Types of Directors in a Company

The article 'Types of Directors in a Company' is a detailed study of the role of directors within the company. Company Directors are an important part of the senior management team of an organisation, and they often have exceptional managerial and leadership skills. These people manage the everyday operations of the business, ensuring that the personnel are productively pursuing the organization's objectives. 

Introduction

The Role of a Company Director is to handle the daily operations of the organisation. They make important tactical and strategic decisions which ensure that the organisation achieves its goals. If there are shareholders in the company, the director might be responsible for them as well. The director must strike a balance between the interests of the company and its employees and those of the investors. The director of the company is expected to be morally upright and capable of making choices that adhere to the rules set forth by the government which regulate business operations.

Directors are members of the group known as the Board of Directors, which is responsible for supervising, handling, and guiding a company's operations. In addition to acting as the company's agents in transactions they enter into on the company's behalf, directors are regarded as the trustees of the company's assets and money.

Directors are expected to carry out their responsibilities and duties with the same level of ability, knowledge, and experience as the individual doing those tasks and of that themselves. Consequently, a director has multiple functions within a firm, including those of agent, employee, officer and as trustee of the company.

Types of Directors

Based on their role within the company and provisions laid down within the Companies Act 2013 and rules made therein, the Directors have been further segregated into many types such as:

Managing Director

The Companies Act, 2013 (‘Act’) defines a managing director as a director entrusted with substantial powers of managing the company affairs by virtue of either an agreement with the company, articles of association or a resolution passed in its general meeting or board of directors.

A managing director is a senior-level employee who oversees a company's daily operations. They oversee the operation of the various corporate departments and receive information from the managers of those areas. They in turn provide reports to the Board of Directors and the Chief Executive Officer (CEO). They collaborate closely with C-level executives including the chief executive officer (CEO), chief operating officer (COO), chief technology officer (CTO), and chief financial officer (CFO). The managing director can develop corporate policies and strategies with their assistance to assist the organisation in achieving its objectives and making a profit.

Independent Director

An independent director is a non-executive director of a company who assists an organisation in enhancing its goodwill and governance practices. They also make sure that no one person or group of people with a particular interest dominates. They serve as sounding boards, coaches, and mentors for their full-time coworkers. Section 149(4) read with Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 prescribes that companies are required to appoint independent directors.

Small Shareholders Director

To protect the interests of small shareholders in a company, the idea of a small shareholder director was introduced to ensure that a company's small shareholders are fairly represented and prevent the board of directors from making decisions that are detrimental to their interests. A small shareholder is a person who is holding shares of nominal value amounting to a maximum of Rs 20,000 in a public company. Small shareholders are entitled to elect a director in a listed company. Section 151 of the Companies Act, 2013 deals with the provisions of small shareholders directors and for this purpose defines small shareholders.

Women Director

As per Section 149(1) of the Companies Act, 2013, it is mandatory to appoint at least one Woman Director as a board member in certain types of companies. The penalty for non-compliance with the provision extends to a fine of Rs. 10,000 with a further fine of Rs.1000 per day if the contravention continues. A Women Director has to play the role of any other director. Women can take up the role of Nominee Director who will be nominated by a party in the company to take care of its interest. Also, Women can take up the role of Independent Director who is not liable to retire by rotation. Women Director can hold a maximum of twenty directorships that includes the sub-limit of ten public companies. Any contravention on this part shall be subjected to a fine between Rs.5000-Rs.25000.

Additional Director

The Board of Directors may, at a board meeting, appoint an Additional Director. They only serve in that position until the next annual general meeting. It is important to remember that such an appointment may only be made if it is permitted by the article and his request to be appointed as a director has not already been rejected by the company's shareholders at a general meeting. The additional director has the same rights, restrictions, and responsibilities as any other board member of the company. They are also counted in the maximum number of directors that a company may designate in accordance with Section 149 of the Companies Act, 2013.

Alternate Director

Alternate Director is a director appointed by the Board of Directors, as a substitute for a director who may be absent from India, for a period which isn’t less than three months. An alternate director can be appointed as a director only on occasions when a director of a company is away from India for a period of 3 months or more. No other reasons would qualify. Furthermore, alternate directors can be appointed at the mere possibility of the original director’s absence. It is not necessary that the Board of Directors await the actual absence to make an appointment.

Nominee Director

A Nominee Director is a member of a Company’s Board of Directors who has been appointed to the Board of Directors by financial institutions, banks, or investors. A director nominated by any financial institution in accordance with the requirements of any legislation now in effect, or of any agreement, or appointed by any Government, or any other person to represent its interests is defined as a nominee director under Section 149 (7) of the Companies Act, 2013.

Executive Director

An Executive Director is the senior operating officer or manager of an organization or corporation, usually at a nonprofit. Their duties are similar to those of a chief executive officer (CEO) of a for-profit company. The executive director is responsible for strategic planning, working with the board of directors and operating within a budget. Executive directors report directly to the board and are responsible for carrying out the board's decisions. Although an executive director is also involved in the day-to-day management of the organization, these duties may be shared with a chief operating officer (COO).

Non-Executive Director

Non-executive Director is a director, who is not an executive director and not directly involved in the company's day-to-day operations. He or she is usually involved in planning and policymaking. The non-executive directors are expected to oversee the performance of the executive directors and the management.

Rights of Directors

Rights can be categorized into individual rights and collective rights.

Individual rights such as the Right to inspect books of accounts [Section 209(4)], the Right to receive notices of board meetings (Section 285), the Right to participate in proceedings and cast vote in favour or against resolutions(Section 300), Right to receive circular resolutions proposed to be passed (Section 289), Right to inspect minutes of board meetings.

Collective rights are as follows: -

1) Right to refuse to transfer shares: According to Section 111 of the Act, directors of private companies and deemed public companies are entitled to refuse registration of the transfer of shares to a person whom they do not approve.

2) Right to elect a Chairman: Regulation 76(1) of Table-A provides that the directors are entitled to elect a chairman for the board meetings.

3) Right to appoint a Managing Director: The Board has the right to appoint the managing director/ manager (as defined in the Act) of the company.

4) Right to recommend Dividend: The Board is entitled to decide whether the dividend is to be paid or not. Shareholders cannot compel the directors to pay dividends. However, they can reduce the rate of recommended dividends. Payment of dividends is the prerogative of the board.

Conclusion

A Company Director plays one of the most important roles in a company, and the formation of a suitable board of directors can ultimately determine your business's success. Directors are the persons who are elected by the shareholders of the Company. They direct, conduct, manage and supervise the affairs of the Company. A Director is legally responsible for running the company. They also have other legal duties such as filing the accounts on time, safeguarding the company’s assets and not carrying on trading if the company cannot pay its debts.

References

[1] Mayashree Acharya, Types of Directors in a Company, Available Here

[2] Responsibilities and Role of a Company Director (And Skills), Available Here

[3] Lucas Downey, What Is an Executive Director? Definition and Non-Profit Duties, Available Here

[4] Vishal Wason, Appointment of Nominee director under Companies Act, 2013, Available Here

[5] Sreeram Vishwanath, Alternate Director – Companies Act 2013, Available Here

[6] Woman Directors, Available Here

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