Company Management: Roles and Responsibilities of Directors

Role and Responsibilities of Directors

• Directors are responsible for directing, governing, and controlling the management of their company.
• They function as a group, with the Board of Directors being the principal authority in company management.
• Directors are elected representatives of shareholders and are given substantial powers of management.
• They must honour legal provisions regarding their qualifications, appointment, retirement, and use of powers.

Legal Position of Company Directors

• The Board of Directors is a must for the management and administration of a company under the Companies Act.
• Directors are elected representatives of shareholders and are given substantial powers of management.
• Such powers are not to be used individually but collectively by all directors, i.e., by the Board of Directors.
• The statutory provision relating to Directors is given in Sections 252 to 323 of the Companies Act.

Qualification of a Director

• Any person who is competent to enter into a contract can become a Director.
• Additional Directors can be appointed by the Board of Directors, subject to the maximum number of directors fixed in the Articles.
• Alternate Directors can be appointed in place of an existing Director, during their absence of more than three months.

Appointment of Directors by the Central Government

• The Central Government may appoint directors to prevent mismanagement, with the number of directors specified by the Company Law Board.
• Such directors are appointed for a period not exceeding three years on any one occasion.
• They are not required to hold any qualification shares and are not subject to retirement by rotation.

Nominated Directors

• Directors can be nominated by third parties, such as financial institutions, on a non-rotational basis.
• These "Nominee" directors are usually appointed by financial institutions providing huge financial support to the concerned company.

Summary

• A director is an officer of the company, acting as an agent of shareholders and looking after the management of the company.
• The Board of Directors is the top administrative organ of the company, with individual members being called Directors.
• Every public company must have at least three directors, and every private company must have at least two directors.

Chairman of the Board of Directors

• The Chairman of the Board of Directors presides over every meeting of the Board.
• Regulations regarding the appointment of a chairman are given in the Articles of a company.

Chief Executive Officer (CEO)

• The CEO is the highest-ranking executive in a company, responsible for making major corporate decisions and managing overall operations and resources.
• The CEO acts as the main point of communication between the Board of Directors and the company.

Auditor

• An auditor is appointed by the Board of Directors to review and verify the accuracy of financial records and ensure compliance with tax laws.
• The auditor protects businesses from fraud, points out discrepancies in accounting methods, and may work on a consultancy basis to boost operational efficiency.

Extraordinary General Meeting

• An Extraordinary General Meeting (EGM) can be called by the Board of Directors or by shareholders holding at least one-tenth of the paid-up share capital.
• The notice of the meeting must be sent 21 days in advance, and the quorum for a public limited company is five members, and two members for a private limited company.

Notice of General Meeting

• Every member of the company should receive a written notice of the meeting.
• Notices should be sent to other important persons, such as auditors, secretarial auditors, and debenture trustees if necessary.
• The notice should specify the nature of the meeting and business to be transacted, and should be sent at least 21 days in advance.
• Attendance slips and proxy forms should be attached to the notice with clear instructions.

Company Secretary

• The Company Secretary is responsible for making all arrangements for holding the annual general meetings of the company.
• The Company Secretary must perform various functions and duties, including convening a Board meeting, inviting the Auditors for their report, and transacting business at the meeting.