11 Types of Directors in a Company: Learn What They Are

A company is nothing without its directors and employees. There are various types of directors in a company to carry out day-to-day work and maintain business requirements. The directors direct and manage the business, and the employees follow up on their job responsibilities. A company becomes active only when the managers perform at their best.

Who are the directors?

A director is an elected person who is responsible for taking care of and improving the business for which they are selected. Along with maintaining the corporate regulations of a company, they try to uplift the company to a great extent. Collectively, the directors build the board of directors and discuss the collective success of a company.

Let's explain if you want a more simplified version of the definition of directorship. A good director plays the same deed as a cricket team captain. He organizes all the players or resources based on demand. He plans and performs for his team, and team performance is his sole performance. The team comes first, and he intends to get the company’s perspective, target, and success.  

According to the Companies Act, 2013, Section-2 (10), the “Board” or the “Board of Directors” means the collective body of directors of any company.

What are the minimum and maximum number of directors of a company?

According to the Companies Act 2013, section 149 (1), every company should have at least-

• 3 Directors for a public limited company.
• 2 directors for a private limited company, and
• 1 director for an individual businessperson

According to the law, a company may have 15 directors after passing a special declaration in the general meeting. In this situation, you do not need to have permission from the central government.

Usually, directors are appointed through the shareholders' Annual General Meeting (AGM). In some special cases, an Extraordinary General Meeting (EGM) can select directors to fulfill special and urgent requirements, and the majority of shareholders are required to vote for the manager(s). You can also increase the directors from 15 to 20 in some special cases through Section 165.

Now, let’s learn the different types of directors of a company. Their roles in a company are different. However, depending on the different types of companies, the directors might be designated differently. This article will inform all these factors and the eligibility criteria of a company to be a director. However, in most cases a large company hires 11 to 13 directors and if necessary, they may hire 15 to 20 directors. Let’s have a look!

Types of Directors in a Company in India and their designations:

1. Residential Director

According to the Companies Act, companies should hire a director who is a permanent resident of India and has lived more than 182 days in a place. These types of directors are called residential directors.

2. Independent directors

Among the many types of directors in a company, independent directors are non-executive directors. They are dedicated to helping improve the corporate credibility to enhance the governance of a company. In other words, independent directors of a company influence only their judgment and considerations. His judgment or decision is not dependent on any others’ decision.

To be appointed to this post, a director must have the experience of consecutive 5 years in this post. The manager may be appointed and reappointed by the choice of the shareholders or managing team. Any listed Public Company must have one-third of residential directors. The following companies can appoint at least 2 independent directors for them.

Any company has a paid-up capital of more than Rs. 10 crores

Public companies having a turnover of Rs.100 crores or more

Public companies with outstanding deposits, loans, and debenture are Rs. 50 crores or more.

3. Small Shareholders Directors

A listed company, having a minimum of 1000 small shareholders or 10% of the entire shareholders, whichever is lower, should have a director. These directors are elected by the small shareholders.

4. Women directors

A private or public company must appoint one woman director if it fulfills the below-mentioned criteria:

It must be a listed company and registered under the securities on the stock exchange.

The paid-up capital of the company must be Rs. 100 crore or more. If the turnover of the company reaches Rs. 300 crore or more, they can hire a woman director.  

5. Additional director

The board of directors can appoint an additional director who can occupy the post until the next AGM (Annual General Meeting). In the absence of an AGM, the director can hold the post until it happens next.

6. The Alternative Directors

Some directors may leave the country for any reason for more than 3 months. In this circumstance, to operate the company, an alternate director has to be appointed. The board of directors appoints these directors. The number of directors may be one or more as per the requirement. Among all types of directors in a Company, this is somehow distinctive.

7. Executive Directors

This is one of the highest ranks of leadership landscape in a company or large corporations, government organizations, and non-profit organizations. This leader requires a higher level of intellectual insight, greater vision, creative and progressive thinking, focused perceptivity, long-term progressive imagination, and specific strategy setting capability, requirement-base goal setting.

An Executive Director is the connecting workforce between the operational team as well as the organization’s board of directors. These directors decide on the perfect alignment across the team.

Overview of an Executive Director:

• Sets strategic goals and long-term vision
• Connecting links between the operational teams and the board of directors
• This post is available in non-profit, large corporations and government organizations

8. Non-Executive Director

A non-executive director is someone who is a non-working director in the everyday work schedule and planning. They usually participate in policy making and the planning to go forth to face new challenges and all. These non-executive directors come up with the directors that lead to the best benefits for the company.

9. Managing directors

A managing director is one of the senior-level managers in any company. These types of directors in a company play a prime role in any company. They are responsible for innovation, growth, and development of the company’s business strategy.

These managers are responsible for everyday operations. They look out for the performance of the workforce and departmental growth in terms of progress in profit generation and quality work delivery. They also receive the data from different departments and analyze it in terms of target and success acquisition level. They have the right to pass a resolution in the Annual General Meeting, the right to an agreement with the company, and more.

You learned the most common types of Directors in a Company throughout the piece of writing. Let’s learn what would be the qualification to be a director.

10. Whole-time Director

A whole-time director is a director of a company and a full-time employee simultaneously. According to the Companies Act 2013, Clause 2(94), he is also an executive director of the company where he is employed.

11. Casual vacancy director

Under the Companies Act of 2013, Section 161(4) informs about the Casual Vacancy Director. Let’s learn about the casual vacancy director. A casual vacancy for a director happens due to resignation, death, disqualification, removal, or incapability. However, the duties of the post must be accompanied by. In these circumstances, the company may appoint a casual director to the previous post to perform the specific task of the previous director. The general meeting decides on the requirements of the post. The concept of casual vacancy is only applicable to public companies.

