Can a person be a director of two companies?

The present article deals with directors of companies in India. It also analyses the manner in which a person is appointed as a director in a company, the duties and powers of directors, etc. It further deals with the question that whether a person can be a director of two companies at a same time. The author concludes that a person can be a Director of two companies during the same time period.
Estimated Reading Time: 12 minutes

Introduction

The present article deals with whether a person can be a director of two companies in India. It also deals with the manner in which a person is appointed as a director in a company, the duties and powers of directors, etc. The article further deals with the question that whether a person can be a director of two companies at a same time. The Company Act, 2013 (hereinafter referred as “the Act”) regulates the companies established in India. It also provides the process for appointment of directors in private or public company. The management of the company and the affairs of the company are controlled by director. Directors collectively are referred as ‘Board of Directors’ (hereinafter referred as “Board”) in the company. At the center of corporate administration practice is the Board which supervises how the executives serve and secures long haul interests of all the partners of the Company. The foundation of Board is dependent on the reason that a gathering of reliable and decent individuals should take care of the interests of the enormous number of shareholders who are not directly associated with the administration of the organization. The position of directors is that of trust as the Board is vested with the duty to act to the greatest advantage of the organization.

In spite of the fact that the Board involves individual directors, yet the acts and deeds of directors working independently can’t tie the organization, except if a specific director has been explicitly approved by a Board resolution to discharge certain duties for the benefit of the organization.

The Act provides the procedure for resignation or removal of director and also provides the manner in which such vacancy is filled. The Act further provides for the constitution of Board who has to conduct meetings to manage the affairs of the company.

Director

The Act does not contain a comprehensive meaning of the expression “Director”. Section 2 (34) of the Act defines the term director as a person appointed to the Board of the company. In other words, a person who is appointed to perform the duties and functions of director as prescribed in the Act is a Director.

A company, however a lawful entity according to law, is an artificial person, existing just in consideration of law. It has no physical presence. It has neither soul nor body of its own. Thus, it can’t act on its own. It can do as such just through some human being. The people who are accountable for the administration of the undertakings of a company are named as Directors. They are on the whole known as the Board of Directors or the Board. The Directors are the core members of a company. They have a significant position in the structure of the company. Directors take decisions with respect to the management of a company on the whole in their gatherings known as Board Meetings or at the gatherings of their advisory groups comprised for certain particular purposes. Section 2(10) of the Act defines the term Board of Directors or  Board.  The Act further provides for different types of Directors such as Additional Director, Alterative Director, Nominal Director, Independent Director, etc.

According to Section 149(1), there must be at least three Directors in case of a public company, at least two Directors in case of a private company and at least one Director in case of a one person company. The maximum number of person who can be appointed as Director in a company can be fifteen but more than fifteen people can be appointed as a Director after passing a special resolution for the same in the general meeting. In every listed company there must be at least one women director.

The company must have at least one Director who must stay in India for at least one hundred and eighty-two days during a financial year. In every public company, one-third of the Directors must be independent Directors. Section 2(47) of the Act defines independent Directors. The conditions to be an independent Director are provided in Section 149(6) of the Act. The independent Director has to give declaration for the same in the first meeting of the Board of the financial year or when there is some change in his/her status.

Section 149 (8) of the Act provides that the company and independent directors will follow the guidelines provided in Schedule IV with respect to code for independent directors. It is a manual of professional conduct for independent directors. Code of conduct incorporates rules of professional conduct, roles and functions, obligations, manner of appointment, re-appointment, resignation or removal, manner of evaluation, meetings.

According to Section 149 (9) of the Act an independent director will not be qualified for any stock option. He may get remuneration by method of sitting fee, repayment of expenses incurred for participation in the Board and other committee meetings and profit related commission as might be affirmed by the individuals as gave under Section 197(5) of the Act.

Subject to the provisions of Section 152, an independent director can be selected for a term of up to five years on the Board and is qualified for re-appointment after such tenure. Further independent director can be considered for re-appointment after termination of three years of stopping to turn into an independent director yet he should not be related with the company straight forwardly or in a roundabout way in some other limit during the said time of three years. The provision of retirement of Directors on rotational basis does not apply on Independent Director.

