Board of Directors

The management of a
Company
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The need for Directors

• A company even though in the eyes of law is
considered to be an artificial person, it can act
only through human agency, so there is a need
for directors.
• The relationship between the company and its
director is merely the relationship between a
principal and an agent.
• The persons who are in charge of the
management of affairs of a company are
collectively called Board of Directors.
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Who are the Directors?

• The person who occupies the position of director
and the one who does the functions of a director
is called a director (even though the company may
have some other name to that person or position).
• Functions of a Director:
▫ Direction
▫ Conduct
▫ Management and
▫ Superintendence
(Only a human person can be a Director and no
corporate body or association or firm can be.)
Board of Directors 4

Director Identification Number (DIN)

• According to sec 253 of Companies (amendment)
Act, 2006:
▫ All Directors should have a DIN.
▫ Fresh appointment and re-appointment must be
done only on the basis of DIN.
▫ DIN is generated by the Central Government.
Board of Directors 5

Number of Directors
• Minimum: 3 in case of Public Company and
2 in case of Private Company
• Maximum: It is decided in the ‘Articles of
Association’, written during the commencement
of the company.
• A public company with 5 crores or more paid up
capital and more than one thousand ‘small
shareholders’ can elect a Director.
• No one can increase the number of directors
beyond the limit in the ‘Articles of Association’
except the Central Government.
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Appointment of Directors
• Directors are appointed by Shareholders in
general meeting.
• In case of Public Co. or Private Co. which is a
subsidiary to a Public Co., 2/3rd of total number
of Directors must retire by rotation.
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• The remaining 1/3rd are permanent directors.

• 1/3rd of the rotational directors must retire at
every annual general meeting.
• The company can re-appoint the retired director
or appoint a new member.
• A new director is elected only when that person
has applied for the position of director 14 days
earlier to the meeting and has deposited
Rs.500/-.
• A person thus elected must give his consent in
writing within 30 days of appointment to the
Registrar.
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• When some additional directors are appointed by

directors for the purpose of better management,
they can hold office only till the next annual
general meeting.
• Sometimes the articles can provide that a director
can be appointed by debenture holders and other
creditors, and it should not exceed 1/3rd of the
total number.
• 2/3rd of the directors are appointed by the
method of proportional representation.
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Proportional Representation
• It is done once in 3 years.
• It ensures representation from the minority
shareholders: 1/7th of the shareholders can
appoint 1/7th of the Directors.
• Suppose there are 1000 votes cast for 4 seats
according to the quota:(1000/4+1)+1= 201 votes.
• A shareholder has 4 votes for each share thus a
person gets 40 votes if s/he has 10 shares.
• Thus a minority group may also be able to obtain
a director on the board.
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Roles of a Director
• Directors as Agents: Acts on Co’s behalf, they
are not personally liable for Co’s contracts.
• Directors as Employees: In certain situations
a director can act as an employee of the Co. for
better management.
• Directors as Officers: They act as officers to
ensure that the rules are followed correctly.
• Directors as Trustees: They are trustees of the
company’s money and property and the power
entrusted to them.
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• Number of Directorships: A person cannot

hold office as a director at the same time in more
than 15 companies.
• Share qualification: At least 1 share of the
company should be held by the Director to show
his/her personal interest. And the maximum
number is decided in the ‘Articles of Association’.
• Removal: A director can be removed by
Shareholders or by Central Government or by
National Company law Tribunal.
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Remuneration
• The overall managerial remuneration should not
exceed 11% of the company’s net profits (paid only
when there is adequate profits).
• The remuneration is paid for the services in the
form of
▫ fees for attending meetings
▫ monthly payments (should not exceed 5% of net
profits for 1 director, or should not exceed 10% in
case of more than one directors)
▫ Commissions (through special resolution)
Board of Directors 13

Independent Directors
• According to Clause 49 of the SEBI Listing
Agreement: 50% of the board strength must be
independent directors, if the chairman is an
executive director; if he is not, the board is
expected to have at least 1/3rd of its members as
independent directors.
• Who is an Independent Director?
▫ A director is not independent if s/he is related to
the promoters or persons occupying management
positions.
▫ An Independent Director should not be controlled
by the shareholders or creditors.
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• Functions of independent Directors:

▫ The independent directors are expected to function
on behalf of the shareholders and investors to
protect their interests. Their duties fall under two
broad categories: the duty of loyalty to the
shareholders and the duty of taking utmost care in
approving any proposals of the management of a
firm.
• Now the government is rethinking in increasing
the fiduciary functions of IDs
Thank you

- Joe Ebiston