Requirement of Number of Directors in different Companies

The Board of Directors and supervisory group ought to concede to a rundown of key choices that require Board assent. Choices like an endorsement of spending plans, capital raising, enormous capital consumption things, dispatch of new product offerings, and recruiting of senior administration and remuneration arrangements are instances of such choices. The objective is to further develop accountability and decision-making.The Expert committee prompted that law ought to accommodate a minimum number of directors vital for different kinds of companies and saw that new sorts of organizations will develop and to stay up with arising business necessities, the law ought to hence incorporate an empowering arrangement to recommend explicit classifications of organizations for which a minimum number might be set down.

Table of Contents:

Types of Companies

  • Public Company – It is a group of people who comes together voluntarily to form a separate legal entity to do business. They can raise money by issuing shares to the general public by issuing shares publicly. 
  • Private Company – It is a small separate legal entity that can be formed by an organization of 2 or more people who come together to form a company. Private companies cannot publicly issue shares which means they cannot offer shares to the general public to register.
  • One-person Company – This Company form has only one executive member. In this case, the person is the sole owner can enjoy the benefits of the company even though it is the sole owner of its kind. The person who starts a private company must appoint a person to take over the company in the event of a disability or death.

Objective for the provision of a number of Directors

The fundamental thought behind setting the prerequisites concerning the number of directors in an organization is to guarantee manifold control. It implies that corporate administration is bifurcated under the control of the majority to guarantee that choices can be made for the organization’s prosperity by considering the perspectives of different individuals and in this manner keeping away from any type of misrepresentation by giving all capacity to one individual. 

Section 149(1) of the Companies Act, 2013 necessitates that each organization will have a minimum number of 3 directors on account of a public organization, two directors on account of a privately owned business, and one director on account of a One-Person Company. An organization can designate the most extreme 15 directors. An organization might delegate more than fifteen directors after passing a special resolution in a general meeting and there is no requirement of approval by the Central Government. A time of one year has been given to empower the organizations to conform to this prerequisite. 

Exception

There is a special case or an exception in the event of a one-person organization. Section 149 indicates different exceptions and is comparable to the maximum number of directors not needed in agovernment-owned organization in which 51% or more shares are held by the public authority. Although a limit of director’s appointment has been set, the provision makes an exemption. The primary objective is to stay away from the dispensable appointments of directors

Section 149(1) (b) of the Companies Act, 2013 states that a company can have 15 maximum directors. However, the director may exceed the number by special resolution. Before the Companies Act, 1956 corresponding section was S. 259 but in earlier provision, there was no requisite for expanding directors beyond 15 or to seek Central Government’s approval however earlier you needed to go for the approval from the Central Government at whatever point number of directors used to go past 12. A special resolution is obligatory so that there will be a check for un-essential stacking of directors.

Number of Directors Requirement in different types of Companies

COMPANY TYPE MINIMUM NO. OF DIRECTORS MAXIMUM NO. OF DIRECTORS
Private Company 2 15
Public Company 2 15
One-person Company 1 1

Independent Directors

As per Section 149(4) of the Companies Act, 2013 and Rule 4 of the Companies (Appointment and Qualifications of Directors) Rules, 2014-

  • Listed public organizations are needed to appoint one-third of the absolute number of directors as independent directors.
  • Following class of unlisted public organizations are needed to name no less than 2 independent directors:
  • Companies with Rs. 10 crores or a greater amount of settled up share capital; or 
  • Companies with Rs. 100 crores or a greater amount of turnover; or 
  • Companies with more than Rs. 50 crores of loans, debentures, and deposits in total. 
  • The privately-owned businesses are not obligatorily needed to select independent directors.

Conclusion

The number of directors that can be appointed in different kinds of companies is articulated through this blog. An individual delegated as a chief will play out every one of the obligations and duties of a director according to the arrangements of the Companies Act, 2013 Act. An individual is selected as a chief for the Board of an organization. The Board or Board of Directors of an organization implies the aggregate group of heads of an organization. The organization works through the Board of Directors. The Board of Directors is answerable for the administration of the organization. They settle on choices concerning the organizational issues.

CategoryCompliance

CS Madhavi Singh Rajawat is a commerce graduate from IIS University, Jaipur and an associate member of Institute of Company Secretaries of India. She is also an LLB aspirant. Her interest lies in the field of corporate and securities laws, general corporate advisory matters and FEMA matters and compliances, litigation services, and also in NCLT related services. She has proficiency in the drafting of documents

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