A company, being an artificial legal person cannot perform its functions on its own. Hence, it needs a natural person or group of persons to manage and make business decisions on its behalf. This group of persons is the Board of Directors. Further, there are many rules governing the appointment of the Board of Directors. In this article, we will talk about the Board of Directors and take a quick look at what constitutes a Board, the different types of directors, and the maximum number of directorships.
Definition of a Board of Directors
According to Section 2(10) of the Companies Act, 2013 – “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company.
Further, the definition of a director is available in Section 2(34) of the Companies Act, 2013. It states that – “director” means a director appointed to the Board of a company.
Minimum & Maximum number of Directors in a Company
Section 149(1) of the Companies Act, 2013, lays down the minimum and the maximum number of directors permitted for different types of companies. The limits are as follows:
|Type of Company||Minimum No. of Directors||Maximum No. of Directors|
|Private Limited Company||2||15|
|Public Limited Company||3||15|
Further, it is important to note that any company can appoint more than 15 directors after passing a special resolution.
Maximum Number of Directorships
According to Section 165 of the Companies Act, 2013, there is a limit to the maximum number of directorships. The limits are as follows:
- The maximum number of companies in which a person can be appointed a director = 20.
- The maximum number of public companies in which a person can be appointed as a director is 10. Further, this limit includes private companies that are either holding or subsidiary companies of a public limited company.
For reckoning the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.
It is also important to note that the company can specify any lesser number of companies for the maximum number of directorships via a special resolution.
Types of Directors in the Board of Directors
The Board of Directors can have different types of directors as explained below:
In a company, the Executive Director is the whole time director who is basically involved in the day to day affairs of the Company or the managing director who is entrusted with powers of management of the company. Further, he is a full-time employee of the company. Also, according to Section 2(54) of the Companies Act, 2013 –
A managing director is a director who is entrusted with powers of management of the affairs of the company. Therefore, a director occupies the position of the managing director. Further, the powers are entrusted in the managing director after the company passes a resolution in its general meeting or by virtue of the Articles of Association or an agreement with the company.
It is important to note that the managing director has substantial powers of management. Therefore, routine acts are not included. These acts are:
- The power to affix the common seal of the company to any document.
- Also, the power to draw or endorse any negotiable instrument.
- Further, the power to sign any share certificate.
- Such other crucial matters as may be provided in the law.
Think about all the duties of an Executive Director and remove the duties that comprise the full-time management of the company. The remaining duties are those of a non-executive director. Also, he participates in board meetings for the purpose of decision-making.
The Articles of Association of a company can confer the power on its Board of Directors to appoint an Additional Director. Above all, this person cannot be a person who failed to get appointed as a director in a general meeting. Further, the additional director will hold office up to the date of the next annual general meeting or the last date of the proposed annual general meeting. (See Section 161(1) of the Companies Act, 2013).
Section 161(2) of the Companies Act, 2013, defines an alternate director as follows:
The Articles of Association of a company or a resolution passed in a general meeting can confer the power on its Board of Directors to appoint an Alternate Director. Further, such a person should not hold directorship in the company or an alternate directorship for any other director in the company Also, the person acts as an alternate director for a director during his absence from India. Lastly, the period of such absence shall not be less than three months.
This definition has three sub-clauses:
- The Board can appoint a person as an alternate director for an independent director. Further, the Board can do so only if he is qualified for appointment as an independent director under the provisions of the Companies Act, 2013.
- The alternate director cannot hold office for a period longer than the permissible period of the original director. Also, upon the return of the original director to India, the alternate director must vacate the office.
- Also, any provision for the automatic re-appointment of retiring directors in default of another appointment applies to the original and not the alternate director
According to Section 149(6) of the Companies Act, 2013 –
An Independent Director is a director other than the managing director, whole-time director, or nominee director of the company.
There are many conditions for the appointment of an independent director:
- The Board of Directors must have an opinion that the person has integrity. Also, he must possess relevant experience and expertise.
- The person is and never was a promoter of the company or its holding/ subsidiary/ associate company. Also, the person is not related to the directors or promoters of the company or its holding/ subsidiary/ associate company.
- Further, the person did not have a pecuniary relationship other than remuneration as such director or having transaction not exceeding ten percent of his total income or such amount as may be prescribed with the company or its holding/ subsidiary/ associate company or their directors or promoters during the two immediately preceding financial years or the current financial year.
- Also none of whose relative is holding or securing such interest in the company or its holding/ subsidiary/ associate company as may be prohibited in the law.
- Also, such a person or his relatives never held the position of key managerial personnel or employee of the company or its holding/ subsidiary/ associate company in any of the 3 immediately preceding financial years.
Whole Time Director
According to Section 2(94) of the Companies Act, 2013 –
A Whole Time Director includes a director in the whole-time employment of the company.
According to Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the following companies must have at least one woman director:
- Every listed company
- Also, every public company having-
- A paid-up share capital of INR100 crore; or
- Annual turnover of INR300 crore or more
While on the topic, you might also want to read our post on the Disqualification of a Director.
We hope that after reading through this article, you would have a clear idea about the concept of a Board of Directors and the different types of directors in a company. Directors have many duties and responsibilities. Therefore, understanding the concept is essential. Feel free to write to us for any further questions.