Meaning of Director
According to Section 2(34) of the Companies Act, 2013, a director means a director appointed to the Board of a company.
The Board of Directors is the collective body of directors responsible for managing the affairs of the company.
A director:
Acts as an agent of the company
Is a trustee of company assets
Functions as a key managerial person
Exercises powers on behalf of shareholders
(As per Companies Act, 2013 – India)
If the Articles of Association (AOA) do not mention first directors:
· The subscribers to the Memorandum (MOA) become the first directors.
· In a One Person Company (OPC), the single member becomes the first director.
They continue until directors are properly appointed according to the Act.
If Articles are silent → Subscribers become first directors.
Normally, every director must be appointed by the company in a General Meeting.
This means shareholders appoint directors.
Shareholders appoint directors.
No person can become a director unless he has a Director Identification Number (DIN).
DIN is compulsory before appointment.
👉 No DIN = No Directorship.
Before appointment, a person must:
· Give his DIN
· Declare that he is not disqualified under the Act
This ensures only eligible persons become directors.
After appointment, a person:
· Must give written consent to act as director.
· The company must file this consent with the Registrar within 30 days.
Without consent, he cannot act as director.
When appointing an Independent Director, the notice of the general meeting must include a statement that the Board believes he fulfills all legal conditions.
This applies mainly to public companies.
At least 2/3 of total directors (excluding independent directors) must be:
· Liable to retire by rotation
· Appointed in general meeting
Public company → 2/3 directors retire by rotation
The remaining 1/3 directors are also appointed in general meeting, unless Articles say otherwise.
At every Annual General Meeting (AGM):
· 1/3 of rotational directors retire.
· If number is not exactly divisible by 3, take nearest one-third.
This ensures gradual change in board.
The directors who have been in office for the longest time retire first.
If two directors were appointed on the same day → decided by lot (draw).
👉 Longest serving director retires first.
At the AGM:
· The company may reappoint the retiring director
OR
· Appoint someone else.
If the vacancy is not filled at AGM:
The meeting is automatically adjourned to the same day next week.
If even at adjourned meeting vacancy is not filled:
The retiring director is automatically reappointed.
1. Resolution for reappointment was rejected.
2. Director does not want reappointment.
3. Director is disqualified.
4. Special or ordinary resolution is required.
5. Section 162 applies.
A director must be a natural person. Artificial persons such as companies or firms cannot be appointed as directors.
The person must have attained the age of 18 years. A minor cannot become a director because he lacks contractual capacity.
The person must possess a valid DIN.
These requirements ensure legal competence and accountability.
The Companies Act, 2013 does not mandate directors to hold qualification shares.
However, the Articles of Association may prescribe share qualification. If required, the director must obtain such shares within two months of appointment.
A person shall be disqualified from being appointed as a director if declared to be of unsound mind by a competent court.
An undischarged insolvent or a person who has applied to be adjudicated as insolvent cannot become a director.
A person convicted of an offence and sentenced to imprisonment for six months or more is disqualified.
A person who has not paid calls on shares held by him is disqualified.
If a company has failed to file financial statements or annual returns for three consecutive financial years, the directors of such company become disqualified from reappointment.
These provisions protect the company and stakeholders from incompetent or irresponsible management.
A company may remove a director before the expiry of his term by passing an ordinary resolution.
A special notice is required before moving the resolution for removal.
The director must be given a reasonable opportunity to be heard. He may make a written representation to the members.
This ensures compliance with the principles of natural justice.
However, a director appointed by the Tribunal (special court) or under certain methods of proportional representation cannot be removed in this manner.
In cases of fraud, oppression, mismanagement, or misconduct, the Tribunal may order the removal of directors.
This protects minority shareholders and ensures that company affairs are conducted in a lawful and transparent manner.
A director may resign from office by giving written notice to the company.
The company must file the prescribed form (DIR-12) with the Registrar of Companies.
The resignation takes effect from the date mentioned in the notice or the date on which it is received by the company, whichever is later.
A director shall automatically vacate office if he incurs any disqualification specified under Section 164.
He also vacates office if he remains absent from all Board meetings for a continuous period of twelve months without obtaining leave of absence.
Vacation of office is automatic and does not require passing of any resolution.
(Section 179 & 180 – Companies Act, 2013)
The Board of Directors is responsible for managing the company. It can exercise all powers of the company except those that the Act requires shareholders to exercise.
The Board can exercise all powers and do all acts that the company is authorised to do.
This means the directors manage the company’s affairs, take business decisions, enter into contracts, and represent the company in legal matters. However, they must act within the limits of the Companies Act and the Articles of Association.
Certain important powers must be exercised only by passing a resolution at a Board Meeting.
The Board can demand unpaid money on shares from shareholders. This ensures the company receives capital when required.
The Board can issue shares, debentures, or other securities to raise capital for business operations.
Directors can borrow funds for business needs. Borrowing helps in expansion and smooth functioning of business.
The Board can invest surplus funds in profitable ventures to earn returns.
The company may give loans or provide guarantees to others, but this must be approved by the Board.
The Board must approve the company’s financial statements before they are presented to shareholders.
These decisions must be taken collectively to ensure transparency and accountability.
The Board cannot exercise certain major powers without approval of shareholders by special resolution.
If the company wants to sell a major part of its business, shareholders’ consent is necessary because it affects ownership interests.
If borrowing exceeds the company’s paid-up capital and free reserves, shareholder approval is required.
If the company wants to waive a loan taken by a director, shareholders must approve to prevent misuse.
These restrictions protect shareholders from abuse of power.
(Section 166 – Companies Act, 2013)
Duties are legal responsibilities that directors must follow while exercising their powers.
Directors must follow the provisions of the Companies Act and the Articles of Association.
They cannot act beyond the authority given to them.
Directors must act honestly and in the best interest of:
· The company
· Shareholders
· Employees
· Community and environment
They must not take decisions that harm the company for personal benefit.
Directors must perform their duties carefully and responsibly.
They should use their knowledge and experience while making decisions. Careless or negligent actions may make them liable.
Directors must avoid situations where personal interest conflicts with company interest.
For example, they should not secretly award contracts to their own firms.
If there is any conflict, it must be disclosed.
A director must not make secret profits or misuse company property.
If any undue gain is made, it must be returned to the company.
A director cannot transfer his position to another person.
The office of director is based on trust and confidence, so it cannot be assigned.