The Complete Guide to Directors and their Role on Corporate Boards

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Corporate

Introduction: What is a director?

What exactly is a director?

 A director is someone who is chosen or appointed to handle the management and operations of a company. A minimum of two directors are required for a Private Limited company whereas a minimum of three directors are required for a Public company The company registers the records of who your directors are and crucial information about them.

According to the Companies Act, a maximum of 15 persons can be appointed to the board of directors. Generally, shareholders are the ones who appoint directors. A business, organization, or law firm having a fictitious legal personality cannot be nominated as a director. It needs to be a real person.

Who can be a director?

Managing a business is a difficult task. As a result, there are qualifications for becoming a director.
  • A real person can only become a director of a company. A person who is not a person is unqualified to be a director.
  • Furthermore, a minor cannot become a director of the company since he is not qualified to receive a DIN and cannot file for legal permission to operate as a director.
  • At least one director of the company must be an Indian resident.
  • Furthermore, the individual functioning as a director must be of sound mind, capable of entering into a contract, and not bankrupt.

What are the Powers and Duties of a Director?

The Companies Act of 2013 specifies the powers and duties of a director when acting on behalf of a company. Sections 166 and 179 of the Companies Act 2013 define the responsibilities and duties of a company director.

The Director’s Duties

The Board of Directors operates as the company’s agent. However, when operating for the company, the director must fulfill his responsibilities, which are as follows:
  • Act in good faith in line with the company’s Memorandum and Articles of Association.
  • To act in the best interests of the company and its stakeholders.
  • Carry out his responsibilities with appropriate caution and reasonable care.
  • To not to get engaged in a scenario in which his interests collide with those of the company.
  • Do not delegate his office to anyone else.
  • Do not acquire an unfair advantage or benefit.
  • To ensure the accurate and timely submission of various legal compliances of the company under various acts Income Tax Act, GST, MCA, etc

The Director’s Powers

According to the Companies Act of 2013, the Board of Directors of the company has the following powers:

  • The authority to make calls on money owed on shares.
  • Meetings can be called on the spur of the moment.
  • Issue stock, debentures, or other securities in the name of the company.
  • Borrow and invest cash/funds for the benefit of the company.
  • To approve the financial statements and the board report.
  • To approve Employee bonuses.
  • To declare Dividends.
  • Capability to make loans or guarantee loans
  • Authorize the purchase of securities
  • Approve the merger/merger/takeover.
  • Diversify the company’s business.

What Qualities a Director should possess?

Your abilities as a director are an important aspect of your reputation. Each director should contribute a unique set of talents and expertise to each board position.

Director talents are divided into two categories: job-specific abilities and expertise, and personal traits that you bring to a role. Developing and maintaining your director skill set may be viewed as a balancing act between the non-negotiable talents required to fulfill director tasks correctly (for example, finance, governance, and strategy) and those that make you a competent and successful leader and team member.

How Are the Directors Appointed?

The shareholders appoint two-thirds of the directors in a public or private company. 

In the event of a private business, the procedure for appointing all directors might be specified in the Articles of Association. If the articles remain silent, the shareholders must appoint the directors.

The Companies Act also includes a provision that allows a business to appoint two-thirds of its directors following the idea of proportional representation. This occurs if the firm has implemented this policy.

To combat mismanagement and misbehavior, nominee directors will be nominated by third-party agencies or the government. Directors must behave honestly and with reasonable care and competence when fulfilling their obligations on behalf of the organization.

What is the Process of Appointment 0f Directors ?

What documents are needed for the appointment of a director?

1. Documents required from the Director: PAN Card, Proof of Residence, DIN Declarations, Consent Letter for Appointment, and so on.
2. Documents Required from the Company: Board Meeting Resolution for Appointment and Letter of Appointment

What is a Director's Consent Letter?

Anyone who wishes to be appointed as a director must first provide his permission to the company. This is referred to as a “consent letter.”

What forms must be filled out to add a director to a company?

Form DIR-12 is submitted to the MCA portal for director appointment. You can visit https://www.mca.gov.in/MinistryV2/companyformsdownload.html to download Director’s appointment form and related FAQ’s on it.

What are the costs and expenses for nominating a director?

The MCA filing cost for Form DIR-12 within the time limit is Rs. 300.

What are the Consequences When Incorrect Information Is Filed On The Form by the Directors?

The Directors of the company are responsible for digitally attesting/signing various forms under various Acts. Some frequently used forms that require Director’s signatures are ITR 6 Form, MGT 7, MGT 7A, A0C 4, GSTR 9, GSTR 9 C form, etc. These forms usually require a True and Correct declaration. Directors must go through all the details and information mentioned in the form before signing off to be doubly sure of the information which is being submitted by them on behalf of the company. This is very crucial because in case the Director gives any false information or omits to give any vital information then they would be liable to penalties which could be in the form of a monetary fine or non-monetary punishment.
Penalty and Imprisonment
If any information reported by a director or any other person in the annual return is misleading in any way, or if he/she fails to state any fact or material that is true, he/she can be imprisoned for a time not less than six months and up to ten years.

The Distinction Between Expert And Generalist Knowledge In The Boardroom

A director must have a diverse set of talents. What is more essential, though, is how the individual implements those skills. An accountant who just gives input on financial matters or a lawyer who only provides input on legal issues is not relevant on a modern board. Directors must be prepared to contribute to a wide variety of challenges.

Are the Directors liable for the company’s debt , liabilities , payables or due?

In normal course the Director’s are not personally liable for the company’s debt or liabilities but if the Directors fail to perform their duties with reasonable care and utmost good faith or indulge in fraudulent or illegal activities under the companies shield then they will be personally responsible for the payment of companies liabilities. In such a scenario Corporate veil of the company will be lifted .

Ramalinga Raju , the scandalous Director of Satyam is one such example

 

Ramalinga Raju – Wikipedia

The Tax Planet’s View

In the context of family run Indian Private Limited Companies the role and position of Director is underrated. We at The Tax Planet caution you that a Directorship position comes with lots of responsibilities and failure to fulfill them are bound to have very serious legal repercussions. So today ask yourself these Questions
  1. Are you a director in any company?
  2. Whether you perform your legal duties and responsibilities as a Director?
An honest answer to the above 2 questions will give direction to further steps you need to take to safeguard yourself of any legal consequences that might arise from a Directorship position.

In this blog post, we tried to give you the Complete Guide To Directors And Their Role.
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