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HOME BUSINESS & CO… TYPES OF DIRE…

Types of Directors in a Company

By Mayashree Acharya

Updated on: Oct 16th, 2023 | 16 min read

CONTENTS [ Show ]

Directors refer to the part of the collective body known as the Board of Directors,
that is responsible for controlling, managing and directing the affairs of a
company. Directors are considered the trustees of the company’s property and
money, and they also act as the agents in transactions that are entered into by
them on behalf of the company.

Directors are expected to perform their duties and obligations as rationally diligent

persons with skill, knowledge, and experience as the person carrying out functions
of a director and of that himself. He/she plays multiple roles in the company, such
as an agent, as an employee, as an officer and as a trustee of the company.

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4/4/24, 10:44 AM Types of Directors in a Company

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directors in a company. The minimum number of directors is as follows:

In the case of public limited companies - 3 directors

In the case of private limited companies - 2 directors

In the case of One-Person Companies - 1 director

The maximum number of directors a company can have is 15 directors. However, a

company can appoint more directors by passing a special resolution in its general
meeting.

Types of Directors

Residential Director

As per the Act, every company needs to appoint a director who has been in India
and stayed for not less than 182 days in a previous calendar year. Such a director
will be a residential director.

Independent Director

Independent directors are non-executive directors of a company and help the

company to improve corporate credibility and enhance the governance standards.
In other words, an independent director is a non-executive director without a
relationship with a company which might influence the independence of his
judgment.

The tenure of the independent directors is five consecutive years; however, they shall
be entitled to reappointment by passing a special resolution with the disclosure in
the Board’s report. Every listed public company must have at least one-third of a
total number of directors as independent directors. Following unlisted public
companies need to appoint at the least two independent directors:

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4/4/24, 10:44 AM Types of Directors in a Company

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Public Companies with Turnover of Rs.100 Crores or more,

Public Companies with total outstanding loans, deposits, and debenture of

Rs.50 Crores or more.

Small Shareholders Directors

A listed company, could upon the notice of a minimum of 1000 small shareholders
or 10% of the total number of the small shareholder, whichever is lower, shall have a
director which would be elected by small shareholders.

Women Director

A company, whether be it a private company or a public company, would be

required to appoint a minimum of one woman director in case it satisfies any of the
following criteria:

The company is a listed company and its securities are listed on the stock
exchange.

The paid-up capital of such a company is Rs.100 crore or more with a turnover
of Rs.300 crores or more.

Additional Director

A person could be appointed as an additional director and can occupy the post
until the next Annual General Meeting. In absence of the AGM, such term would
conclude on the date on which such AGM should have been held.

Alternate Director

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4/4/24, 10:44 AM Types of Directors in a Company

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Nominee Directors

Nominee directors could be appointed by a specific class of shareholders, banks or

lending financial institutions, third parties through contracts, or by the Union
Government in case of oppression or mismanagement.

Executive Director

An executive director is the full-time working director of the company. They look
after the affairs of the company and have a higher responsibility towards the
company. They need to be diligent and careful in all their dealings.

Non-executive Director

A non-executive director is a non-working director and is not involved in the

everyday working of the company. They might participate in the planning or
policy-making process and challenge the executive directors to come up with
decisions that are in the best interest of the company.

Managing Director

A managing director means a director entrusted with the substantial powers of

management of the company by virtue of the articles of a company, agreement
with the company, resolution passed in the company general meeting or by the
board of directors.

Qualification Required to be a Director

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4/4/24, 10:44 AM Types of Directors in a Company

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as a company, corporation, firm, entity or association, cannot be appointed as a director. The

following persons are eligible to be appointed as a director in a company:

The person should be above 21 years and below 70 years.

The person should have a sound mind.

The person should not be an undischarged insolvent.

The person should not have applied to be adjudicated as an insolvent.

The person should not have been convicted by a court of an offence and sentenced to

imprisonment for more than six months, and a period of five years should have elapsed

from the expiry of the sentence.

There should not be any order in force passed by a court or tribunal disqualifying the

person for director appointment.

The person should have paid any calls in respect of any shares of the
company held by him/her within six months from the last day fixed for the
payment of the call.

The person should not have been convicted of the offence dealing with
related party transactions under section 188 at any time during the preceding
five years.

The person must have a Director Identification Number (DIN).

The person should not be appointed as a director in more than 19 companies or nine

companies in the case of public companies since the maximum number of companies in

which a person can act as a director is 20 companies or ten companies in the case of

public companies.

A person cannot be appointed as a director if he/she is a director in the following

companies:

A company that has not filed financial statements or annual returns for a

continuous period of three financial years.

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4/4/24, 10:44 AM Types of Directors in a Company

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redeem any debentures on the due date, pay interest on debentures, or pay the

dividend declared for more than one year.

Independent Director Qualifications

The person should possess appropriate experience, skills and knowledge in

one or more fields of law, finance, management, marketing, sales, research,
administration, technical operations, corporate governance, or other
disciplines related to the company’s business.

The relatives of an independent director should not -

be indebted to the company, its subsidiary, holding or associate

company or their director or promoters.

have given a guarantee or security in connection with the indebtedness

of a third person to the company, its subsidiary, holding or associate
company or their directors or promoters of such holding company, for an
amount of Rs.50 lakhs, at any time during the two immediately preceding
financial years or during the current financial year.

The person is not:

A promoter of the company or its subsidiary, holding or associate

companies.

