Directors form the mind and will of a company, with statutory rules governing how many are required, how they are appointed and retire, what rights and powers they wield, the fiduciary duties they owe, and how compensation is regulated. In brief, public companies need at least three directors, private companies two, and OPCs one, with additional residency, independence, and woman director requirements applying by category and thresholds.
Minimum number
- Public company: Minimum three directors; private company: minimum two; One Person Company: minimum one; maximum fifteen unless increased by special resolution.
- Residency and composition: At least one resident director (182+ days in India during the financial year); listed companies require at least one-third independent directors; specified public companies must appoint at least two independent directors and a woman director per thresholds.
Appointment
- General rule: Directors are appointed by shareholders in general meeting; first directors are named in the articles or deemed from memorandum subscribers if not named. DIN, consent, and non-disqualification declarations are mandatory, with filings within 30 days.
- Board-level appointments: Additional, alternate, nominee directors, and filling casual vacancies can be effected by the Board under Section 161, subject to articles.
- Other routes: Small shareholders’ director for listed companies, proportional representation under Section 163 if adopted, and tribunal appointment in oppression/mismanagement cases.
Retirement
- Rotation: In a public company, not less than two-thirds of directors are liable to retire by rotation; one-third of those retire at each AGM and may be reappointed, excluding independent directors from the computation.
- Non-rotational directors: Independent directors have fixed terms and are not counted for rotation; nominee/MD/WTD terms follow their specific appointments and contracts.
Rights and powers
- Management authority: The Board exercises all powers of the company except those reserved for shareholders by statute or articles; it acts collectively via Board meetings or committees.
- Specific powers/limits: Certain powers require Board resolutions at meetings (e.g., borrowing, investing funds) and some require special resolutions of members (e.g., selling substantial undertakings, borrowing beyond paid-up capital and free reserves).
- Information rights: Directors are entitled to timely information, financials, and access to records to discharge oversight functions.
Duties
- Statutory fiduciary duties: Act in good faith to promote the objects of the company for the benefit of its members as a whole, exercise due and reasonable care, skill and diligence, and exercise independent judgment.
- Conflict rules: Avoid situations of direct or indirect conflict of interest, not achieve undue gain or advantage, and disclose interest in contracts; contraventions may require making good the gain to the company.
- Compliance oversight: Ensure adherence to law, financial controls, and fair, transparent governance; independent directors have additional oversight responsibilities.
Compensation
- Remuneration framework: Overall limits and modes of payment are governed by statute and may require shareholder approvals; managerial remuneration caps and approvals apply for MD/WTD/Manager, with sitting fees and commission structures permitted within limits.
- Reimbursement and indemnity: Reasonable expenses for participation are reimbursable; companies may indemnify directors consistent with law and D&O insurance practices.
Banking perspective
- Governance signals: Adequate board composition (resident, independent, woman director) and proper rotation indicate compliance discipline relevant to credit appraisal.
- Authority verification: For lending and contracts, verify Board/Shareholder resolutions for reserved matters and borrowing limits to ensure enforceability and avoid ultra vires issues.
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