What everyone ought to know about the Composition of the Board of Directors under SEBI LODR

Section 149 of the Companies Act of 2019 regulates the composition of the board of directors. In the case of a public company, there are at least 3 directors. In the case of some companies, it also counts as one female director. In addition, every listed company must have at least one-third of the directors as independent members [Regulation 17]. Apart from this, SEBI regulation has to be followed for a listed company. Let us have a look at the composition of the Board of Directors under SEBI LODR.

What does Section 149 of the Companies Act, 2013?

As per Section 2, sub-section 34 of the Companies Act, 2013 the director is a director who is appointed to the company’s board of directors. According to Section 2, sub-section 10 of the Companies Act 2013, the board of directors or the board of directors in a company means the collective body of the company’s executives. 

According to Section 149 of the Companies Act, 2013 the board of directors of each company consists only of natural persons or individuals. This means that a legal person, company, or association may not be appointed as a director.

Number of Directors under SEBI LODR

Section 149(1) of the Companies Act, 2013 states the minimum and the maximum number of directors in a company. The minimum number of directors in a limited liability company is 2, for a public company it is 3 directors and an OPC must have at least 1 director. However, the maximum number of directors in the company is 15. The company can increase the number of directors above 15 by special resolution of the general meeting.

Directorship of Individuals under SEBI LODR

The provision for the directorship of a natural person is specified in Section 165 of the Companies Act 2013, as follows: 

• A natural person can be a member of the board of directors in 20 companies, which includes the substitute functions of a board member. 
• A natural person cannot be an executive in more than 10 joint stock companies. 
• If the company wants to reduce the number of board members, it can do so by employing a special resolution. 
• Such person shall not act in more than the specified number of companies after the resignation is sent or after the expiration of this Act, whichever occurs first. 
• If a person is a director of a private company that is a subsidiary or holding company of a joint-stock company, the director will be considered a director of the joint-stock company. 
• Membership in a dormant company or a company according to section 8 will be excluded from the calculation of the directorate limit of twenty companies. 
• If any director contravenes the provisions of Section 165 of the Companies Act, 2013, he shall be liable to a fine of Rs. 2,000 for each day during which such delay continues subject to a maximum of Rs.2 lakhs.
• Management in listed entities, listed entities shall further ensure that no person shall be a director in more than eight listed entities with effect from 1 April 2019 and a maximum of eight listed entities from 1 April 2020.

When a director may not act as an independent director?

A director may not act as an independent director in more than seven listed entities. If the director is a permanent director or executive director in any listed entities, he acts as an independent director in no more than three listed entities. The estimate of the number of listed entities in which a person is an executive or independent director will only be for those whose shares are listed on the stock exchange.

Composition of Board of Directors in a listed company

As per Regulation 17 of Securities and Exchange of India (Listing and Disclosure Obligations) 2015, the composition of the board of directors in a listed company is as follows: 

• The board has a combination of executive and non-executive directors with at least one female director and at least fifty percent of the members of the board consist of non-executive directors. 
• If the chairman of the board of directors is a non-executive director, at least one-third of the board of directors is made up of independent directors, and if the said entity has an executive chairman, then at least half of the board of directors must consist of independent directors.

Final words

Let us summarize what we have observed. In a nutshell, Directors are an important part of company management. Every company must appoint directors at the time of incorporation. A one-person company must have at least one director. A private company must have at least two directors and a public company must have at least three directors. A maximum of 15 directors can be there in a company.

The person appointed as a Director will perform all the duties and functions of a Director under the provisions of the Companies Act 2013. A person is appointed as an executive to the company’s board of directors. The board of directors or board of directors of a company means the collective body of directors of a company. The company functions through a BOD (Board of Directors) which is responsible for managing the company. They decide on the affairs of the company. The Act contains provisions on the appointment, rights, and obligations of executives. Any person appointed as a director of a company is at liberty to be a director in another company.