Directors Duties Under Section 166 of the Companies Act 2013

In a company, the highest authority for managing the business lies with the Board of Directors. This Board lies at the heart of the company that ensures that the interests of all stakeholders are protected. Also, the director holds an important position in a company that has a lot of responsibilities and duties.  In this article, we will talk about directors’ duties as defined under section 166 of the Companies Act, 2013.

directors duties

Director of a Company

There is no explicit definition of a ‘director’ in the Companies Act, 2013. However, for all practical purposes, a director is an individual that performs the duties and responsibilities of a director as per the provisions of the Companies Act, 2013. They are trustees of the company’s assets and perform the role of an agent in the transactions of the company.

According to the law, the number of directors in different types of companies is as follows:

  • One-Person Company – Minimum 1 director and a maximum of 15 directors
  • Private Limited Company – Minimum 2 directors and a maximum of 15 directors
  • Public Limited Company – Minimum 3 directors and a maximum of 15 directors

However, in all the above cases, the no. of directors may exceed 15  by passing Special Resolution.

Typically, directors must use their skills and experience to perform the functions of a director. If need be, a director must play different roles in the company – an officer, a trustee, an agent, etc.

Directors Duties

Section 166 of the Companies Act, 2013 defines directors duties that form the basis of the definition of a director. Here is a list of what a director is expected to do:

directors duties

Act as an Agent of the Company

Since the Company is not a natural person, it is unable to take its own decisions. Therefore, directors’ duties include acting as an agent and taking decisions on behalf of the Company.

Keeping the best interests of the Company in mind is integral to Directors duties

Directors are required to take care of the management of the Company. Hence, they must act in good faith to promote the objectives of the Company. Further, their actions must ensure the interest of the Company, its members, employees, and community as a whole. Directors must remember that they have a fiduciary relationship with the Company and its shareholders. Hence, directors duties are based on a legal and ethical relationship of trust.

Exercise independent judgment

Directors are required to perform their duties with due and reasonable care, skill and diligence. Further, they must exercise independent judgment in the interest of the Company.

Abide by the set of rules while discharging duties

The Articles of a company defines the set of rules under which the directors must act. All directors need to ensure that they follow these rules.

Safeguard Company assets

Directors do not own the assets of the Company. They are simply custodians or trustees of the same. Hence, they must ensure that they safeguard the assets and property of the Company from misuse. They must employ the use of such assets only for the purposes and benefit of the Company.

Avoid any conflict of interest

Directors make decisions on behalf of the Company. Sometimes, directors can derive personal benefits from decisions made in their official capacity as directors. This leads to a conflict of interest. All directors must ensure that they avoid all situations of conflict of interest, direct or indirect, with the Company.

Avoid making Secret Profits

Directors are the decision-makers in a Company. Hence, they have access to certain critical information about the company during the course of business. Some directors might try to use this information to make profits or gain an advantage to themselves or their relatives, partners, or associates to the detriment of the Company. Directors must avoid this. A director found guilty of such an act is liable to pay an amount equal to that gain to the Company.

Directors duties start with attending maximum board meetings

A director must ensure that he attends as many board meetings as he can. Further, according to section 167 of the Companies Act 2013, a director can lose his position if he does not attend any board meeting for a period of twelve months.

Section 166 also states that if a director performs any activities against the Act, then he will have to pay a fine. The fine is minimum INR 1 lakh – extendable up to INR 5 lakhs.

Conclusion – Directors Duties

Directors of a Company play an important role in its success and growth. Hence, the Companies Act, 2013 defines directors’ duties in a manner that benefits the Company. Further, the Articles of Association of a Company outlines the powers vested in the directors. Hence, they must ensure that they work within the boundaries of these powers with a single objective of helping the company succeed and grow. Also, our team can help your company appoint an additional director in a hassle-free manner. If you have any further questions regarding directors’ duties, please feel free to write back to us.

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