasons for the disqualification of a Director.
- A person of unsound mind;
- A person charged by the court for moral turpitude and imprisonment of more than 6 months and a period of five years has not progressed;
- A person charged by the court for negligent Act towards the company;
- A person is an undischarged insolvent;
- A person has applied to be adjudicated as insolvent, and his application is pending;
- A person has been in default to pay calls in arrear of the company elapsing 6 months from the due date of payment;
- A person who does not have a DIN or any other unique no. that is equivalent to Din as specified in Section 153;
- A person convicted for committing related party transactions fraud under section 188;
Interestingly, a person on the aggregate term has been imprisoned for 7 years or more shall be disqualified forever.
The lifting of the corporate veil
The term corporate veils refer to a company being a separate legal entity. Lifting of the cover means disregarding distinct corporate personality and looking at the critical person having control. In other words, where a Company is responsible for dishonest and fraudulent acts, the persons in power cannot shelter under the veil to escape from the responsibility of the Act.
Once this corporate veil is lifted, individuals protected by the corporate veil are liable for discharging their obligations, disregarding its concept as a legal entity.
A company shall have the following counts of directors:
- Minimum – 3 in Public company; 2 in a private company; and 1 in One Person Company.
- Maximum – 15 is the limit in all the companies. If a company wants to appoint more than 15 directors, it needs to pass a special resolution
For Individuals, a person can hold a full 20 directorship, including 10 Public Companies. Provided the count does not include any section 8 or Dormant Company.
The directors are the company’s core, and they are the main secret behind a successful company. The company management should be responsible people who can use their power properly as the greater power comes with greater responsibility.
We assist our clients with all the compliance related to appointment and removal of directors, company incorporation, business setup, ROC filings, winding up of the company etc. If you have any questions or would like to know more about Directorship in India, kindly contact us.