Who is a Director of a Company
The directors play a very important role in the day to day functioning of the company. It is the board, who is responsible for the company’s overall performance. Only individuals can be appointed as directors of a company. The subscribers to the memorandum who are individuals are deemed to be the first directors of the company. Thereafter the shareholders or in many cases the board of directors appoint the directors. The Act has brought in many new provisions such as appointment of women director, resident director, independent director by certain class of companies. The Article discusses the procedure for appointing the various types of directors, the rights, duties of a director.
As per Section 153 of the Act, every individual intending to be appointed as director of a company shall make an application electronically in Form DIR-3 for allotment of Director Identification Number to the Central Government along with the prescribed fees. Further, DINs to the proposed first Directors in respect of new companies would be mandatorily required to be applied for in SPICe forms (subject to a ceiling of 3 new DINs) only
No person shall continue or be appointed as director without obtaining DIN. Section 153 read with the Companies (Appointment and Qualification of Directors) Rules, 2014, provides for the procedure for making application for allotment of DIN.
Eligibility to become a Director
The Companies Act 2013 or related rules Companies (Appointment and Qualification of Directors) Rules, 2014, didn’t mentioned about the qualification of a Director other than an independent director. However the act and rules specifically mentioned about who should not be a director.
A person shall not be eligible for appointment as a director of a company, if
- he is of unsound mind and stands so declared by a competent court;
- he is an undischarged insolvent;
- he has applied to be adjudicated as an insolvent and his application is pending;
- he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence. If a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company;
- an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
- he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
- he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years;
- he has not got the DIN.
- Any person who is or has been director of any company which has not filed any financial statements and Annual Return for 3 continuous financial year or has defaulted in payment of debentures/deposit/dividend etc, shall also not be eligible for appointment as director
- A minor cant be appointed as a Director, because a Minor wont get a DIN or does not have the capacity to Contract
Role of A Director
A director is a decision maker, executor and analyst for the company. In the case of small companies Directors and Shareholders are same persons. However in the case of large organisations, directors are elected persons, from share holders. They have the responsibility to manage the Company. Considering the separate legal entity concept, a Director acts as a bridge between share holder and the company.
Duties of a Director
As per the Companies Act 2013 and the rules framed thereunder, A director of a company shall :
- Act in accordance with the articles of the company.
- Act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.
- Exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
- Not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
- Not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
- Not assign his office and any assignment so made shall be void.
Types of Directors
Section 152 of the Act provides for the appointment of first directors, accordingly, where there is no provision made in Articles of Association of the company for appointment of first directors then the subscribers to the memorandum who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed
Section 149(3) provides that every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days during the financial year. Provided that in case of a newly incorporated company the requirement under this sub-section shall apply proportionately at the end of the financial year in which it is incorporated.
Second proviso to Section 149(1) read Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 some class of companies must have at least one Women Director.
Section 149(4) read with Rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2014 provides some companies to have specified number of independent directors.
Section 161(1) of the Companies Act, 2013, provides that the articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.
Section 161(2) of the Act empowers the Board, if so authorized by its articles or by a resolution passed by the company in general meeting, to appoint a director (termed as ‘alternate director) to act in the absence of a original director during his absence for a period of not less than three months from India.
Section 161(3) of the Companies Act, 2013, provides that subject to the articles of a company, the Board may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government company.
Appointment of Directors in casual vacancy
Section 161(4) provides that If any vacancy is caused by death or resignation of a director appointed by the shareholders in General meeting, before expiry of his term, the Board of directors can appoint a director to fill up such vacancy. The appointed director shall hold office only up to the term of the director in whose place he is appointed.
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