Duties and Responsibilities of a Company Director

The directors of a company play a critical role during and post incorporation. A company’s directors constitute the Board of Directors and are in charge of the management and administrative duties of the organisation. They supervise the activities of the organisation and play a huge role in its progress and development.

Definition of a Director under the Companies Act

The Companies Act, 2013, defines a director as a person who is appointed to be a part of the Board of the Company. 

Board of Directors: The Board is constituted by different individuals, elected by the owners of the company (shareholders) to manage the company’s day-to-day affairs and run the company. The Board is entrusted to act on behalf of the company.

Major role: The directors of a company also look over the policies of the company and supervises the work done by the various departments by the appointed people. This includes – control, management, planning, direction, and administrative duties.

Role of a Director: The Companies Act also says that a director is any person who performs the role of a director, whether or not he or she has been designated. A director of a company is any person who occupies a particular position and performs a particular set of functions. So, a person is set to be a director so long as he or she is appointed to control and manage the company, and is authorized to act in the name of the company.

Duties of a Company’s Directors

Under the provisions of the Companies Act, the Director of the Company has the following duties:

1. It is the duty and responsibility of the director of the company to act as per the norms mentioned in the Articles of Association of a Company.

 

2. The company’s directors must always act in an ethical and moral manner so as to advance the aims and objectives of the company. They have to pursue advantageous goals and ensure positive outcome and growth for the organization.

 

3. He/she is obligated to use his/her judgment and expertise to perform their roles in good faith and with logical care. The directors are entrusted with the sensible management of the company, and must always use their knowledge to take the company to greater heights.

 

4. A director cannot create or be involved in a situation that will put the company at jeopardy or might be a direct (or indirect) conflict of interest for the company.

 

5. A director cannot use the company for his/her advantageous personal gain or that of his/her friends and family.

 

6. It is the duty of the director to uphold the spirit of the position and he/she cannot downgrade the office and position in any manner.

 

If it is found that the director of the company goes against any of the set provision that defines his/her role and responsibility, then, he/she can be punished with a fine of INR 1,00,000, which can be extended to INR 5,00,000.

 

More on: File Annual Compliances for Companies

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Role and Responsibilities of a Company’s Directors

The Companies Act gives the extensive set of roles and responsibilities of a director of a company. Here is a list of general duties and responsibilities.

  1. Convene the various meetings set under the Act, such as statutory meeting, Annual General Meeting, and Extraordinary General Meetings.

 

  1. To furnish the balance sheet, profit & loss statement and company report before the shareholders during the Annual General Meeting.

 

  1. To appoint the auditors of the company, including first auditors and cost auditors.

 

  1. Approve and authenticate the financial returns and ensure that the same is filed the Ministry.

 

  1. To present and furnish with the registrar the necessary returns to be made on share allotment, and other such compliances such as filing of special resolutions etc. 

 

  1. The directors are responsible to ensure that the company doesn’t one issue irredeemable preference shares.

 

  1. It is also an obligation of the directors to reveal their personal ‘interest’ in any of the business transactions. The director stands at a fiduciary capacity and cannot let his personal interests come in the way of the company’s overall interest.

 

  1. It is the duty and responsibility of all the directors to attend the board meetings. Any director who does not attend three consecutive meeting, or all the meetings held in a span of three months, will have to vacate his position.                                                          

Role of Non-Executive Director

There are various types of directors of a company; however, they can be broadly classified as Executive and Non-executive director. Non-executive directors are also members of the Board, but without the daily management responsibilities that executives directors have. Here is a look at his/her role in the management of the company:

  • The duty of the director is intermittent in nature and is performed during the board meetings and committee meetings.
  • While he/she is not obligated to attend all the meetings of the company, he/she must attend whenever possible in the interest of the company.

Read More: How to remove a Director from Company?

Liabilities of a Directors of a Company

A director of a company will be held liable for the actions of the company in the following situations:

  1. Breach of fiduciary capacity: When a director wilfully acts against the interest of the company and has acted dishonesty for his own gain or gain of a particular group of people, he is liable for breaking his fiduciary duty. He/she can be sued by the company for breaking his fiduciary duty and causing loss to the organization.

 

  1. Acts beyond Scope: The parameters for the director’s role and duty are defined and governed by the Memorandum of Association and Article of Association, which ultimately sets the pretext for the powers of the board. Any activity that the director performs beyond this will be seen as an Ultra Vires act, and he/she will be held personally responsible for the losses and damages to the company.

 

  1. Wilful negligence: The directors of a company must exercise care and caution while discharging their roles and duties. When they fail to do so, they are said to act negligently and can be held for the loss and damages thereof. In case it is proved that the act was due to ‘error in judgment’ then it cannot be deemed as negligence.

 

  1. Mala fide: A director can be held liable and be prosecuted for any loss and damage suffered by the company due to the dishonesty and misfeasance. This also includes misappropriation of money and company assets and acting in a manner that will put the company and its employees in jeopardy. Based on the severance of the allegation and act, the court may order penalties and prosecution under the Indian Penal Code.

CONCLUSION

The director of a company can be called the Agent of the Company, and it’s his/duty and responsibility to act to the fullest of his/her abilities and keeping with the interests of the company. An error of judgment by the board of directors cannot hold the director personally liable. However, a director can be held liable for fraudulent acts and acts of misfeasance.

 

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