Compliance’s of Directors under Companies Act, 2013

The main authority that controls the operations of a company is the team of directors. This team of directors is commonly known as Board of Directors. These directors are required to work along with each other and make decisions for the betterment and profitability of the company. In this article today we will discuss the compliances of directors. The Companies Act,2013 requires the directors to fulfil certain criteria to become a director in a company.

Qualification and Disqualifications for a Director

The Companies Act,2013 specifically provides the situations where the person cannot be appointed as a director. We can say that these qualifications and disqualifications are broadly the Compliances of directors. Certain basic requirements that should be fulfilled become a director are-

Qualifications

• The person must be eighteen years or above in age.
• The person can be of any nationality. However, there must be 1 director in a company that must have stayed in India for more than 182 days in the previous calendar year.
• The person should have his own Director’s Identification Number (DIN) as well as Digital Signature Certificate (DSC)
• There is no criteria for academic criteria that a director should possess. This is something left to the choice of company and its shareholders.
• The person should give a written consent that he is not disqualified to become a director of the company.

Disqualifications

Section 164 of the Companies Act,2013 specifies the conditions according to which a person becomes disqualified to become a director in a company-

• A person of an unsound mind that is so declared by a competent court.
• An undischarged insolvent.
• Person who has applied to be an insolvent and application is pending.
• When a person is convicted by court of any offence. The offence may be of moral turpitude or otherwise. The imprisonment sentence was atleast 6 months. A period of 5 years has not lapsed since the expiry of sentence. If a person was given a sentence of 7 years or more than he cannot be appointed as a director.
• Any court or tribunal has passed an order disqualifying the person and order is still in force.
• The person has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call.
• A person is convicted of any offence relating to related party transactions.A person who is a director in a company.
  • Which has failed to file its financial statements or annual return for a continuous period of 3 years.
  • Or has failed to repay the deposits or interest on such deposits and the failure continues for  1 year or more

  Than he cannot be appointed as a director in any other company or reappointed in same company for a period of 5 years.

In case a private company has some specific disqualifications than that also should be taken care of.

Limitations of number of Directorships

As per Companies Act, 2013 these are the prerequisites for becoming a director-

• As per Section 163 of the Companies Act, 2013 a person can have only 20 directorships along with alternate directorship.
• It also specifies that number of directorships in a public/private company that is either holding or subsidiary of a public company will be limited to 10.
• The members of the company can restrict this number by passing a special resolution.

Types of Directors in a Company

Mainly following types of directors are there in the company-

Other Provisions related to Compliances of Directors

Now, uptil here we have seen the compliances of directors. Now, we will see certain other provisions like Removal of a Director, Resignation etc in brief.

• Resignation of a Director–   A director has to give a proper notice to the company about his resignation as per terms of contract. The director will be held responsible for the work carried out during his tenure. The company should file the information about director’s resignation in prescribed form with the registrar.

• Removal of a Director– A director can be removed by shareholders by passing an ordinary resolution. The tribunal can remove the director, if it deems fit on the basis of application of oppression and mismanagement from shareholders.

• Vacation of Office–  An office of director is vacant in following circumstances-
  • The director has become disqualified to be a director
  • If he has not attended board meeting for past 12 months.
  • The person rendered disqualified by any court of law
  • Is removed as per provisions of the act
  • Fails to satisfy any condition of being a directorPrivate company can specify more such grounds

• Disclosure of Interest– The director should disclose his interest in any company in first board meeting itself. Also in case of change in interest also disclosure should be made by the director.

• Retirement by Rotation–  As per provisions of the act at least 2/3rd of the directors will be eligible to retire by rotation. Out of these 2/3rd , 1/3rd of the directors will retire by rotation annually. The decision of eligibility will be based on the tenure held in the office as a director. The articles of a private limited company can have different provisions in this regard. Directors like small shareholder directors, independent directors are not eligible for retirement by rotation.

• Forms Required to be filled- In addition to these, a director should fill following forms as per requirement

Conclusion 

For the record it is said that shareholders are the owners of the company and therefore control its decisions. However, in reality the real controllers are the directors who put forth each and every step just for the betterment of the company. To ensure that company is held safe in good hands so many Compliances of Directors are put in place by the act. Directors should ensure to fulfil these compliances to ensure smooth functioning of the company.