In Indian companies, a Director is usually part of the Board of Directors, a collective body that is responsible for managing and controlling the affairs of a company, whether it is a public company or a private company. In most cases, a Director plays several roles on behalf of the company: agent, officer and trustee. Regardless, a Director is first and foremost, an employee of the company, and is therefore required to conform to the policies and regulations of the company at all times and under all conditions.
How many directors in a company?
Indian law determines the minimum and maximum number of Directors allowed in a company.
| Public limited company | Private limited company | 1-person company | |
| Min # of Directors | 3 | 2 | 1 |
| Max # of Directors | 15 | 15 | 15 |
5 Types of Directors
Director is a generic term but there are many different types in Indian companies:
1. Residential Director: The law requires that every company needs to appoint a Director who has stayed in India for not less than 182 days in the previous calendar year.
2. Independent Director: This refers to a non-executive Director without a prior relationship with the company, a relationship that might influence his judgment capability.
The below types of companies need to appoint at least 2 independent directors:
- Public companies with paid-up capital ≥ 10 crore INR
- Public companies with turnover ≥ 100 crore INR
- Public companies with total outstanding loans/deposits/debentures ≥ 50 crore INR
3. Small Shareholders Director: A listed company can have a Director who would be elected upon the notice of at least 1000 small shareholders or 10% of the total number of small shareholders, whichever is lower.
4. Woman Director: A company is required to appoint a minimum of one Woman Director if:
- The company is listed on the stock exchange
- It has a paid-up capital ≥ 100 crore INR and/or turnover ≥ 300 crore INR
5. Alternate Director: This person is appointed by the Board to fill in for a Director who has been absent for more than 3 months.
Responsibilities and Liabilities of a Director
A Director is considered the ‘trustee’ or ‘agent’ of a company, and as such, has a number of responsibilities that he is expected to discharge. At the same time, a Director does not have personal liabilities on behalf of a company because he/she is a separate entity from the company.
Here are some of the main responsibilities of a company Director:
1. Ensure that tax liabilities are met
If a company is due to pay any tax on its income from any previous year, every Director can be held liable for the payment of such taxes.
2. Ensure that all annual compliance activities are completed
If the Director does not get the company’s annual compliance done for 3 years, they are disqualified from the company and cannot be re-appointed for 5 years. Furthermore, the ROC can strike off the Company suo moto by giving just 30 days’ notice. If this happens, the company may end up losing its earned goodwill. Also, the Director is held personally liable for the strike-off and would be responsible for paying any penalties resulting from the strike-off.
In addition to annual compliance (for which forms like AOC-4 and MGT-7 must be filed with the ROC), the Director must also ensure that their DIN (Director Identification Number) remains active.
3. Ensure that correct information is provided in the company’s prospectus, financial statements and Board report
If it is found that there is false information in the company’s prospectus, the Director could be held liable except if he can prove that:
- The prospectus was issued without his consent, authority or knowledge or
- He withdrew his consent before the prospectus was issued or
- He gave a public notice of his withdrawal of consent once he became aware of the false information or
- He believed that the information was true even though doubts about its veracity were raised later
The Director must also ensure that the details and records mentioned in the financial statements and Board report are correct. Violations if any must be mentioned in the report. They are also held responsible for signing wrong/incorrect financial statements and for failing to provide annual accounts and/or Board report.
4. Ensure that business is conducted fairly and ethically
If a Director is found to be a knowing party to a fraud while the business was being carried out, he may be held personally liable for the company’s debts or other liabilities.
5. Ensure that share application money is refunded
Boththe company and the Director are liable to repay the share application money or surplus share application money within the specified time period. They can also be held liable for their failure to issue share certificates.
6. Pay for qualification shares
If the Director has not acquired the company’s qualification shares within a stipulated time frame and if the company goes into the liquidation status after this period expires, he/she would be required to pay for such shares.
7. Other duties, responsibilities and liabilities
In addition to the duties mentioned above, the Director also has the following duties:
- To disclose his shareholding in the company
- To disclose if he is interested in any contracts signed by the company
- To ensure that any loans taken by the company fall within the limits of Companies Act, 2013
- To ensure that at least four Board Meetings are held in a financial year and records of meeting minutes are properly maintained
- To ensure that a Corporate Governance committee is properly formed and discharging its duties
The Director will also be held legally accountable for the following acts:
- Entering into any contract beyond his powers as an employee of the company or acting on his own accord or in his own name and not in the name of the company
- Secretly taking any profit from the company
- Neglecting to perform his duties as an employee of the company
- Holding Directorship in more than 20 companies (20 is the legal limit as per the MCA)
- Criminal activities undertaken by someone in the company with or without his (Director’s) prior knowledge
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Disclaimer: The information is provided purely for informational and educational purposes only. It should not be misconstrued as legal advice. Taxguru cannot take any responsibility for the result or consequences of any attempt to use or adopt any of the information presented herein.