Board of Directors Composition

• The board of directors are can be called the brain of the company.
• They are responsible for taking all the big decisions and making policy
changes.
• These decisions are taken in special meetings members of the board
hold together, called ‘Board Meetings’.
Board of Directors Composition
• Section 149 of the Companies Act states that every company’s board
of directors must necessarily have a minimum of three directors if it is
a public company.
• Two directors if it is a private company and one director in a one
person company.
Board of Directors Composition
• The maximum number of members a company can assign as directors
is fifteen. However, the company can pass a special resolution in a
general meeting to allow for assigning more than fifteen members to
the board of directors.
Board of Directors Composition
• The maximum number of companies that an individual can become a
director of, is 20 companies.
• At least one director, who has lived in India for a minimum of 182
calendar days of the previous year, shall be appointed by every
company’s board. It is a mandatory rule.
• At least, one woman director must be appointed by the company.
• All listed companies must have at least one-third proportion of their
board of directors as independent directors.
Roles and responsibilities of Board
The Board of Directors supervises and controls the management and
operations of the company. The duty of the Board is to promote the
interests of shareholders and the Group by overseeing the
administration and proper organization of operations.
1.Strategic role of overall management -The board is responsible for
protecting shareholders’ interests, establishing policies for
management, oversight of the corporation or organization, and making
decisions about important issues a company or organization faces.
Strategic role
• Establish company vision and mission
• Determining and reviewing the company’s goals
• Determining company policies
• setting business strategy
Performance role
Performance role
The BOD has to oversee and monitor the business operations and at
the same time measure and reward management’s performance.

Compliance Role
The board has to ensure compliance with legal framework, integrity of
financial reporting systems credibility in the eyes of shareholders
through proper and timely disclosure.
Watchdog role
• These “watchdogs” play a key role in promoting the transparency,
accountability, and effectiveness of the executive.

