DIRECTORS & LEGAL POSITION

INTHE COMPANY

BY-KANCHAN GUPTA- ROLL NO-74

Meaning of Director

A company is a legal entity, it has no physical existence, and it can act through a natural person
only. The Company hires professionals to direct its affairs, and they are called directors, so the
directors are the persons who act on behalf of the Company. The Company deals with the
appointment, removal, qualification and disqualification of directors.

The Directors are defined under section 2(34) of the Companies Act, 2013 as “a director
appointed to the board of a company”. A director is a natural person appointed by Company to
give directions to Company in which he is appointed. Such directors are also called officers of
the Company.
They share the responsibility of achieving all the goals mentioned in the
MOA of the Company. Directors are involved in the management of tasks
and execution, supervision and control of such tasks. The main aim of
directors is to achieve the ultimate aim or objective of the Company, and
qualification and disqualification of directors and even their appointment
and removal are taken care of by the same Company.

The public Company should have a minimum of three directors while a

private company should have at least a minimum of two directors, and for
One Person Company, only one Director is required.
Responsibilities
of Directors
Primarily, the board of Director is responsible
and accountable for the followings:

1) Appointment of the senior management

2) Deciding the Company’s strategies and

objectives and also shaping them.

3) Guiding the Company towards achieving its

aim of it.

4) The Company’s accounts and finances, etc.

Classification of Directors

• Ordinary Director

Such Director is also known as a Simple Director. They attend every board meeting and participate in the
matters put before in the same. They are neither whole time directors nor the managing Director.

• Residential Director

According to section 149(3) of the Act, there should be at least one person as Director in the Company who has
stayed in India for not less than 182 days in the previous calendar year.

• Managing Director

Section 2(54) of the Companies Act, 2013 defines the Managing Director as a directors who, by virtue of the
Company’s AOA, agreement with the Company, board of Director or resolution passes in general meeting has
substantial power of managing affairs of the Company.

• Whole-time Director

A whole-time director is the Director who is in whole-time employment of the Company.

• Alternate Director
Section 161(2) of the Act, the alternate Director is appointed by the Company if a director is absent for more than three months in India. The board of directors appoints such a
director when a resolution is passed in a meeting or authorised in the AOA of the Company. Such an alternate Director cannot hold the office for a term more than the Director in
whose place he has been appointed, and he should vacate the office the moment the original Director comes back.
• Additional Director
Section 161(1) of the Act says that any person can be appointed as an Additional Director by the Company.
• Professional Director
A director who has a professional qualification and he has no pecuniary interest in the Company.
• Independent Director
Section 149(6) of the Companies Act, 2013 defines an independent Directors as a director other than managing, whole-time or nominee director who is a person with integrity and
possesses relevant experience; or who is not related to promoters of a company or its holding, associate or subsidiary companies or who has no pecuniary interest in the company
or its holding, associate or subsidiary companies; or who possesses a relevant qualification as required.
 Interested Director
A director who or his relatives, family, firm, body corporate or another association is interested in a contract or arrangement entered into or on behalf of
the Company as stated under section 2(49) of the Act.
 Nominee Director
Those who are nominated by the Company for grant of loans by the financial institutions, banks or government are called Nominee directors.
 Woman Director
According to section 149(1)(a), there should be at least one female Director in listed companies or certain public companies.
 Small shareholder Director
As per section 151 of the Act, the small shareholder has the right to elect at least one person as a director.
The qualification and disqualification of directors depend on these above-mentioned types of directors.
 Disqualification of directors
According to Section 164 of the 2013 Act, the following can be reasons for disqualification of directors:

 Unsound person and declared so by a competent court.

 Undischarged insolvent

 Convicted by a court for any offence

 An order passed for his disqualification as Director.

 Has not to pain for calls in respect of shares of Company

 Has failed to file annual returns or financial statements for continuous three financial years

 Has failed to repay the deposit or interest, or failed to redeem the debentures on the due date or pay a dividend for one
year.
 Legal Position of Directors-
Since Companies Act doesn’t give precise definition as to the legal position of directors in a
company, they are referred as trustees, agents, managing partners, etc in one situation or other.
Therefore, a director of a company attains following roles as per their situation:

1.Directors as Agents:

The management of the company is entrusted by shareholders to directors. They are the elected representatives of the shareholders. When the directors run the business of the company on behalf of the
shareholders. they may be termed as agents of the company.

The case of Ferguson vs. Wilson, stated the position of the directors as, “They are merely agents of the company. The company itself cannot act in its own persons for it has no person, it can act ‘only
through directors’ and the case is, as regards those directors, merely the ordinary case of principal and agent, for whenever an agent is liable, those directors would be liable. Where the liability would
attach to the principal and the principal only, the liability is the liability of the company.”

2.Directors as Trustees:

In the case Smith vs. Anderson, James L.J. observed, “A trustee is a man who is the owner of property and deals with it as principal, as owner and as master, subject only to an equitable obligation to
account to some persons to whom he stands in relation of a trustee. The office of director is that of a paid servant of the company. A director never enters into a contract for himself, but he enters into a
contract for his principal i.e., for the company of which he is a director or for whom he is acting.” This clearly differentiated the role of directors as a trustee.

Directors occupy a fiduciary position in relation to the company and they are considered trustees with respect to powers assigned to them by shareholders as well as for the company’s property and
money. However, no director is a trustee for any shareholder individually. It can only be held as trustee for the company as a whole.
3. Directors as Managing Partner:
Directors are considered as the managing partners becausethey are entrusted with management and
control of the affairs of the company. Most of the time directors are also shareholders of the
company, having large shareholdings.
However, directors are not viewed as ‘partners’ under Partnership Act because liability of a partner
is unlimited. While the liability of a director as a member is limited as an owner of the share.
Further unlike a partner, the act of director is not binding on other directors.
4. Directors as Employees:
The directors may be considered as the employees of the company as they work under contract of
service with the company and are paid remuneration according to the contract.
5.Directors as Organs of the Company:
Directors have also been treated, in judicial decisions, organs of the company for whose action the
company is to be held liable just as a natural person is liable for the actions of his limbs. In Bath vs.
Standard Land Co., Neville J. stated, “The board of directors are the brain and the only brain of the
company which is the body and the company can and does act only through them.”
The directors are an integral part of any
company. There are certain
responsibilities in the Company which
only a director can perform. The Act
dealing with matters related to
directors is The Companies Act, 2013.
Shareholders of the Company appoint
these directors, and the qualification
and disqualification of directors are
mentioned in the AOA of the Company.
A strict bar of five years is given to
allow a person of appropriate
qualification to represent the
Company. However, a provision of
appeal is also given in the Company
Law along with thirty days remedial
period to rectify any filing error.