Rights, Duties and Disqualifications of Directors of a Company

Section 2(13) defines a Director as, “any person occupying the position of director by whatever name called”.

Thus, a person will be deemed to be a director if he performs the functions of a director, though he may be named differently. A director is that person who has full control over the direct management and conduct of the company.

The directors of a company are collectively referred as the “Board of Directors”, or “Board”. Only individuals can be directors. No body corporate, association or a firm can be appointed director of a company.

Rights of Directors

i) Right to Participate in the Affairs of the Company: A director, validly appointed, has a right to attend the meetings and participate in the affairs of the company regarding direction, supervision and control, etc.

ii) Right to have Remuneration: Every director has a right to remuneration fixed either under any contract or under the articles of association of a company. The remuneration of the directors is not directly related to the profits of the company i.e. even if the company. The remuneration of the directors is not directly related to the profits of the company i.e. even if the company does not earn profit the directors will be paid their fixed remuneration.

iii) Right to Compensation: In case of premature termination of a directors service, a director has a right to receive compensation from his company. Exceptions to his right are:-

  1. If premature termination is due to either reconstruction or amalgamation of a company.
  2. If his company is wound up.
  3. If the director has to vacate his office according to the provisions of the companies Act of 1956.
  4. If he is found to be guilty of fraud or breach of trust
  5. If he himself is responsible for taking part in bringing about the termination of his office.

Duties of Directors

i) Duty of Greatest Good Faith of Fudiciary Duties: The directors of a company are fudiciary agents of their company and so they must exercise their powers honestly and in best interest of the company. The business opportunities should never be exploited for their personal benefits but for the prosperity of the company.

ii) Duty of Reasonable Care, Skill & Diligence: The directors are expected to perform with reasonable care, skill and diligence and if not they are guilty of negligence. The actions of a directors should be such as would be expected in similar circumstances on his behalf.

iii) Duty to Attend Board Meetings: It is not compulsory to attend all such meetings but it is his duty to attend them whenever he is able to do so.

iv) Duty to Invest Company’s Money: It is an important duty of the directors to invest their company’s funds properly and profitably as per the provisions of articles of association, if any , made in this regard.

v) Duty not to Delegate Functions: It is the duty of the directors to attend personally to the business of the company in which they are directors. They should not delegate their function unless otherwise authorized to do so.

vi) Statutory Duties: Directors are bound to perform certain duties as prescribed by the Companies Act of 1956:

  1. Duty to see that the prospectus issued by the company makes a disclosure of all the matters.
  2. Duty to see that no prospectus is used to the public unless a copy of it has been delivered to the Registrar of Companies for registration.
  3. To call on extra ordinary general meeting when demanded by a valid requisition.
  4. To present annual accounts and balance sheet and if any director fails to take all reasonable steps in this regard, he is punishable in respect of each offence with imprisonment which may extend to six month or a fine upto rupees ten thousand or both.
  5. Duty to forward a statutory report to every member and must also get it filed with the Registrar. The board of directors must also call and hold the statutory meeting, which does not apply to a private company.
  6. Duty to provide and make good any losses in capital before recommending any dividend.
  7. Must prepare and place the report of the company’s affairs with the Balance Sheet and profit and Loss.
  8. To disclose his interest while entering into any transaction with the company.
  9. To uniform is name, address, occupation, nationality and other information required by the Act for the purpose or entering the same in the Register of Directors.
  10. To disclose the number of shares of the company held by him.
  11. To send to the Registrar his consent in writing to the post of director
  12. To hold certain qualification shares according to the provisions of the articles of association.
  13. Duty not to enter into any contract with the company without the consent of Board of Directors for the sale, purchase, etc.
  14. When the company is liquidated, a director must refrain himself from acting on behalf of company except to the extent authorized by court, liquidator or shareholder in the general

Disqualifications of Directors

i) Office of Profit: A person cannot be appointed as director if he holds any office or place of profit under the company.

ii) Age Limit: With he object of ensuring physical and mental fitness on the part of the director it has been provided that no person who is above the age of 70 years or below the age of 25 years should be appointed as a director.

iii) Convicted: A person who has been convicted by court of any offence involving moral turpitude and sentenced to imprisonment for not less than 6 months and a period of 5 years has not elapsed from the date of expiry of the sentence cannot be appointed as a director.

iv) Calls — in-Arrears: A person cannot be employed as a director whose calls in respect of shares of a company held by him are not paid within six months from the lost date fixed.

v) Unsound Mind: Persons of unsound mind are disqualified for appointment as directors.

vi) Insolvent: Persons who are undischarged insolvents or declared fraudulent by court or who has applied to be adjudicated as an solvent and an application is pending are disqualified from becoming a director.

vii) Not More than Twenty Directorship: A person holding more than 20 directorship of public Ltd Co. cannot be appointed as director of any other public ltd. Co. by shares. However, he can be a director of any number of private ltd. cos.

viii) Additional Grounds: A private company which is not a subsidiary of a public company may by its articles provide that a person shall be disqualified for appointment as a director on any additional grounds.

ix) Court Order: An order disqualifying him for appointment as a director has been passed.

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