Judgment role
The board has to take a judgement about informed and deliberative
decision making, division of authority, supervision of management
functions and taking corrective actions for the shareholder’s interests.
Powers of board
• The board of directors is the highest authority in any company.
According to Section 179, Companies Act 2013, the power of
directors of a company – entitled to make any and all decisions, and
thus exercise all the power, which the company has authority to
enact.
Power of Directors
According to Section 179, CA 2013, the powers of the board of
directors are as follows.
• Board of Directors can exercise all such powers for which the
company is authorised.
• Board of Directors can take all actions on matters in which the
company has authority.
• Make calls on shareholders
• Authorise the buyback of securities and shares
• Issue securities and shares
• Borrow monies
• Investing the funds
• Grant loans
• Approve the financial statement
• Approve amalgamation/merger
• Diversify the business
• Take over a company
Duties of directors
• Act within their powers. ...
• Promote the success of the company. ...
• Exercise independent judgement. ...
• Exercise reasonable care, skill and diligence. ...
• Avoid conflicts of interest. ...
• Not accept benefits from third parties. ...
• Declare interests in transactions or arrangements.
• Duties of Director of a Company
• The position of Director of a Private Limited Company or Limited
Company or One Person Company comes with certain duties and
responsibilities. Many Directors of a Company are unaware of these
duties and responsibilities expected of them and hold the position
just as a namesake. Our intention with this article is to change that
mindset and create awareness about the duties and responsibilities
of a Director of a Company. This will in turn help create companies
that have a strong and ethical Board of Directors, thereby benefitting
all the stakeholders of a company.
• Duty to act in the best interests of the Company
• Directors are in a fiduciary position in relation to the company. So the
Director must exercise his/her power for the benefit of the company
or in the best interest of the company. A Director must also consider
the interests of the company supreme and, in any case, above their
personal interest. Therefore, a Director acting honestly but not in the
best interests of the company is in breach of duty.
• Fiduciary: A fiduciary is a person who holds a legal or ethical
relationship of trust. Typically, a fiduciary prudently takes care of
money for another person.
• Duty NOT to misapply company assets
Under LODR for Listed Companies(Listing
Obligations and Disclosure Requirements)
• The members of the board shall have an optimum combination
of executive and non-executive directors and at least one woman
director. At least 50% of the board of directors must be non-executive
directors.
• When the board chairman is a non-executive director, a minimum of
one-third directors shall be made up of independent directors. In case
of the board chairman being an executive director, a minimum of half
of the board of directors shall comprise of independent directors.
• However, in case a non-executive chairman is a promoter of the said
listed company or directly related to a promoter or a high-level
manager, at least half of all directors will comprise of independent
directors.
Types of Boards
• All Executive Boards
• Unitary Board
• Two tier Board
Coparision of One-Tier Board of Directors and
Two-Tier Board of Directors
One-Tier Board of Directors Two-Tier Board of Directors
composition The board of directors comprises Directly chosen by shareholders,
executive and non-executive the board of directors includes
directors, all employed by the senior members of the board and
corporation (independent external staff representatives. The
directors). Both of them are supervisory is in charge of selecting
members of the same board. and removing the members of the
board of directors.
Decision-making Since a single board makes and In contrast, in a two-tier structure,
approves all choices, the decision- decisions made by the
making process in a unitary council management board must be
moves more quickly than in other authorized by the supervisory
types of boards. board before it's implemented,
which might take time. If the
management and supervisory
board disagree on a specific
schedule, the wait may be
 One-Tier Board of Directors Two-Tier Board of Directors
Stakeholder Indulgence Different stakeholders cannot be When there is a two-tier structure in
represented on a unitary board of which the management board and
directors because of their makeup. the supervisory board are separate,
For this reason, a unitary council can it allows for the inclusion of
only include non-executive directors additional stakeholders, including
as independent input, as a single employees.
panel cannot contain a high number
of board members.
Role of chairman and CEO The Chairman of the board and The Chairman heads the
CEO (chief executive officer) sit on supervisory board in a two-tier
the same board in a one-tier board. board arrangement, while the CEO
runs the management board.
Communication and supervision Executives and non-executives sit The supervisory board can't hold
together on a single board under a the management board accountable
unitary council. As a result, both of under a two-tier structure, as the
these directors are constantly two boards meet separately.
Classification of directors
Classification of directors
Introduction
• There are different types of directors chosen in a firm. The Companies
Act 2013 defines a director under Section 2(34) as a director
appointed to the Board of a company; this primer will be divided into
four sections, i.e., Minimum Requirements, Functions, Appointment,
and Residuary Types. The latter three sections deal with the types of
directors, while the first section deals with minimum requirements for
all Company Law Directors.
• 1. Minimum Requirements
• The minimum requirements can be based on two broad grounds,
composition and eligibility
• 1.1 Composition
• All public companies should have a minimum of 3 directors
maximum of 15 directors, and 1/3 of them must be independent
directors
• All private companies must have a minimum of 2 directors and a
maximum of 15 directors
• To have more than 15 directors, a special resolution must be passed
by Section 114.
• 1.2 Eligibility of Directors
• Any person other than the following would be eligible to be a
director
• Auditory of the company.
• A previously banned director.
• A minor under 16 years of age.
• Any person declared to be bankrupt or insolvent.