What should be the qualification of a director?

• The director must be a living human being and not an inanimate object or virtual thing. The following people may get appointed as the director of a company.
• The person must have a sound mind with creative neutral thought.
• The person must be between 21 and 70 years of age.
• The person must not have debt in the bank with undischarged insolvent
• This person must not have applied for the adjudication to be insolvent.
• The person must not have a conviction of more than 6 months of imprisonment. The person must be completed at least 5 years after the short imprisonment (less than 6 months).
• The person must not have any order passed by the court or tribunal disqualification.
• The person has paid any “calls” of any shares held by the company in the last 6 months from the last day of payment of the “call”.
• The person must not be convicted for any transactions under section 188 during the last 5 years.
• A Director Identification Number (DIN) is a must-have criterion to be a director.
• The person must not be appointed as the director in more than 19 companies or 9 companies in the case of public companies. The reason is that a person can work as a director only in 20 companies. Besides, one person can work as a director in 10 public companies in their lifetime.
• The person cannot be a director they are directors in the following companies:
• Any company that has not submitted the financial statement or return for a consecutive period of 5 years.
• The company is not capable of repaying the deposits, redeeming any debentures, paying interest on deposits on the due date, paying interest on debentures, or declaring a dividend for a year or more.

Qualification of independent directors

The person should have adequate experience, knowledge, and skills in the fields (one or more) of law, management, finance, marketing, research, technical, corporate governance, administration, operations, and many other disciplines essential for the company’s business progress.

The relatives of the independent directors should not be:

Indebted to the company, holding, its subsidiary, or associated company, or their promoters or directors.

If the person has given the guarantee in connection with the ineptness of a third person to the company, its holding, its subsidiary, or associates company, or their promotors or directors of such holding company for an amount of 50 lakhs or more at any time in the last 2 financial year.

The person must not be:

The promoter of the company or any of its subsidiaries, associated with the company or holding shares.

Related to the promoters or directors of the company or any holding associated with the company or any of the subsidiaries.

The candidate must not have any financial relationship with the company (except for the remuneration as a director of the company) or any of its associated companies, holdings, subsidiaries, promotors, or directors during the current financial year or two immediately preceding the financial year.

The person or his relatives should not be:

Held the Key Managerial Personnel (KMP) or was an employee of the company and its subsidiaries or associated companies in the last three consecutive financial years.

If the person is proposed to be appointed as an auditor of the company, cost auditor, company secretary, legal consultant, or any of the subsidiary, holding, or associated companies

Cannot be the director of any nonprofit organization that receives 25% or more of its receipts from the existing company where the person has proposed to be a director.

Liabilities of a Director:

A person selected and appointed as a director of a company under the Companies Act has some liabilities to the company. It is not limited to the mentioned offices under the law of the act, but they are liable for any offenses that go against the company’s policies, Negotiable Instruments Act 1881, GST act, labor laws, income tax, and more.

Under the Companies Act 2013, section 166; the vital duties of a director are:

1. The directors have to act on the articles made by the company they have joined.
2. The director of a company should act in the company with good faith for the total benefits of the company and its growth, for the best interest of the company, its employees, related communities, shareholders, and many more.
3. A director must exercise the duties with great care, diligence, independent judgment, and prurient skill
4. The director of any company must not be involved in a situation in which the person directly or indirectly conflicts with the interest of the company.
5. The director of any company must not attempt to gain any unfair gains or advantages for him or any of his relatives.
6. If any director conflicts with the duties and the provisions of this section, the director is supposed to be punished according to the law. It must not be less than one lakh rupees.
7. In the act, it is mentioned that a director has to act by the MOA and subordinate clause, AOA, and maintain the duties and responsibilities with care and attention.

There are many other operational liabilities they have. Some of them are mentioned in short.

Tax liability:

The director is liable to arrange and conduct professional services to pay the tax under the Indian Income Tax Act.

Prospectus for Misstatement of a Company

Any director linked to mismanagement of the prospectus is not expected. The proper management of a prospectus and following it are the right duties of the director of a company.

Liability for Breach of Warranty

The directors are required to show their authority within the scope. They must maintain the business perspective of the company and ultra vires of the company policy are avoidable. If there is any loss for third parties, they may proceed personally.

Liability for breach of statutory duties

Under the Companies Act, a director of the company has to maintain a lot of compliance. The default compliance of these duties is linked to punishable consequences. The director may face statutory penalties for the reason of non-compliance with the demands of companies.

Liability for acts of other directors

If the director gives consent to perform in the absence of him or her, the other director can perform the duty. Then, the faults of any duty and maintaining the obligation by the participant will go to him, not to whom he has done. On the other hand, the individual attempting to do any work for any other director may result in a penalty for those who participated in the deed.

Criminal liability of a director

Apart from the described liabilities, the directors may incur criminal liability under the Companies Act. Some of them are-

• A check disbursed to any third person as payment or any other purpose found fake or bounced
• Ignorance of the necessary and mandatory laws
• Labor law negligence in a company
• Violation of the Income Tax Act

Therefore, you have learned a detailed description of the types of directors in a company, their appointment process, liabilities, and responsibilities. If you want to learn more, contact Online Legal India to get a comprehensive idea about the directors and appointment process for your company. Our legal experts are dedicated to providing the service very clearly. Contact us now.