Exploring the different types of Directors in Company

Before we get to know the different kinds of directors, let’s first know the definition of being a director and know all the crucial duties a director has to undertake.

Meaning of a director

In a company, the directors refer to the individual responsible for the everyday management and regulation of all necessary operations. A director is thus a spokesperson of the company and represents an acting body for all its operations. All companies require an individual to monitor and alter the company policies in the best interest of the company. This is where different types of directors in company law come into the picture. A director is entrusted with a large number of duties as well as some crucial responsibilities, which are meant to align the company’s interest with the stakeholder’s objectives. The Company’s Act, 2013 has laid down some key duties of Indian directors, which can be outlined right here:

Key duties of a director

• Deciding on behalf of the company in major operations
• Taking strategic decisions to steer the company towards achieving better opportunities
• Acting in the best interest and good faith of the company
• Exercising the relevant skills and abilities to fulfil company requirements
• Judging any situation by being independent and not being influenced by personal opinions
• Avoiding all conflicts of interest and immediately looking for a resolution
• Not abusing the company’s power to satisfy self-interest
• Not misusing the company’s property, assets or money to satisfy personal interests

Types of Directors in a Company

Company directors have a large role to play, as the entire workforce is dependent on the director in terms of coordinating with people and taking major strategic actions. The role of a director, however, can be classified according to their respective actions. The different types of directors in a company can be listed here based on their roles, shareholding capacity and more.

Independent director

An independent director often does not share a direct relationship with the company and acts as a non-executive director on behalf of the company. Among all types of directors, this type of director is classified as a non-executive because an independent director neither precipitates in any daily operations of the company nor has a specific financial relationship with the organisation.

Executive director

The most important type of director a company has, an executive director is delegated crucial tasks such as building connections with the stakeholders, representing the company in annual board meetings and managing daily functions. In the list of qualifications of directors, an executive director has to have good communication skills, show leadership attribute traits and be highly focussed on major goals. Because of the main responsibilities, an executive director needs to have both hindsight and oversight qualities to manage organisational operations.

Managing director

The name suggests the role of a managing director, which includes managing everyday operations in terms of management of resources and aligning with stakeholder’s interests. A managing director among other types of directors in company law, has the overall duty of also advising the Board members to consolidate company functions and enhance research in terms of product and service offerings. This type of director still occupies a vital position in the company, as a managing director has to maintain public relations and oversee compliance with regulations.

Residential director

A residential director has stayed in India for a minimum number of 182 days. According to the Company’s Act, 2013, every company is required to appoint a residential director. There is, however, a difference between a residential director and an executive director in terms of operations and duties. A residential director cannot take up any executive operations of a company, although has to take care of all statutory compliances of a company.

Nominee director

Among all types of directors, a nominee director is appointed by a company’s Board of Directors. Such a director may advise the Board of Directors and also hold stakes in the company. A nominee director has partial control over strategic control, although being a nominee, they have a limited share in risks. A nominee director may also have to represent the company Board team in case the original Board members are unable to function.

Additional director

An additional director is directly appointed by the Board of Directors, and the person remains as an additional director till the next Annual General meeting. In case the person is approved by the General Board meeting, his position is affirmed and he becomes eligible for full-time director in the company.

Women director

If a company has its stock listed in the Stock Exchange Board of India (SEBI), or in case the company’s paid-up share capital is 100 crore, then the company needs to have a woman director. This is in accordance with Section 143 of the Companies Act, 2013, which states that a company needs to have both an independent director as well as a woman director.

Qualification and Eligibility of Directors in India

Major qualifications

These are the main qualification of directors which determine if the individual can be eligible for being a director:

• The age of an individual needs to be above 21 years and below 70 years of age to be eligible.
• The individual must be termed as having a sane mind
• The individual should not be classified as an undischarged insolvent
• The individual should not be sentenced by a court of law to imprisonment for more than 6 months.
• The individual cannot be eligible in case their imprisonment terms have not expired 5 years from the day of imprisonment.
• The individual cannot hold the position of director in more than 20 companies or 10 public companies, so the individual can be a director only if they are appointed as a director in 19 companies or 9 public companies.
• The individual needs to have a Directors Identification Number before getting appointed as a director
• The individual needs to be registered under Section 164(1) of the Companies Act, 2013
• Another qualification of directors is that the individual should not have been marked as an offender in dealing with related party transactions during the past five years.
• The individual should not hold a director position in a company that has not paid their annual tax returns for five years or has failed to pay liabilities or dividends to its shareholders.

Other qualifications for all types of directors in company law

These are some additional qualification of directors:

• The individual should not be a direct promoter of any associate partner or subsidiary of the company.
• The individual may not share a financial interest or withdraw remuneration from any subsidiary or associate company in the last two years.
• The individual is not indebted towards the firm in any way or owes any financial settlement with the company.

Key Differences Between Executive and Non-Executive Directors

Although both types of directors engage in managing and acting out the key responsibilities, there is a significant difference between executive director and non executive director. These differences are compiled in a table for better understanding.

Conclusion

Directors are the core functional aspects of a company, they manage and coordinate with vital stakeholders of the company. This blog discusses in detail the types of directors a company may have and the different functions that a director needs to oblige. Also, a clear difference between the executive director and non-executive director had been put into, to make a concrete understanding of the two roles.