Director Rights in a Company

What do you mean by Director of a Company?

As rightly defined in Section 2(13) of the Companies Act, 1956, a Director as any individual who obtains the position of Director and needs to be identified in the Company agreement. A proper documentation is done for the appointment, retirement rights duties and the remuneration of the directors and the document is termed as AOA(Article of Association)

Broadly the rights are classified into two types;

  • Individual Rights.
  • Collective Rights.

Structure of Board

The Board of Directors are the elected representatives of the company which may consist of the shareholders and others contributing shares to the enterprise. It is the responsibility of the Board of Directors for designing the policies and keeping the governance rule intact within the Company. The Board has a curator position and holds the position of administration to protect and improve shareholder profit through strategic policy and governance. Board’s responsibilities mainly demand the operation of judgment for which the Board necessarily has to be covered with powers and a moderate level of discretion. It consist of two types of directors, part-time directors and whole time directors. The individuals attending board meetings and contributing to the strategic policies and judgment in the board meetings are called the Part-time Directors. For the Whole time directors, the name itself defines that they treated as employees, it is similar to the position of Managing Director and this division of directors are committed with tangible powers of management to look after the daily affairs of the organization.

Appointment of Directors

The right to appoint directors is worked out by the shareholders in First Annual General Meeting as mentioned in the terms of Section 255 and objectives in the Articles of Association. It is also permitted to appoint additional Directors who operates office up to the Annual general meeting. In case a vacancy is caused by resignation /death of an existing director then they are responsible to hold office up to the term of first director in whose place he is appointed.

Resignation of Directors

The resignation by the Companies directorship takes effect immediately from the date of the resignation letter, if the Article of Association consist of concerned content about the specific provision.

What is an individual right of a Director?

  • There are certain individual rights stated as per the Government and they are as follows;
  • Inspecting books of accounts as per mentioned under Section 209(4)
  • Receiving notices of Board meetings according to Section 285
  • Participating in courses and casting votes in favor or against resolutions as stated in Section 300
  • Receiving circular resolutions aimed to be passed.
  • As per Section 289 the directors are given the right to inspect moments of board meetings.

What are the Collective rights for the Directors of a Company?

There are major Collective rights given to the directors of a Company they are as follows;

  • Right to decline to transfer of shares: Directors of private companies and public companies are empowered to deny registration of transfer of shares to an individual whom they do not approve. This is according to Section 111 of the Act,
  • Right to choose a Chairman: Regulation 76(1) of Table-A grants that the directors are authorized to select a Chairman for the Board meetings.
  • Appointing a Managing Director: The Board has the power to designate the managing director/ manager (as specified in the Act) of the company.
  • Recommending Dividend: The Board is also authorized to determine whether dividend is to be paid or not. Shareholders cannot force the directors to pay dividend. However they can decrease the rate of prescribed dividend. Payment of dividend is the advantage of the board.

What Responsibilities do the Company Directors have?

The Company Director is a high dignitary officer who is appointed to manage and direct the day-to-day business activities and also keep a note of finances in a Company. He is the one who is responsible for statutory filing obligations. The company Director is expected to abide by the law and be honest to the company, make important decisions and take the company at heights.

According to the Companies Act 2006, the duties and responsibilities of the Directors are written in the Article of Association that is filed during the company registration. The duties consist of the following principles:

  • To act within the powers given to them in the articles of association.
  • Promoting the success of business.
  • Exercising independent judgment in all decision-making.
  • Using reasonable care, skill , honesty and diligence at all times.
  • Avoiding or declaring any conflict of interest.
  • Avoiding the acceptance of benefits from third parties.
  • Declaring an interest in a proposed transaction.

According to the Companies Act there are certain duties to be done by the Directors, these general management duties may include:

  • Important decision making that will in a way benefit the company and its owners, and also consulting the creditors/shareholders before taking any decision.
  • Keeping a high check on the maintenance of the Company details with the Company House and the MCA/HMRC.
  • It is very important to carry out proper financing records during service period.
  • It is also the duty of the Director to monitor/supervise the financial position of the company.
  • Annual accounts, Annual returns, and Company Tax Returns are to be readily filled within the given deadlines by the Directors.
  • It is also the responsibility of the Director to pay the corporation tax and any other tax liabilities by the given deadlines.
  • Organizing the General Meetings and Board Meetings.
  • Filing copies of resolutions with Companies House.
  • Appointment of important professionals are also the duty of the Director which includes appointing solicitors, accountants and auditors, if required.
  • All the members(shareholders) must be provided with the Annual Account.
  • Directors are required to Issue and transfer shares to the creditors.
  • Complying with employment law if the company has employees.
  • Appointing a company secretary, if required.

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