In India, numerous private limited company has captured significant market shares in their specific sectors. This success is hugely credited to the Directors who play a massive role starting from the incorporation stages to activities that are a part of the post-incorporation stage.
A company is an artificial judicial person managed and run by natural persons known as directors. A company’s management is entrusted to its board of directors. A board of directors is a collective body of individual directors of a company.
Situations may arise where a company may be required to appoint more directors to its board from time to time based on the requirements of the business or company shareholders. However, the appointment of directors must be according to the Companies Act, 2013 for it to be legally valid.
Meaning of Director in Private Limited Company
Companies Act, 2013 defines the term “Director” as someone appointment to the Board of a company. The Board of Directors means a group of those individuals elected by the shareholders of a company to manage the affairs of the company. Since a company is an artificial legal person created by law, it is necessary to act only through the agency of natural persons. It can only act through human beings, and it is the Directors through whom mainly the company acts. Therefore, the management of a company is entrusted to a body of persons called “Board of Directors”.
Another definition of a Director is someone who administers, controls or directs something, especially a member of a commercial company; one who supervises, controls or manages; a person elected by the shareholders of a company to direct company’s policies; person appointed or elected according to law, authorised to manage and direct the affairs of a company.
Importance of the Director
When we refer to the Companies Act (2013), we find the meaning of the terminology “Director”. A Director is someone who forms the company’s Board. Similarly, when we hear the term “Board of Directors”, it simply infers a collection of these people who are elected by the company’s shareholders to look after the administrative and financial affairs of the business.
We must remember the fact that companies are separate virtual legal entities protected under the legislation, therefore, it is essential to reconcile related events through an agency of human beings. For this reason, Directors are designated through whom the company predominately operates its ventures.
In a nutshell, the managerial aspects of any private limited company are handed over to a group of members who are referred to as the Board of Directors.
There is the second description of a director of the company where we learn that the Director is a person who monitors, controls and passes commands to coordinate the internal processes. He/she is a member of that company and has been employed by collecting consent from the shareholders to supervise and suggest improvements to the company’s policies and principles. Legal jurisdiction is strictly maintained while electing a Director as this person is held responsible for the performance of a business.
Becoming Director in Private Limited Company
For a person to become a Director in Private Limited Company, he/she requires a Director Identification Number (DIN Number). DIN Number can be obtained for any person over the age of 18 by applying to the DIN Cell.
Types of Director in Company
Managing Director
In private limited companies, an individual is elected as a Managing Director through various pathways. Here are the probable ways:
- Agreement signed with the company
- An election conducted among the existing Board of Directors
- Execution of a company’s Articles of Association
- Resolution enacted in one of the General meetings
Once, you are elected as a managing director of the company , you receive substantial authority in influencing the company’s commercial affairs.
Ordinary Director
The term “ordinary director” is attached to the name of a Board member who witnesses the Company’s Board meetings and regularly contributes to the arguments presented before the group of Directors. Ordinary Directors do not belong to the category of Executive Directors or Managing Directors.
Executive Director
The person marked as an executive or whole-time Director, works for the commercial entity as a full-time employee. He/she authorizes the key administrative actions by predicting their subsequent effects.
Additional Director
The Company’s Board of Directors appoints an additional director between consecutive annual general meetings. The election method is regulated according to the prerequisites of the company’s Articles of Association. These directors are required to report to the office till the date fixed for the upcoming annual general meeting. The total volume of additional directors and actual Directors must not surpass the allowed strength restricted for the private limited company’s Board of Directors.
Professional Director
Directors who passively contribute to the Company’s performance by sharing their field expertise and do not hold commercial interest in the course of business, are termed professional directors. They have degrees and work experience that favour their candidature for such professional roles. Large companies hire them to solve pressing issues.
Nominee Director
Financial institutes and equity investors who award debt and equity support to companies usually put forward an obligation to employ one of their personnel as a Board member of the respective corporate body. These nominated individuals operate as nominee directors.
Apart from all these types, there are even alternate directors. They are the people who substitute ordinary directors when they fail to contribute for a timeframe of more than 90 days. We witness the election of nominee directors generally for NRIs (Non-Resident Indians) and foreign corroborators linked to a business.
Maximum and Minimum Number of Directors in Private Limited Company
Only an Individual (living person) can be appointed as a Director in a Company. A body corporate or business entity cannot be appointed as a Director in a Company. A company can have a maximum of fifteen Directors – it can be increased further by passing a special resolution.
Minimum Number of Director in Company are as follows:
- Private Limited Company – Minimum two Directors in case of Private Limited Company
- Limited Company – Minimum three Directors in case of Limited Company.
- One Person Company – Minimum one Director in case of One Person Company.
Director in Private Limited Company – Residency Requirement
There is nothing in the Companies Act, 2013 that prohibits the appointment of any person who is a foreigner or NRI as a Director of a Company. However, Section 149(3) provides that every company shall have at least one Director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year.
Women Director Requirement in Company
Listed companies and limited companies having a paid-up share capital of Rs.100 crore rupees or more or turnover of Rs.300 crores or more are required to appoint atleast one woman Director. There is no women Director requirement for a private limited company.
FAQs
What is a Private Limited Company?
A Private Limited Company (Ltd) is a type of business entity that is privately held. Its shareholders have limited liability, and it is restricted from publicly trading its shares.
Who can be a Director of a Private Limited Company?
A director must be a natural person, not a corporate entity. They must be at least 18 years old and not disqualified from holding the position by law (e.g., due to bankruptcy or criminal convictions related to corporate fraud).
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