Roles & Responsibilities of a Director in a Company

When people think of a company director, they often imagine someone with a lot of power, making big decisions and leading the company toward success. While this is partly true, being a director is about much more than just having control. It comes with a lot of responsibilities and duties.

A director is not just a leader but also a protector of the company’s values and rules. Directors play a crucial role in shaping the company’s future, looking after the interests of shareholders, and making sure the company follows laws and regulations.

This blog will make you learn about the key roles, responsibilities, powers, and duties of a director as mentioned in the Companies Act, 2013 in a simple and easy-to-understand way.

Who is a Director?

As per the Section 2(34) of the Companies Act, 2013, a “director” means a director appointed to the Board of a company. He is the one who is responsible for managing its affairs and ensuring its steady growth.

In simple terms, a director is a person appointed to manage, control, and supervise the activities performed by a company.

As per the Section 149 of the Companies Act, 2013, a private limited company is required to have at least two directors and three directors for a public limited company. For a one-person company (OPC), only one director is needed.

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Types of Directors as per The Companies Act, 2013

The Companies Act 2013 categorizes directors based on their roles and responsibilities. The following are the key types of directors:

1. Executive Director – Actively involved in day-to-day management and is appointed by the board/shareholders.

2. Non-Executive Director – Provides strategic guidance but does not engage in daily operations and is also appointed by the board/shareholders.

3. Independent Director – Promotes corporate governance and protects minority shareholders and is appointed by the board/shareholders in the Annual General Meeting (AGM).

4. Managing Director – Holds substantial management powers as delegated by the Board and is appointed by the board/shareholders.

5. Whole-Time Director – Works full-time for the company is actively engaged in operations and is appointed by the board/shareholders.

6. Nominee Director – Represents the interests of investors, financial institutions, or stakeholders and is appointed by the investors, lenders, etc.

7. Additional Director – Temporary director or appointed by the Board until the next AGM.

8. Alternate Director – Acts as a substitute when the original director is absent for more than three months and is appointed by the board.

9. Resident Director – Required under Section 149(3) of the Companies Act, must stay in India for at least 182 days in a calendar year and is appointed by the board/shareholders.

10. Small Shareholder Director – Represents the interests of small shareholders in a listed company and is elected by small shareholders.

11. Women Director – Mandatory for certain companies to have at least one woman director to promote diversity and is also appointed by the board/shareholders.

Roles of a Director as per the Companies Act, 2013

The role of director is a multi-dimensional role in a company. Here's a breakdown of these roles:

A. Strategic Roles

• Establish the company's strategic direction and mission.

• Guide business growth, diversification, and mergers or acquisitions.

• Identify, mitigate, and manage the business risks.

B. Governance and Compliance Roles

• Ensure that governance frameworks comply with legal and regulatory requirements.

• Comply with all applicable laws, including SEBI, RBI, and industry regulations.

• Promote ethical business practices and corporate social responsibility (CSR).

C. Financial Roles

• Approve company budgets, investment strategies, and financial plans.

• Ensure financial statements present a true and fair view of the company's financial position.

• Approve and declare dividends for shareholders.

D. Supervisory Roles

• Supervise key managerial personnel (KMP) and ensure efficient management of company operations.

• Review the performance of senior executives, including the CEO and CFO.

E. People Management Roles

• Play a key role in appointing key personnel like CEO, CFO, and company secretaries.

• Plan for a smooth transition in key leadership positions.

• Serve as a bridge between the Board, shareholders, and external stakeholders.

Responsibilities of a Director as per the Companies Act 2013

Directors are subject to various responsibilities that can be classified as follows:

A. Statutory Responsibilities

• Directors must attend Board meetings to discuss and approve major decisions.

• Participate in Annual General Meetings (AGM) and Extraordinary General Meetings (EGM).

• Ensure proper maintenance of statutory registers like registers of members, charges, loans, and directors.

• Disclose any conflict of interest in Board meetings.

B. Compliance Responsibilities

• Ensure compliance with CSR requirements under Section 135 of the Companies Act.

• Directors must ensure the company adheres to all applicable laws and regulations.

C. Fiduciary Responsibilities

• Directors must act with reasonable care, diligence, and competence.

• Must act in the best interest of the company and avoid conflicts of interest.

• Act in good faith for the benefit of all stakeholders.

Powers of Directors

Directors possess the following powers as per the Companies Act 2013:

• Borrowing Powers – Approve loans and borrowings for business expansion.

• Issue of Shares – Authorize the issue and allotment of shares and securities.

• Investment Approval – Approve large-scale investments and capital allocation.

• Appointment of Auditors – Approve the appointment of statutory auditors.

• Approval of Contracts – Approve contracts, agreements, and other key business arrangements.

Liabilities of Directors

Directors are subject to various liabilities for non-compliance, mismanagement, or fraud.

• Civil Liability – Liability to compensate for losses caused by negligence or mismanagement.

• Criminal Liability – Directors may face criminal charges for fraud, insider trading, or financial misstatements.

• Liability under Companies Act, 2013 – Directors may face penalties, fines, or imprisonment for failing to comply with the Act’s provisions.

• Personal Liability – Directors can be held personally liable if they provide a personal guarantee on behalf of the company.

Role in Corporate Governance

Directors play an essential role in ensuring corporate governance, which focuses on accountability, fairness, and transparency in company affairs.

• Directors ensure that senior management is accountable for its actions and decisions.

• Directors facilitate the disclosure of key information to shareholders.

• Directors act to protect the interests of stakeholders, including minority shareholders.

• Directors identify and manage key business risks.

Conclusion

Being a director in an Indian company is a challenging yet rewarding role that comes with a diverse set of responsibilities. Directors must balance the company’s long-term strategy with day-to-day management, all while ensuring they remain compliant with Indian laws and act in the best interests of shareholders. Understanding these responsibilities is crucial for anyone considering a directorship or interacting with company directors.

FAQs

1. Who can be appointed as a director in a company?

In India, any individual above the age of 18 years can be appointed as a director, provided they are not declared insolvent, convicted of a crime, or disqualified under the Companies Act, 2013.

2. What are the different types of directors in an Indian company?

There are several types of directors, including Executive Directors, Non-Executive Directors, Independent Directors, Nominee Directors, and Additional Directors.

3. What are the fiduciary duties of a director?

Directors must act in the best interest of the company, avoid conflicts of interest, exercise due care and skill in decision-making, and ensure that they maintain the confidentiality of the company's sensitive information.

4. How many board meetings must be held each year, and what are a director's obligations?

In India, a company must hold at least four board meetings each year, with a gap of no more than 120 days between them. Directors are expected to attend these meetings and actively participate in the discussions and decision-making processes.

5. What is the liability of a director in case of company non-compliance?

They can face personal penalties, fines, or even imprisonment if the company fails to comply with legal obligations, such as statutory filings or tax payments. Their liability can also be collective or joint, depending on the nature of the violation.

6. Can directors be held liable for fraud or insider trading?

Yes, directors can be held personally liable for fraud, insider trading, or any actions that involve misleading shareholders or the public. Strict penalties, including fines and imprisonment, can be imposed for such violations under the Companies Act, 2013.

7. What happens if a director has a conflict of interest?

Directors are legally required to disclose any conflicts of interest. They must not participate in discussions or decisions where they have a personal interest, to avoid compromising the company’s interests.

8. How can a director be removed or resign from their position?

Directors can be removed by the shareholders through a resolution at a general meeting, or they may voluntarily resign by submitting a resignation letter to the board.