Appointment of Directors

The first Directors of the majority of the organizations are named in their articles. If in any case the Directors are not named in the articles, then the subscribers of the memorandum are considered as the Directors until proper Directors are appointed.

On account of a one person company, an individual being a part will be considered to be its first Director until the Director(s) are properly selected by the company as per the provisions of Section 152.

General provisions in relation to the appointment of Directors

  1. With the exception as of gave in the Act, each Director will be selected by the company in general meeting.
  2. Director Identification Number (hereinafter referred as “DIN”) is mandatory for appointment of Director of a company.
  3. Each individual proposed to be named as a Director will disclose his DIN and provide a declaration that he isn’t excluded to be appointed as a Director under the Act.
  4. An individual named as a Director will prior to the appointment must agree to hold the workplace of Director in physical structure.
  5. Articles of Association (hereinafter referred as “Articles”) of the Company may give the provisions relating to retirement of the all Directors. In case no guideline is provided in the article, at that point at the very least two-third of the complete number of Directors of a public company will be people whose period of office will end by retirement on rotational basis and such person is qualified to be reappointed at yearly general meeting. Further independent directors will not be incorporated for the calculation of all out number of Directors.

Retirement by Rotation

At the yearly general meeting of a public company, one-third of such of the Directors for the time being as are obligated to resign by rotation, or if their number is neither three nor a multiple of three, at that point, the number closest to one-third, will resign from office. The Directors to resign by rotation at each yearly general meeting will be the individuals who have been longest in office since their last appointment.

Vacancy of office of the Resigning Director

At the yearly general meeting at which a Director resigns as previously mentioned, the company may fill the vacancy by re-appointing the resigning Director or some other individual thereto. In the event that the vacancy of the resigning Director isn’t filled and the meeting has not explicitly settled not to fill the vacancy, the meeting will stand dismissed till that day in the following week, at the same time and place, or if that day is a national holiday, till the following succeeding day which isn’t a holiday, at the same time and place. If in the postponed meeting, the vacancy of the resigning Director isn’t filled and that meeting likewise has not explicitly settled not to fill the opening, the resigning Director will be qualified to be re-appointed at the postponed meeting, except if-

  1. a resolution for the re-appointment of such Director has been put to the meeting and lost;
  2. the resigning Director has communicated his reluctance to be so re-appointed;
  3. he isn’t qualified or is disqualified for appointment;
  4. a resolution, regardless of whether special or ordinary, is required for his appointment or re-appointment by virtue of this Act; or
  5. Section 162 of the Act, i.e., appointment of Directors to be voted individually is applicable in any case.

Director Identification Number

Every individual who has been appointed as the Director of a company must make an application to the Central Government for allotment of DIN. The DIN allotted by the Central Government in case the application is not rejected must be communicated to the applicant. The Director after receiving DIN must inform the company or companies within one month in which he is a Director of his DIN. Further the DIN must be conveyed to the Registrar by the company within a period of fifteen days. Every individual must hold only one DIN which is valid for his life time and must not make an application to obtain another DIN. In case of failure on the part of the company to furnish DIN before expiry of 270 days from the date on which it must be furnished with additional fee, will make the company liable of fine which must not be less than Rs. 25000 but may extend to Rs. 100000 and every defaulting officer will be liable to a fine at least Rs. 25000 which may extend to Rs. 100000.

The disqualifications for appointment of Directors are provided in Section 164 of the Act. Further Section 167 of the Act deals with the vacancy of the office of the Director. Section 168 of the Act deals with resignation of Director. Section 169 of the Act deals with removal of Director.

Powers and Duties of Directors

The powers which can be exercised by the Board by passing a resolution in the general meeting are :

  1. To make calls on shares for the unpaid amount of money.
  2. To authorize the lack of shares.
  3. Issue debentures either within or outside India.
  4. To invest in funds.
  5. The Directors can borrow money other than issuing debentures.
  6. To give loans but no such resolution for giving loan in a banking company is required.
  7. To approve the company’s financial statement and board’s report.
  8. To diversify the business.
  9. To approve the decision of amalgamation, merger and reconstruction.
  10. To take over another company or to acquire stake in another company.
  11. To fill the casual vacancy of the Directors.
  12. To appoint the first auditor of the company.
  13. To make certain contribution towards political matters.
  14. To appoint alternative Director for the company.
  15. To appoint additional Director for the company.
  16. To declare interim dividend of the shareholders.
  17. To appoint or remove any key managerial person.
  18. To declare company’s solvency, where the company winds up voluntarily.
  19. To recommend the rate of dividend on the shares. It is further subjected to the approval of the shareholders.

