Director under Companies Act, 2013

CEO (Chief Executive officer)  

A CEO is the highest ranking corporate officer (executive) or administrator in charge of total management of the organization. The role of the CEO varies from one company to other depending upon its size and organization. His main responsibilities include developing and implementing high level strategies, leadership, making major corporate decisions, managing the overall operations of a company. As a leader of the company he advices Board of directors, motivates employees and drives changes within the organization. As a manager, the CEO presides over the day to day managerial activities. He also acts as the communication point between the BOD and the corporate operations which involves the press and the rest of the outside world, as well as the organization’s management and the employees.

COO (Chief Operations Officer)

A COO (Chief Operations Officer) or Director of Operations can be one of the highest ranking executives in an organization. He is responsible for managing day to day operations of the company and routinely reports to the highest ranking executive, usually the CEO (Chief Executive Officer).

Executive Director

The term ‘Executive Director’ has nowehere been defined under the Companies Act, 1956. But, on careful interpretation of section 309 of the Companies Act, 1956 one finds that the term means a Director of the Company who is either a Managing Director or a Whole time Director of the Company. As per section 2(26) of the Companies Act, 1956 only an existing Director can be appointed as Managing Director of the Company.  

Independent Director

Independent Director is a non- executive director who

  • Does not have any material or pecuniary relationship with the company,
  • Is a person of integrity and possesses relevant expertise and experience;
  • Does not own any shares in the company

As per Section 149 (6) of the Companies Act, 2013, for a listed company, an Independent director should be a person

  • Who is or was not a promoter of the company or its holding, subsidiary or associate company and also not related to promoters or directors of such company;
  • Who has or had not any pecuniary relationship with the company, or its holding, subsidiary or associate company or their directors or promoters during the two immediately preceding F.Y.(s) or during current F.Y.;
  • None of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or its associate company, or their promoters, or directors, amounting to 2% of more of its gross turnover or total income or fifty lakhs rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding F.Y.(s) or during the current F.Y.;
  • Who, neither himself nor of any of its relatives-

     

    • Holds or has held the position of the key managerial personnel or is or has been the employee the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the F.Y. in which he is proposed to be appointed;
    • Is or has been an employee or proprietor or a partner, in any of the three F.Y(s) immediately preceding the F.Y. in which is he is proposed to be appointed, of-

       

      1. A firm of auditors or CS in practice or cost auditors of the company or its holding, subsidiary or associate company; or
      2. Any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to 10 % or more of the gross turnover of such firm;
    • Holds together with his relatives two percent of the total voting power of the company; or
    • Is a CEO or director, by whatever name called, of any non profit organization that receives 25% or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds 2% or more of the total voting power of the company; or
  • Who possesses such other qualification as may be prescribed.
  • Listed companies shall have atleast one third of the total directors as IDs and the CG may prescribe the minimum no. of IDs for any class of public companies.
  • The ID shall be appointed for a term of up to five years and be eligible for re-appointment subject to certain conditions for two such terms. Thereafter, the ID shall be eligible for appointment after a cooling off period of three years, subject to certain conditions. Alternate director of an ID can be appointed if such an alternate director is also an ID.
  • This requirement is to be complied within 1 year:

     

    • By existing listed companies from the date of enactment of the 2013 Act ; and
    • By the prescribed class of public companies from the date Rules are notified.

Managing Director

According to the definition given in Section 2(26) of the Companies Act, 1956, Managing Director:

  1. He must be a director of the company.
  2. He must be entrusted with substantial powers of management, which would not otherwise be exercisable by him.
  3. The general powers to do administrative acts of a routine nature are not to be deemed to be the substantial powers of management.
  4. The powers of management may be entrusted with the managing director by an agreement or by a resolution passed at a general meeting by the members or a Board meeting or by the Memorandum or the Articles of Association of the company.
  5. The powers of management given to a managing director must be exercised by him subject to the superintendence, control and directions of the Board of Directors.
  6. A person who occupies the position of the managing director even without being designated as such would also be deemed to be a managing director.

As per section 269(1), a public company or a private company which is a subsidiary of a public company, having a paid up share capital of rupees five crores or more shall have a managing or whole-time director or manager.

Therefore, a private company is not statutorily required to have managing or whole-time director or manager.

The managing director of a company may be entrusted with substantial power of management but not necessarily given the whole or substantially the whole of the affairs of a company. A company, may, therefore, have more than one managing director such as the Managing Director (Finance), Managing Director (Administration), Joint Managing Director, etc.

Director

Where no provision is made in AOA of a company for the appointment of first directors, 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. In case of one person company an individual being member shall be deemed to be the first director until the director or directors are duly appointed by the members in accordance with the provisions of the Sec. 152 of Companies Act, 2013.

  • No person shall be appointed as a director unless he has a DIN(Sec.154).
  • Save as otherwise expressly provided in this act, every director shall be appointed by the company in GM.
  • Every person proposed to be appointed as director shall furnish a declaration that he is not disqualified to be a director under this act.
  • A person appointed as a director shall not act as a director unless he gives his consent to hold the office as director and such consent has been filed with the ROC within 30 days of his appointment in such manner as may be prescribed;

Provided that in case of appointment of an independent director in GM, an explanatory statement for such appointment, annexed to the notice for the GM, shall include a statement that in the opinion of the BOD, he fulfills the condition specified in this act for such an appointment.

Section 164,

(1), A person shall not be eligible for appointment as a director of the company if he is of unsound mind, undischarges insolvent, convicted to imprisonment for not less than six months ( and 5 years have not elapsed after expiry of sentence. Also, unpaid calls for six months leads to disqualification

A private company may by its articles provide for any disqualifications for appointment as a director in addition to those specified in sub-section (1) and (2);

Additional Director

Section 260 of the Companies Act, 1956 provides appointment of additional director

Articles of Association must contain provision to appoint additional director. If the Articles specifically so provide or enable, the Board has the discretion, where it feels it necessary and expedient, to appoint Additional Directors who will hold office until the next AGM.

Tenure: The Additional director shall hold office upto the date of next Annual General meeting. (First proviso to Section 260 of the Companies Act, 1956)

The additional director as well as existing directors shall not exceed maximum strength of Board of Directors mentioned in the Articles of Association (Second proviso to Section 260 of the Companies Act, 1956)

If the articles do not provide for appointment of additional director in Board meeting, convening of EGM is necessary for the appointment of additional director.

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