There will be different types of directors based on the kind of firm you want to establish. As per the Companies Act of 2013, the types of directors vary based on the Functions, Appointments, Minimum Requirements, etc.
In this article, we have covered the types of directors based on functions and appointments.
Types of Directors Based on Functions
As per Section 149(12), Executive directors are present and involved in company matters. There are two types of Executive directors: Managing and Whole-Time directors.
Whole-Time Directors are the ones who are employed on a full-time basis. They are not the CEO of the Company but are employed under a particular contract as per Section 2(94). On the other hand, Managing Directors are the CEO of a company with substantial management powers as per Section 2(54).
Non-Executive Directors are external persons who are not actively involved in the daily activities of a company, as per Section 149(12). There are two kinds of Non-Executive Directors: Nominee Directors and Independent Directors.
Nominee Directors are appointed as a representative of Stakeholders. They are appointed to the Board of Directors. As per Section 149(7) and Section 161(3), they must qualify the following requirements:
- They must be appointed only if it is mentioned in the Articles of Association (AoA).
- They should be able to protect the interest of both the company and the shareholders.
On the other hand, Independent Directors are appointed to show their expertise and ensure transparency in the company. They must qualify the following requirements:
- They must have industry knowledge and expertise.
- They must not have any stake in the company and no stock options.
- They can only be appointed for a period of 5 years and two terms. There will be a cooldown period of three years between each term.
Types of Directors Based on Appointment
As per Section 161(1), a Company can appoint an Additional Director to deal with additional or unexpected work. However, it must qualify the following requirements:
- It must be mentioned in the Articles of Association.
- The Additional Director cannot serve beyond the Company’s Annual General Meeting.
- The company can also appoint Additional Directors to strengthen the majority (only in exceptional circumstances is it allowed).
Alternate Directors are appointed as per Section 161(2). They can only serve in the absence of a Director (if they are absent for up to three months) if provided as per the Articles of Association.
They can only serve till the Managing Director returns. Beyond this, they are not eligible to serve as Alternate Directors anymore.
Moreover, the Alternate Director must be an exact replacement for the existing Managing Director.
A casual vacancy director is appointed either on the death, disqualification, or incapacity of the current director or the resignation of the existing director.
It need not provide this role under the Articles of Association.
A Casual Vacancy Director can only serve till the term of the existing director who has vacated.
This role is applicable only in Public Companies.
There are different types of Miscellaneous Directors in a company. Here are they:
Residential Directors: As per Section 149(3), at least one Director in India who resides for at least 182 days. For newly incorporated companies, this requirement only applies for 50% to the end of the following year.
Women Directors: As per Section 149(1), a listed company must have at least one Women Director.
Every Public Company established without a paid-up share capital of 100 crores or a turnover of more than 300 crores must appoint a Women Director.
Any Company established before the Companies Act 2013 shall appoint a Woman Director within one year of this act being implemented. Any Company registered after the 2013 Companies Act will appoint a woman director within six months of registering the company.
Small Shareholders Director: As per Section 151, it is not mandatory to appoint Small Shareholders Director. However, if the company decides to appoint a Small Shareholders Director, it must be a Public Company or have at least 1000 or more small shareholders.
In conclusion, businesses need to understand the different types of company directors and their roles and responsibilities. By having a diverse board of directors with a mix of executive and non-executive directors, a company can benefit from a range of skills, experience, and perspectives. It is also crucial for directors to adhere to their legal and ethical duties and act in the company’s and its stakeholders’ best interests.