In addition to this there are certain other powers as well which can be exercised by the Board after a resolution has been passed which authorizes them to exercise such powers. Some managerial powers vested with the Directors are:

  1. To enter into contract with third party.
  2. To recommend the dividend of the shareholders.
  3. To allot, forfeit and transfer the shares of the company.
  4. To decide the terms and conditions in relation to issue of debentures.
  5. To form policies and issue instructions for the efficient running of business..
  6. To appoint the Managing Director, Manager and Secretary of the Company.
  7. To control and supervise the work of their subordinates.

The duties of the Directors are provided in Section 166 of the Act. The general duties of the Directors are to act in good faith, not to gain any undue advantage or gain, to act in accordance with the Articles of the Company, to perform his duties diligently with reasonable and due care, to form committee and delegate power to them when authorized, etc. in addition to this the Director must disclose his shareholding in the company and interest in any contract. They must disclose their details such as name and address and must acquire qualification shares within the period of two months. They have the duty to call the statutory and annual general meeting. They must decide the minimum subscription amount and issue prospectus which must not include any false or misleading statement. They must sign the prospectus before it is delivered to the Registrar. The Directors are entrusted with various other duties in addition to these duties to ensure smooth functioning of the business.

Can a person be Director of two companies?

Law permits a person to be a Director of more than one company. Section 165(1) of the Act provides that a person can hold maximum 20 directorships at a point of time which also includes alternative directorship. While calculating the directorship, the directorship in a dormant company should not be included. Further it states that in these 20 directorships a person can hold maximum 10 directorships in public companies. This provision clarifies that a person can be a Director of two or more companies during the same period of time. Further the members of a company may limit previously mentioned limit on directorship, i.e., 10 and 20, by passing a special resolution for the same. The provision of this Section does not apply to the companies formed under Section 8 of the Act. It provides for formation of companies with charitable object, etc.

Any individual holding office as Director in more than 20 or 10 companies as the case might be before the commencement of this Act will, within a period of one year from such commencement, need to choose the companies where he wishes to proceed/leave as Director. The person concerned has to resign from the remaining offices and such resignation will come into effect immediately after its dispatch. Thereafter he will inform about his decision to concerned companies as well as concerned Registrar. Such individual must not act as a Director in more than the predefined number of companies after dispatching the resignation or after the expiry of one year from the commencement of this Act, whichever is prior.

In the event that an individual accepts appointment as a Director which is in contravention to the limit established by the Act, he will be liable to pay a fine of at least Rs. 5000 which may extend to Rs. 25000 for every day during which the contravention continues after the first day of such contravention.

Conclusion

The article concludes that a person can be a director of two companies during the same time period. The Act explicitly allows number of directorship till 20 directorships. The law also has established additional safeguards and guidelines for the same. The Ministry of Corporate Affairs provides for additional guidelines which are not provided in the statue. Further when we interpret Section 156 of the Act which provides for intimation of the DIN by the Director, This Section also establishes the fact that a person can be a Director in more than one company and must inform such companies about his DIN. The limit placed on the number of directorships has to be ensured by every individual to not be in contravention of the law. Therefore, the law permits such act but with certain limitations. The only company on which this provision is not applicable is the one formed under Section 8 of the Act.

Further, the Act has provided every other detail regarding a Director as well as the Board. The areas which have not been dealt by the Act have been dealt by the Rules framed in this regard. The Directors are entrusted with the management of the company due to which their active participation becomes necessary. They control the affairs of the company and ensure proper running of the business. The shareholders invest money in the business but Directors are one who ensure proper usage of the funds invested by the shareholders and therefore protect the interest of the shareholders. The role of a Director is very crucial in any company due to which such limitation has been set in relation to the directorship so that they can perform their functions properly without any disturbance.


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