GWALIOR

BUSINESS LEGISLATION REPORT

ON
BOARD OF DIECTOR TYPES AND DUTIES

SUBMITTED TO: SUBMITTED BY

PROF. AKASH GUPTA RASHMI VARSHNEY

RITIKA SINGH

POONAM EKKA

(MBA I Semester)
 MEANING OF DIRECTOR
A director is a person from a group of managers who leads or supervises a
particular area of a company.Companies that use this term often have many
directors spread throughout different business functions or roles (e.g. director
of human resources) The director usually reports directly to a vice president or
to the CEO directly in order to let them know the progress of the organization.
Large organizations also sometimes have assistant directors or deputy
directors. Director commonly refers to the lowest level of executive in an
organization, but many large companies use the title of associate director more
frequently. An executive director is roughly equivalent to Vice President or
senior director in some businesses. Some companies also have regional
directors and area directors. Regional directors are present in companies that are
organized by location and have their departments under that. They are
responsible for the operations for their particular country. Though directors are
the first stage in the executive team, area directors are seen as higher up, based
on their area of control.

DEFINATION:-
Directors refer to the part of the collective body known as the Board of
Directors that is responsible for controlling, managing and directing the affairs
of a company. Directors are considered the trustees of company’s property and
money, and they also act as the agents in transactions which are entered into by
them on behalf of the company.

As per Section 2(34) of Companies Act 2013 Director means a director

appointed to the Board of a Company.
Minimum and Maximum number of directors in a company

The law requires that every company must have at least 3 directors in case of
public limited companies, minimum 2 directors in case of private limited
companies and minimum 1 director in case of one person companies. A
company can have maximum 15 directors. The company could appoint more
directors by passing the special resolution in its general meeting.
I. One Person Company: - One Director.
ii. Private Limited Company: - Two Directors.
Iii.Public Limited Company: - Three Directors.

Maximum 15 directors can be appointed in any format of Company (OPC,

Public, Private). Bypassing Special Resolution Company can increase the
number of Directors beyond 15. Out of appointed directors one director should
be resident in India for more than 182 days in previous calendar year.
 TYPES OF DIRECTORS

Executive director

Non executive director

Alternate

Shadow

De Facto

Associate

Nominee

Residential Director
Independent Director
Small Shareholders Directors
Women Director
Additional Directors
 1. Executive director

An executive director within a company or an organization is usually from the

board of directors and oversees a specific department within the organization
such as Marketing, Finance, Production and IT. The Executive Director must
ensure that all employees within his/her department are achieving the objectives
which have been set and must also make daily decisions within the department.

Roles include

 Overseeing their specific department such as Finance, Marketing or

Manufacturing.
 Maintaining the role of a specified decision maker within the department.
 Analyzing and evaluating the efficiency of day to day tasks within the
departments and ensuring all objectives are being met.

Non executive director

Non-executive directors are not involved in the day to day management of the
company and are appointed from outside the company.
It should be noted that there is no legal obligation for a company to appoint
non-executive directors; however, certain companies i.e. companies listed on
the Stock Exchange are required to comply with codes of corporate governance
best practice which do require the presence of non-executive directors on the
board.

Alternate Directors
Alternate directors are persons who are nominated by a director to act in their
absence. An alternate director can only be appointed with the agreement of a
majority of the directors.
As per Section 161(2) A company May appoint, if the articles confer such
power on company or a resolution is passed (if a Director is absent from India
for atleast three months).
 An alternate Director cannot hold the office longer than the term of the Director
in whose place he has been appointed.
 Additionally, he will have to vacate the office, if and when the original Director
returns to India.
 Any alteration in the term of office made during the absence of the original
Director will apply to the original Director and not to the Alternate Director.

Shadow Director
In addition to those who are formally appointed as directors, any person, other
than a professional adviser, with whose instructions the directors of the
company normally comply is a shadow director. In other words, where a person
who is not a director exerts such an influence over the company's directors that
those directors are accustomed to acting in accordance with that person's
instructions, that person is a shadow director. The significance of being a
shadow director is that a shadow director has many of the legal responsibilities
of a director.

De facto Directors
A de facto director is a person who has not been validly appointed or who is
disqualified but who in effect occupies the position of, and acts as if he were, a
director.
In addition to the legal categories of director as set out above, other terms are
used in business to describe company directors. In practice company directors
are generally categorised as either being executive directors or non-executive
directors. However, it is important to note that these are not legal classifications
but rather are distinctions drawn under corporate governance best practice.
Regardless of whether an individual is an executive or non-executive director,
they have exactly the same legal responsibilities.
Residential Director:-
As per Section 149(3) of Companies Act,2013 every company shall at one
director who has stayed in India for a total Period of not less than 182 days
in the Previous calendar year.
Independent Director:-
As per section 149(6) an independent director in relation to a company, means
a director other than a Managing Director, Whole Time Director or Nominee
Director. Companies which have to appoint Independent Director:- As per Rule
4 of Companies (Appointment and Qualification of Directors) Rules,2013 the
following class of companies have to appoint atleast two independent directors:-
A} Public Companies having Paidup Share Capital-Rs.10 Crores or More;
B} Public Compnies having Turnover- Rs.100 Crores or More;
C} Public Companies have total outstanding loans, debenture and deposits of
Rs. 50 Crores or More.

