The board of directors is very important to any business because they set the general direction and make sure the business is well-run. On the other hand, not everyone can be a director. This blog post will talk about what makes a director qualified or not qualified, including the legal requirements and typical reasons for being disqualified.
- QUALIFICATIONS AND DISQUALIFICATION OF DIRECTORS
Qualifications of Directors
Director is a word used to describe someone who is chosen or voted to serve on the board of a company. If someone wants to be a director, they must meet a number of requirements, such as:
1. Age: A director must be at least 18 years old in most places.
2. Psychological Capacity: A director must be able to understand how the business works and make smart choices.
3. No Criminal Record: A director can’t have a record of crimes that would make them unfit to be on the board.
4. Shareholding: A director may need to own a certain number of shares in the company, depending on the company’s rules.
5. Skills and Experience: A director must have the skills and experience to help the board make decisions.
Disqualifications of Directors
For leaders, there are things that make them qualified and things that make them not qualified. There are several reasons a person might not be able to be a director, such as:
1. Bankruptcy: Someone who has been declared bankrupt may not be able to be a member.
2. conflict of interest: when a director acts in their own best interests instead of the best interests of the company. People who are directors may be removed if they have a conflict of interest that can’t be fixed.
3. Fraud or Misconduct: A director who has done something dishonest or false may not be able to stay on the board.
4. Incompetence: If a director consistently makes bad choices or doesn’t do their job, they could be removed from their position.
5. Breaking the Rules: A director has to do their job honestly and with enough care. If a director breaks their tasks, they could be kicked out of the board.
- CLASSIFICATION OF DIRECTORS
A business has different kinds of leaders, and each one does a different job for the business. Let’s learn about each director one at a time.
1. Indirect director
A “shadow director” is a director who has a significant impact on the Board of Directors’ choices for the company. He behaves covertly and covertly while doing this. Despite not having a formal appointment as a director, he has significant influence over the decisions that the corporation makes.
- Acting director
Certain individuals are not eligible to be appointed as directors of a company. In certain instances, individuals who are not formally designated as directors of a corporation still carry out the duties of directors despite not having the necessary power or authorization. - First director
The people who incorporate a firm are known as promoters. They designate specific individuals as directors of that business; these individuals are referred to as the company’s first directors. The phrase “first directors” also makes this clear.4. Additional directors
When an additional director is appointed, they may serve in that capacity until the next AGM (Annual General Meeting) or, if that occurs earlier, the last day the AGM was scheduled to take place. A person cannot, however, be appointed as an additional director if they are not appointed as a director at an AGM. The authority to designate a person as an additional director is granted by the Articles of Association (AOA) at any stage.5. Ad-hoc Director
The board of directors may appoint an As-hoc director to fill any vacancies that may occur from a director’s death, resignation, or other unanticipated event. These temporary directors may take over the role for the remainder of the original director’s term.6. Alternative director
The board of directors appoints a replacement director in the event that a director misses more than three months’ worth of board meetings. Until the original director returns or until the end of their term, the alternate director remains in office. Here, the distinction between an ad hoc and an alternative director is that the former is appointed temporarily until the return of the original director, while the latter is appointed permanently.7. Executive Directors
the directors who take part in running the business on a daily basis. They serve as the company’s full-time directors as well. These are prevalent in director positions in marketing, finance, etc.8. Non-executive Directors
Non-executive directors of a firm are those who do not engage in day-to-day management or participation. They are not employed by the corporation as executives, but they do contribute their unique viewpoint and independent voice to the board of directors.9. Rotational Directors
The directors leave the board of the corporation by rotation, however they are eligible for reappointment once they retire.10. Women Director
According to the Companies Act of 2013, a firm must have at least one female director. According to Section 149(1) of the Act, this is restricted to specific groups of companies. Companies have one year from the date the act’s start to comply with the aforementioned provisions, as per Section 149(2). Section 172 of the Companies Act holds the corporation accountable for any violations of the same. Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014 outlines the qualifications needed for a female director.
In conclusion
The Companies Act, 2013 says that every business must have 15 directors. However, the law says that the directors must be of different types to meet certain requirements.
It’s not necessary for every business to have every chairman. According to company law, it only depends on the type of business and how much money it makes.
- DIRECTOR IDENTIFICATION NUMBER (DIN)
Individuals who do not possess a valid DIN are not permitted to serve as directors of a company. A DIN is a unique identification number that can be gained by someone who wants to be a director or is already a director in a company but does not have a DIN. One DIN can only be held by one director at a time. In the event that a director gets two DINs by mistake, he has to give up the most recent one.
Forms needed to get or give up a DIN are talked about later in this piece.
You can also get a DIN by filling out the SPICE form when you start a business (up to 3 DINs are allowed).
HOW TO GET DIN DOCUMENTS
- Proof of who the applicant is (attachment properly attested)
- Indian nationals must have a PAN.
- Passport of a foreign person
- Proof of where the applicant lives (attachment properly attested)
- Picture (JPG file, maximum size 100kb)
- DSC of the client
- A statement from a current director of the company where the person wants to be a director. Fees to be paid: Rs 500
- LEGAL PROVISION OF DIRECTORS
- Directors as Agents
A firm lacks the ability to act on its own and necessitates a representative. The directors fulfill the duty of representatives, so establishing a principal-agent relationship.
Directors in this partnership have the power and autonomy to act and make decisions on behalf of the firm. The company has responsibility for any contracts or transactions done on its behalf, but the directors are exempt from personal liability. Directors just sign and carry out contracts on behalf of the company.
- Director serving as a trustee
Within a company, the director holds the legal position of a trustee. The trustee function entails the responsibility of overseeing and managing the company’s assets while prioritizing the company’s best interests.
A trustee is a someone who may be entrusted with the company’s assets and works towards achieving the company’s goals, prioritizing the company’s interests over personal gain. In addition, a trustee is given certain powers, such as the ability to allocate shares, issue calls, accept or decline transfers, and so on. These abilities are commonly known as powers in trust.
- Managing Partner in the role of Director
The directors of a corporation serve as delegates of the shareholders, executing their desires and goals. They act on behalf of the shareholders and prioritize their interests, which gives them substantial authority and the capacity to carry out activities that are fundamentally exclusive in nature.
The company’s Memorandum of Association (MOA) and Articles of Association (AOA) designate the board of directors as the supreme body responsible for formulating policies and making decisions.
- Director in the capacity of an employee or officer
Shareholders appoint directors during a company’s general meeting. Upon being elected, a director is bestowed with legal rights and powers. The powers and rights of the directors are irrevocable by the shareholders, and the shareholders are prohibited from meddling in the decision-making processes of the directors.
Directors cannot be classified as workers of the corporation due to their possession of significant authority and rights. Employees generally possess restricted authority and operate under the employer’s guidance, without the capacity to intervene in decision-making. Therefore, the role of a director might be seen as that of an employee from a legal standpoint.
In conclusion
The legal status of directors in a business is complex and encompasses several duties such as agents, trustees, managing partners, and officers. Directors serve as proxies for shareholders, exercising significant authority and making crucial determinations. They function according to the company’s governing documents as the ultimate authority.
