Thursday, February 2, 2023

Who are the directors of a Private Limited Company?

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An important information that you need to provide while you register a private limited company is who its directors will be. In every company, one of the most important positions is held by the director. So that begs the question, who is the director of a company?

The Director

The director of a company is an individual that essentially controls, manages, and directs all the affairs of the company. Every director is considered a trustee of their company. They are legally required to work in the company’s best interest & protect it. Director’s have a good faith obligation towards their company.

A director plays multiple roles in a company. They are the employee of the company. Trustee of the company, an agent of the company. An officer of the company, etc. Directors of a company can also act as agents of the company & get into agreements on behalf of the company. 

Director’s Duties

  • A director has a good faith obligation towards its company to always act in its best interest. A director has access to all the company’s nitty-gritties, from funds to important private information; this is why a director owes fiduciary duty to the company.
  • Directors have control over their company’s assets, but that does not mean they have ownership of the assets. A director is required to use and manage the assets of the company in the best way possible for the company.
  • A director, as mentioned before, has access to a lot of private information about the company. Because of this, a director is expected to maintain confidentiality.
  • A director is also not allowed to use the information it gets from the company, specifically confidential information, like trade secrets, to make hidden profits.
  • A director is given a lot of power via the Articles of Association; but this power is not endless. A director is expected to ensure that they stay within the bounds of the powers given to them.
  • A director is required to attend as many board meetings as possible; if a director is seen missing consecutive meetings or misses every meeting for 3 months, they can be removed from their post as a director.
  • A director is expected to ensure that they don’t get into any agreements or arrangements that may lead to a conflict of interest and stop them from working in the best interests of the company.

How Many Directors Does a Company Need ?

When you register a private limited company then itself you are legally required to specify who the company’s directors will be. The minimum number of directors required differs based on the type of company. Private Limited Companies need a minimum of two directors.

The maximum number of directors a company can have are fifteen, however, a company can surpass this number and add additional directors by way of special resolution.  

Different types of directors 

When you register a pvt limited company, you can appoint many different kinds of directors. Such as:

Residential Director 

Every company incorporated in India is required to have at least one director who is a resident of India. A resident is defined by someone who had stayed in India for a minimum of 182 days in the previous calendar year. 

Women Director 

Every company, be it a public or a private company. Needs to have at least one women director if the company is a listed company, whose securities are listed on the stock exchange, or the paid-up capital of the company is Rs.100 crores or more and has a turnover of Rs. 300 crores or more.  

Small Shareholder’s Director 

A listed company might have to appoint a director upon receiving a notice from either 10% of its total number of small shareholders or a minimum of 1000 small shareholders, whichever is lower. This director shall be elected by the small shareholders and shall be referred to as a small shareholders’ director. 

Alternate director 

An alternate director is a person appointed by the board of a company for the purpose of filling in for a director who is absent from India for a period of more than three months. 

Additional Director 

An alternate director is a temporary director apparently by the company who stays in power until the next AGM. In case the AGM is not held on such a date, the term of the alternate director still concludes on the date the AGM was supposed to be held. 

Executive Director 

This is a full time director of a company that handles all the affairs of the company and takes care of the company’s dealings. 

Non-executive Director

The opposite of an executive director a non-executive director. Is one who is not involved in the daily workings of the company. They might indulge in policy making for the company and push the directors to act in the best interest of the company, but their opinion on decisions of the company are unfettered by the inner workings of the company.

Not everyone can become a non-executive director, it has to be someone who is known for their integrity, helps grow the credibility of the company etc.

Managing Director 

A managing director is the most important director in a company. He holds the majority of power when it comes to the management of a company.   

Nominee Director 

A nominee director is a director that has been appointed, by a specific class of a people such as shareholders. A small shareholder director is a kind of a nominee director. 

Whole-time director 

A whole-time director is one who is in full time employment with the company. Essentially, this is a director who is also a full time employee of the company. 

Casual Vacancy Director 

This is a director who only holds office in place of another director & only holds it for as long as the other director would have held the office. In other words, if A is a casual vacancy director holding office in place of B, the tenure of A’s directorship is as long as B’s would have been. 

Shadow Director 

A shadow director is someone. Who is not officially given the title of a director, but essentially controls the company.  

Independent Director 

An independent director is a director of a company who is a non-executive director. Essentially it’s a director who doesn’t share any relationship with the company. That could potentially influence the neutrality of their judgment. They can have a tenure of upto 5 consecutive years and are entitled for re-appointment via a special resolution. 

Some companies need at least two independent directors, they are:

  • Public companies with a paid-up capital of Rs.10 crores and above
  • Public companies with a turnover of Rs, 100 crores and above
  • Public companies whose outstanding loans, debentures, and deposits equal to Rs 50 Cr or more.  

Conclusion

A director carries out a vital role in a company. No company can exist without a director; Is needed to ensure that the company’s functions are carried out in a proper manner, for the furtherance of the company’s overall interests & objectives.

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