Related to the directors or promoters in the company, or any of its

subsidiary, holding or associate companies.

The person should not have any financial relationship (other than
remuneration as a director or having
transaction not exceeding 10% of the total income) with company or any of its
subsidiary, holding or associate companies or their directors or promoters,
during the current financial year or the last two immediately preceding
financial years.

The person or his/her relatives should not:

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the employee of the company or any of its subsidiary, holding or
associate companies in any of three financial years immediately
preceding the financial year in which such person is proposed to be
appointed.

Be or has been and employee, proprietor or a partner in any three

financial years immediately preceding the financial year in which such
person is proposed to be appointed – as an auditor firm, cost auditor,
legal consultant or company secretary of the company or any of its
subsidiary, holding or associate companies.

Holds together with relatives a total voting power exceeding 2% in the

company.

Be a Chief Executive or director of any non-profit organisation that

receives 25% or more of its receipts from the company, any of its
promoters or directors or its subsidiary, holding or associate companies or
that holds 2% or more of the total voting power of the company.

Liabilities of a Director

The liability of a director arises because of his position as officers or agents of the
company and also for being the trustees and having a fiduciary relationship with
company and its shareholders. Since a company and its director are two separate
entities, a director does not have personal liabilities on behalf of a company.
Though, under certain scenarios a director might be held liable, which are as
follows:

Liability for tax

Under the Indian Income Tax Act, where there’s tax due from any private company
with respect to an income of any previous year which isn’t recovered from the

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4/4/24, 10:44 AM Types of Directors in a Company

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financial year is liable, severally and jointly, for payment of such tax.

Misstatement in company’s prospectus

Civil liability could be imposed on the directors for any false statement in the
company’s prospectus if he/she was the director while issuing the prospectus,
unless:

The director proves that he withdrew his consent before prospectus was
issued, or

That the prospectus was issued without his consent or authority or without his
knowledge, or

That, once he became aware of the false statement, he withdrew his consent
and gave public notice of the same, or

He proves that he believed the doubted statements to be true.

Debts of the company

Usually, a director isn’t liable personally for any of the debt of a company until and
unless fraud on part of the director could be established.

Fraudulent business conduct

A director might be held liable personally, for debts or other liabilities of a company
in case he/she was knowingly a party to the fraud(s) while carrying on the
business.

Share application money refund

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repaying the share application money or the surplus share application money
received if it is not repaid within the specified time period.

Liability to pay for qualification shares

In case the director hasn’t acquired the qualification shares within the stipulated
time frame and such company goes into the liquidation after the expiry of this
period, such director would be called upon by official liquidator for paying for such
shares he was supposed to acquire.

Concept of Lifting of the Corporate Veil

The lifting of the corporate veil refers to disregarding corporate personality and
looking at the individuals (directors) who are controlling the company. In simple
words, where a legal entity is used for dishonest and fraudulent purposes, the
persons concerned cannot take shelter under the cloak of corporate personality.

The court would break through this corporate veil. Once this corporate veil is lifted,
it’s permitted to show that individuals hiding behind the company are liable for
discharging their obligations disregarding the concept of the company as a legal
entity.

Frequently Asked Questions

Is it mandatory to appoint a director residing in India?

Every company should have at least one director who stays in India for a total
period of not less than 182 days during the financial year. A company established in
India cannot consist of all foreign directors.

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4/4/24, 10:44 AM Types of Directors in a Company

Can
Filings a
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We will notify you15 directors?
once ITR filings for AY 2024-25
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Yes. If a company wants to appoint more than 15 directors, they can do so by

passing a special resolution in the company.

Do all the directors require a Director Identification

Number (DIN)?

Yes. Every individual intending to be appointed as director of a company should

apply for allotment of Director Identification Number (DIN) to the Central
Government. Every existing director should intimate his/her DIN within one month
of its receipt to the company or all companies where he/she is appointed as a
director. Every company should intimate the DIN of all the directors of the company
to the Registrar of Companies.

Who is not eligible to be a director of a company?

Following persons are not eligible to be appointed as directors of a company:

A person of unsound mind, undischarged bankrupt/insolvent or convicted of

any offence

A person disqualified for appointment as a director by an order passed by a

court or Tribunal

A person who has not paid any calls in respect of any shares of the company
held by him/her and six months have elapsed from the last day fixed for the
payment of the call

A person convicted of the offence dealing with related party transactions

What is the difference between executive and non-

executive directors?

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company and is a full-time employee of the company. A non-executive director is
a member of the company’s board but he/she does not possess the management
responsibilities.

What is the responsibility of the directors?

The responsibility of the directors are as follows:

Determining the company’s strategic policies and objectives.

Monitoring progress towards achieving the policies and objectives of the

company.

Appointing senior management.

Accounting for the company’s activities to relevant parties, e.g. shareholders.

Disclaimer: The materials provided herein are solely for information purposes. No
attorney-client relationship is created when you access or use the site or the
materials. The information presented on this site does not constitute legal or
professional advice and should not be relied upon for such purposes or used as a
substitute for legal advice from an attorney licensed in your state.

Related Articles

Independent Directors- Applicability, Roles And Duties

Adding A Director Resolution

Change in Directors

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Mayashree Acharya
Senior Content Writer

I am an advocate by profession and have a keen interest in writing. I write articles in

various categories, from legal, business, personal finance, and investments to
government schemes. I put words in a simplified manner and write easy-to-understand
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