The Companies Act 2013 has served as a landmark for India, as it governs the incorporation, conduct, and running of companies. The position of the directors is the main aspect of corporate governance under this act, which decides whether or not affairs of the concerns are carried out in accordance with law, ethics in their practices, and the strategic objectives. Therefore, let us know about thedirectors under companies act, 2013.
Who are the Directors?
- A person who represents a company.
- He or she must make choices that benefit the business and act honorably and legally.
- A director of a corporation makes sure that the business achieves its goals, which makes it successful.
Qualifications of a Director
- For one to discharge the duties legally placed on him as a director, he must be both of sound mind and body.
- The director according to Section 253 of the Company's Act of 2013 must be an individual. A firm, association, or body corporate such as a company is ineligible to be appointed as a director.
- Section 266B amended in 2006 contained the provision that provides that a corporation cannot appoint as a director any person unless that person has been issued a DIN (Director Identification Number).
- It is not acceptable to disqualify a director.
- A director cannot be an insolvent.
Duties & Powers of a Director
DUTIES
General:
- A director must act honestly, with self-discipline, and with integrity for the best interest of the employees, company, and shareholders.
- They must handle the company with due diligence and reasonable care.
- A director must use their authority. It must behave in line with the constitution of the business.
- A director of a company is required to attend board meetings.
- A director is required to notify the board of any interest he may have in a company transaction. The director must avoid putting himself in a situation where his personal interests’ conflict with his obligation since he has a fiduciary connection with the company. He has an obligation to steer clear of conflicts of interest.
- Benefits from outside sources cannot be accepted by a director.
Specific:
- A director of a company is required to reveal their shareholding.
- When a company is winding up, its director is required to submit a statement of affairs.
- The company's director is required to purchase qualification shares within two months of his employment.
POWERS
- Authority to call shareholders regarding money owed on their shares.
- The ability to invest money
- The ability to borrow funds
- Authority to authorize a merger, reconstruction, or amalgamation
- The ability to take over a business, buy a business, or own a portion of another business
- authority to make loans, guarantee loans, or offer security for loans.
- Authority to cover temporary openings
- Authority to designate the company's initial auditors
- Authority to designate substitute directors
- Authority to name more directors
- Authority to propose the dividend rate on the company's shares after shareholder approval Authority to announce an interim dividend
- Authority to make more than a specific amount of investments in businesses belonging to the same group.
Liabilitiesof a Director
Against the Company:
- When directors operate outside the bounds of the Companies operate, the memorandum of association, and the articles of association, they will be held accountable. Therefore, in cases where the directors use capital to pay dividends or interest, they will be held accountable for compensating the company for any losses or damages it sustains.
- Directors may also be held accountable for any dishonest behaviour. They will be held accountable for breach of trust and might have to compensate for any loss or harm if they use their authority and carry out their responsibilities dishonestly.
Against the Third Party:
- If the directors behave fraudulently and make any false statements in a prospectus, they will be held accountable. Every person who subscribes for shares based on the prospectus will be subject to compensation from the director.
- The director will be held accountable for acting outside the company's authority and for failing to return application funds upon non-receipt of the minimum subscription.
- The business must return all funds received from the application within the allotted time frame if the stock exchange has not given its approval. If the amount due is not paid, the directors shall be jointly and severally responsible for the repayment along with the interest thereon.
Criminal Liability of Directors
Statutory directors are subject to various obligations under the Companies Act of 2013, and failure to carry out these responsibilities may result in fines or jail time.
The directors will be liable for:
- for making false claims in the prospectus;
- failure to notify the registrar of the conversion of shares to stock;
- failure to provide a return to the registrar regarding the allocation;
- the Annual General Meeting (AGM) is held;
- not issuing the debt and equity certificates.
The purpose of these criminal liabilities is to make the directors more conscious of their responsibilities.
Disqualification of Directors
Section 164 of the Companies Act 2013 states that directors may be disqualified for the following reasons:
- Unsound person, as judged by a court with the necessary authority.
- Unpaid and insolvent
- Convicted of any crime by a court
- His disqualification as Director was ordered.
- Does not have to endure calls for company stock.
- Has not submitted financial statements or annual returns for three consecutive fiscal years.
- Has not paid a dividend for a year, redeemed the debentures on time, or reimbursed the deposit or interest.
- Does not have a Director Identification Number (DIN)
- In the five years prior, he had no convictions for crimes involving related party transactions.
Conclusion
A company's directors are an essential component. Only a director is capable of carrying out certain of the company's duties. The questions regarding directors have been answered by the Companies Act, 2013. Directors are appointed by shareholders of a company, and it is the AOA of the company that states the qualifications and disqualifications of these directors. For a person who is suitably qualified to represent the company, a rigorous five-year bar is imposed. The Company Law also provides for an appeal process and a thirty-day period for correcting any filing errors.
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