Small Shareholders Directors:-

A listed Company may have one director elected by small shareholders. May
appoint upon notice of not less than 1000 Shareholders or 1/10th of the total
shareholders, whichever is lower have a small shareholder director which
elected form small shareholder.

Women Director:-
As per Section 149 (1) (a) second proviso requires certain categories of
companies to have At Least One Woman director on the board. Such
companies are any listed company, and any public company having-

Paid up Capital of Rs. 100 crore or more, or

Turnover of Rs. 300 crore or more.

Additional Directors:
Any Individual can be appointed as Additional Directors by a company
under section 161(1) of the New Act
DUTIES OF DIRECTORS UNDER THE NEW INDIAN COMPANIES
ACT-2013

The duties and responsibilities of directors stipulated by the Indian Companies

Act of 2013 can broadly be classified into the following two categories:-

 The duties and liabilities which encourage and promote the sincerest
investment of the best efforts of directors in the efficient and prudent
corporate management, in providing elegant and swift resolutions of
various business-related issues including those which are raised through
"red flags", and in taking fully mature and wise decisions to avert
unnecessary risks to the company.

Fiduciary duties which ensure and secure that the directors of companies always
keep the interests of the company and its stakeholders, ahead and above their
own personal interests.

The following duties and liabilities have been imposed on the directors of
companies, by the Indian Companies Act of 2013, under its Section 166

 A director of a company shall act in accordance with the Articles of

Association (AOA) of the company.

 A director of the company shall act in good faith, in order to promote the
objects of the company, for the benefits of the company as a whole, and
in the best interests of the stakeholders of the company.

 A director of a company shall exercise his duties with due and reasonable
care, skill and diligence and shall exercise independent judgment.

 A director of a company shall 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.

 A director of a company shall 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.
  A director of a company shall not assign his office and any assignment so
made shall be void.

 If a director of the company contravenes the provisions of this section

such director shall be punishable with fine which shall not be less than
one Lakh Rupees but which may extend to five Lac Rupees.

DIRECTORS’ DUTIES UNDER SECTION 166

The 2013 Act has now codified directors’ duties (similar to the UK Companies
Act) under Section 166. The provisions of this Section apply to all categories of
directors, including independent directors. Section 166 of the 2013 Act
stipulates the following:

(a) Subject to the provisions of this Act, a director of a company shall act in
accordance with the articles of a company.

(b) A director of a company shall 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.

(c) A director of a company shall exercise his duties with due and reasonable
care, skill and diligence and shall exercise independent judgment.

(d) A director of a company shall 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.

(e) A director of a company shall 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 of the company.

(f) A director of a company shall not assign his office and any assignment so
made shall be void. The duties set out in this Section are not exhaustive. Apart
from the duties set out in Section 166, directors are also responsible for various
obligations provided under other Sections of the 2013 Act. For example:
The board needs to lay the financial statements for approval and adoption at the
annual general meeting of the shareholders (Section 129)

The directors are responsible for devising proper systems to ensure

compliance with the provisions of all applicable laws and to ensure that such
systems are adequate and are operating effectively (Section 134)

Director needs to ensure that the company complies with obligations relating
to corporate social responsibility provided under Section 135

The board is responsible for appointing first auditors (Section 139)

A director needs to disclose his interest in a contract with the company (Section
184)

A director is prohibited from engaging in forward dealing of securities (Section

194)

The board is responsible for appointment of whole time key managerial

personnel (Section 203)

The directors are responsible for issuance of notice ad holding of board

meetings and general meetings etc.
 Duties of independent director

Some of the most significant functions, duties, and liabilities of the independent
directors, are the following (as per the Schedule IV of the Contract act A-2013)

 To assist in forwarding equitable and independent judgment to the board

 To secure and promote the interests of all stakeholders of the concerned
company, particularly of the minority shareholders
 To conciliate and balance the conflicting interests of the stakeholders
 To attend actively and constructively most of the board and committee
meetings
 To pay proper and adequate attention to Related Party Transactions
(RPTs)
 To report concerns honestly and impartially about any unethical behavior,
violation of the code of conduct, or any suspected fraud in the company
 REFERENCES:-
1. https://www.formacompany.ie/en/company-directors/types-of-
company-directors.php
2. https://taxguru.in/company-law/types-director-companies-act-
2013.html
3. Types of Directors in a Companycleartax.in
4. Duties and responsibilities of directorswww.lawteacher.net