The board of directors are can be called the brain of the company. They are responsible for taking all the big decisions and making policy changes. These decisions are taken in special meetings members of the board hold together, called ‘Board Meetings’.
Section 149 of the Companies Act states that every company’s board of directors must necessarily have a minimum of three directors if it is a public company. two directors if it is a private company and one director in a one person company.
The maximum number of members a company can assign as directors is fifteen. However, the company can pass a special resolution in a general meeting to allow for assigning more than fifteen members to the board of directors.
The maximum number of companies that an individual can become a director of, is 20 companies.
At least one director, who has lived in India for a minimum of 182 calendar days of the previous year, shall be appointed by every company’s board. It is a mandatory rule.
At least, one woman director must be appointed by the company.All listed companies must have at least one-third proportion of their board of directors as independent directors.
Under LODR for Listed Companies(Listing Obligations and Disclosure Requirements)
The members of the board shall have an optimum combination of executive and non-executive directors and at least one woman director. At least 50% of the board of directors must be non-executive directors.
When the board chairman is a non-executive director, a minimum of one-third directors shall be made up of independent directors. In case of the board chairman being an executive director, a minimum of half of the board of directors shall comprise of independent directors.
However, in case a non-executive chairman is a promoter of the said listed company or directly related to a promoter or a high-level manager, at least half of all directors will comprise of independent directors.
Board of Directors and its Composition
The board of directors can be knowns as the brain of the company as they are responsible for taking all the big decisions and making policy changes for the company. The decisions are taken in the special meetings members of the board held together, which meeting is known as ‘Board Meetings’.
Section 149(1) of the Companies Act,2013 talks about the minimum and maximum number of directors in a company. The following points are in the section:
- The minimum number of directors in a Private Limited Company is 2;
- For the Public Company it is 3 directors; and,
- An OPC shall have a minimum of 1 director.
However, the maximum number of directors a company have is 15. The no of directors can raise the number of directors beyond 15. And the change in the number of the director is by passing a special resolution in the general meeting.
Structure of Board of Directors
The size of the directors has certain limits as per a company as the minimum and maximum limit in its Articles of Association. Companies commonly have 3 to 31 directors. Following are some designations and positions common to a Board of Directors in public companies:
- Chairman of the Company: A chairman of a company leads the board and thus heads the committee or board meetings. The chairperson is elected by the votes of the Board of Directors. Generally, the company’s chief executive officer is the chairman.
- Executive Director of the Company: Executive director is an individual who takes active participation in the company’s administration, business procedures, sales, and finances. An executive director is a part of the board and also gets a salary for the company.
- Non-Executive Director of the Company: A non-executive director doesn’t belong to the organization but is a part of the board. Such directors provide critical opinions and advice by charging a certain fee. In addition, they give voice to stakeholders outside a firm.
- Managing Director of the Company: There are no restrictions on the number of directors in a company by law. A managing director is an individual whose selection is by the company’s executive directors for managing, guiding, and monitoring business functioning.
Other designations in the company are: Vice Presidents, CFOs, treasurer, zonal head, vigilance chief, audit chief, etc., are some other designations common to a BOD.
Composition of Board of Directors in a Listed Company
According to Regulation 17 of Securities and Exchange of India (Listing Obligations and Disclosure Requirement) 2015, the following are the composition of the Board of Directors in a listed company:
- Board of directors shall have a mixture of executive and non-executive directors with at least one-woman director and not less than 50% of the board of directors shall constitute non-executive directors.
- If the chairperson of the board of directors is a non-executive director, then at least one-third of the board of directors shall constitute independent directors and if the listed entity has an executive chairperson, then at least half of the board of directors shall comprise of independent directors.
Other Requirements for Composition
- The maximum number of companies that an individual can become a director of, is 20 companies.
- At least one director, who has lived in India for a minimum of 182 calendar days of the previous year, shall be appointed by every company’s board. It is a mandatory rule.
- At least, a one-woman director must be there in the company.
- All listed companies must have at least one-third proportion of their board of directors as independent directors.
FAQs
What is the maximum number of directors allowed on the board of a listed company?
The maximum number of directors allowed on the board of a listed company in India varies depending on the company’s Articles of Association. However, the Companies Act, 2013, stipulates that a public company can have a maximum of 15 directors, which can be increased further by passing a special resolution.
Are there any requirements regarding the independence of directors on the board of a listed company?
Yes, as per the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, listed companies are required to have a certain percentage of independent directors on their board. The exact percentage varies based on the company’s size and other factors.
What is the role of an independent director on the board of a listed company?
Independent directors are expected to bring objectivity and impartiality to board discussions. They are tasked with providing unbiased judgment on issues of strategy, performance, risk management, and adherence to corporate governance norms.
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