• 2. Type of Directors Based on Functions Performed
• Types of directors are two types – executive directors and non-
executive directors.
• 2.1 Executive Directors
• Executive directors are present internally and are involved in the
company – s.149(12). They are two types – Managing Directors and
Whole-Time Directors
• Managing Director – A director who is the CEO and entrusted with
substantial management powers under s. 2(54) . Whole-Time Director
– A director employed on a whole-time basis, not the CEO of the
company, and is under a special contract, appointed under s.2(94)
• 2.2 Non-Executive Directors
• Non-executive directors are external professionals and are uninvolved in the
everyday activities of the company – s.149(12). They are of two types –
independent directors and nominee directors.
• Independent Directors – They are appointed to ensure transparency and provide
expertise. Must have the following qualifications
• Industrial expertise and knowledge
• Must not have any stock options or stake in the company
• It can only be appointed for a maximum of 5 years and for two terms, with a
minimum cooldown of 3 years between the term sheet.
• Nominee Directors – Representative of the stakeholders appointed to the board
of directors. Must have the following requirements – s.149(7) and s.161(3)
• Must be appointed if provided in the Articles of Association (AoA)
• Tata v. Cyrus – Must have unfettered discretion to protect the
interests of both the company and the shareholders
• 3. Types of Directors Based on Appointment
• The Companies Act 2013 allows for three types of directors based on
appointment to deal with contingencies – Additional Director,
Alternate Director, and Casual Vacancy Director
• 3.1 Additional Director
• A company may appoint an additional director under s.161(1) to deal
with unexpected or additional work. Hence, it must fulfill the
following requirements.
• Must be provided for in the AoA
• Cannot serve beyond the next Annual General Meeting
• Paul v. City Hospital – Additional Directors cannot be appointed in
special circumstances to strengthen the majority. You can make
the Directors in company law Under CPC Act by consulting experts in
your field.
• 3.2 Alternate Director
• Can be appointed under s.161(2) in the absence of the director for
more than three months to act on his behalf if provided under AoA
• Can only serve till the managing director returns, cannot serve
beyond that point
• Must be a like-for-like replacement – only an independent, alternate
director may fill in for an alternate director.
• 3.3 Casual Vacancy Director
• Can be appointed under s.161(4) on the death, resignation,
disqualification, or incapacity of a director
• Need not be provided for under AoA
• Can only serve till the term of the director who has vacated.
• This only applies to public companies.
• 4. Miscellaneous Types of Directors
• This section deals with classification of directors based on categories
that may overlap with earlier categories. This section covers
residential directors, women directors, and small shareholders
directors.
• 4.1 Residential Directors
• Provided in s.149(3) that every company must have at least one
director who resides in India for at least 182 days in a year
• For newly incorporated companies, the requirement shall apply
proportionally (50%) to the end of the FY
• 4.2 Women Directors
• Provided for in s.149(1), requires three types of companies to have a
minimum of one women director
• Every listed company
• Every public company without a paid-up share capital of 100 cr or a
turnover of 300 cr.
• Companies registered before the Companies Act,
2013: https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pd
f shall appoint women directors within a year of this act coming to
force, while new companies post-2013 act shall appoint women
directors within six months of registering.
• 4.3 Small Shareholders Director
• There is no mandate to appoint a small shareholders director under
s.151, left up to the company’s discretion
• Companies must fulfill two criteria to be eligible to appoint a small
shareholders’ director
• It must be a public company
• It must have at least 1000 or more small shareholders.
Roles and Responsibility of Board
• The Companies Act, 2013 ('CA 2013') for the first time has laid down the duties of
directors in unequivocal terms in section 166. In summary, the general duties of directors
under the CA 2013 are as follows:
• to act in accordance with the articles of the company, in other words, to act within
powers;
• to act in good faith in order to promote the objects of the company for the benefit of its
members as a whole;
• to act in the best interest of the company, its employees, shareholders, community and
for the protection of environment;
• to exercise due and reasonable care, skill and diligence and independent judgment;
• to avoid direct or indirect conflicts of interest;
• to avoid undue gain or advantage either to himself or relatives, partners or associates;
and
• not to assign his office to any other person;
Types of Board
• Board of directors comprises of a group of people who administers and governs
the activities of an organization.
• The organization can be a profit seeking, non profit seeking, governmental or a
non-governmental organization (mostly termed as Non Government Organization
or NGO).

• One-tier board of directors (also known as unitary board of directors) is a single

body of directors that makes strategic decisions of a company. It includes both
executive directors and non-executive directors.

• Two-tier board of directors is a system in which a company is governed by two

distinct boards of directors, a management board and a supervisory board.
Management board is accountable to supervisory board and makes decisions
related to operational and tactical direction of the company. The supervisory board
makes decisions about long-term strategic direction of the business.
• Board Size: Research Shows That Smaller Boards Outperform Larger
Boards
• A group of governance researchers from GMI Ratings performed
a study in 2014 for The Wall Street Journal, which supports the notion
that smaller boards are more effective than larger boards.
• https://insights.diligent.com/board-composition/why-your-board-
size-matters-how-a-smaller-board-can-be-more-
effective#:~:text=Board%20Size%3A%20Research%20Shows%20That,
more%20effective%20than%20larger%20boards.
Credit: https://fusionmx.babson.edu/entrep/fer/papers99/XV/XV_A/XV_A%20Figures/Figure%201.htm
Classification of Directors
• Executive Director
• Non Executive Director
• Resident Director
• Woman Director
• Nominee Director
• Additional Director
• Alternate Director
• Shadow Director