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Directorship in India

Updated: Oct 19, 2021


The term Director is used for an individual who leads or manages a company. They are the final decision-makers and thus accountable for the operations of the company. The director is supposed to report directly to a vice president or the CEO to let them know its progress.


Requirement and eligibility

A person who wants to be a director or proposes to be a director for the first time shall apply for DIN compulsorily. The ratio for DIN goes 1:1; that is, each person shall hold only 1 DIN; shall be charged a penalty for an infringement. It's to be noted that any other figure prescribed u/s 153 shall also be considered DIN; for instance, a partner having a DPIN must not apply for DIN since it is equivalent to it.


Types of director

  • Residential director

As per section 149, every company needs to appoint at least one director who is a local resident in India.


  • Independent director

The reason for having an independent director is to improve corporate credibility and boost the company's governance standards by having a person of morality. In simpler words, an independent director is a director who does not hold any concern in the company, which may affect his judgment's independence. The term they hold can be a maximum of 2 terms having 5 consecutive years each. However, after 2 terms, they must be having a cooling period of 3 years. Following are companies that need to engage at least two independent directors:

  1. ­Public companies with paid-up capital of Rs.10 crores or more,

  2. ­Public companies with turnover of Rs.100 crores or more,

  3. ­Public companies with overall outstanding loans, deposits, and debenture of Rs.50 crores or more.


  • Small shareholder directors

By themselves or upon the observation of small shareholders, a listed company shall have their spokesperson known as small shareholders director. Minimum 1000 small-scale shareholders or 10% of the total number of the small shareholder, whichever is less, shall apply for the director.


  • Women director

A private company may or may not appoint a minimum of 1 woman director, but the public company necessarily have at least 1 woman director, in case it satisfies any of the following points:

  1. ­The company is a listed company; or

  2. The company’s paid-up capital is Rs.100 crores or high, with an Rs.300 crores or more turnover.


  • Additional director

A person with skills in a field that can benefit the company could be appointed as an additional director and hold his post until the next Annual General Meeting. Such AGM should have been holding on lawfully, whichever is earlier.


  • Alternate director

An alternate director is a person appointed by the Board to fill in the short-term vacancy of a current director who might not be available in India for more than 3 months.


  • Nominee directors

Nominee directors are considered representatives of a director or a group of stakeholders. They could be allocated by a specific class of shareholders, banks or any other lending institutions, third parties through contracts, and/ or the Central Government.


Disqualifications

Section 164 of the Companies Act 2013 assign the disqualification of Directors. The following conditions can be causes for the disqualification of a Director.


  • A person of unsound mind;

  • A person charged by the court for immorality and imprisonment of more than 6 months and a period of 5 years has not progressed;

  • A person charged by the court for neglectful Act towards the company;

  • A person is an undischarged insolvent;

  • A person has applied to be pass judgement as insolvent, and his application is pending;

  • An individual has been in default to pay calls in arrear of the company elapsing 6 months from the due date of payment;

  • An individual who does not have a DIN or any other unique no. that is equivalent to Din as specified in Section 153;

  • An individual convicted for committing related party transactions fraud under section 188;

Interestingly, a person on the aggregate term who has been imprisoned for 7 years or more should be disqualified forever.


The lifting of the corporate veil

The term corporate veil refers to a company being a separate legal entity. Lifting the veil means disregarding distinct corporate personality and looking at the critical person having control. In simple words, where a Company is responsible for corrupt and fraudulent acts, the persons in power cannot shelter under the cover to escape from the responsibility of the Act.


Once this corporate veil is lifted, a person protected by the corporate veil is liable for discharging their obligations, disregarding its notion as a legal entity.


Maximum directorships

A company can have the following counts of directors:

  • Minimum – 3 in a Public company, 2 in a private company, and 1 in One Person Company.

  • Maximum – 15 is the limit for all the companies. If a company wants to select more than 15 directors, it needs to pass a special resolution.


For individuals, a person can hold on to a full 20 directorship, including 10 Public Companies. Provided the count does not involve any section 8 or Dormant Company.


The directors are the company's fundamental, and they are the main secret behind a successful company. The company management should be answerable people who can use their power correctly, as greater power comes with greater responsibility.


We at Itseki Mercurius India assist our clients with all the compliance related to appointment and withdrawal of directors, company incorporation, business setup, ROC filings, the company's winding up, etc. If you have any queries/ questions or would like to know more about Directorship in India, kindly contact us.

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