When can a Director of the Company be Disqualified?

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Disqualification of Director

A director of a company or a corporation is an individual that is appointed to be a crucial part of the board of members. He supervises and gives directions to employees and managers of certain departments. Director Disqualification can take place for various reasons which is justifies by the company. The disqualification takes place in the court. The disqualification of the director takes place when the director does not follow certain rules that are mentioned in the agreement which is signs before his appointment.

How are the directors elected?

Director of a company is elected by the shareholders for managing the affairs of the company according to the Memorandum of Association (MOA) and Articles of Association (AOA) of a company.

Types of Directors

  • Executive Directors

An executive director is appointed on a full-time basis. They have the responsibility of a higher management level towards the company. The firm and its employees follow their directions and expect their director to be efficient.

  • Non-Executive Directors

They are the non-executive directors of the company. They are not involved in the normal everyday working of the company. Also, they are included in the day-to-day decisions that the company higher management is involved in. They only take part in the planning or policy-making process.

  • Managing Directors

Managing Directorsare given the right to take company decisions, supervise and give directions to the members of the company. A company that has a share capital of more than five crores must have a managing director in the company.

  • Independent Directors

They are individuals who do not have any direct relationship with the company. Their responsibility is to give advice to the board. Public companies who have a paid-up share capital or outstanding loans of Rs 100 Crores, Rs 100 Crores, and Rs 50 Crores or more must appoint two independent directors.

  • Residential Directors

A director who has lived in India for at least 182 days can be appointed as a residential director. A company must at least have one residential director in every company.

  • Small Shareholder Directors

Small shareholders directors are the individuals who can appoint a single director in a company. After issuing a notice to at least 1000 shareholders or 1/10th of the shareholders whichever is lesser to get an approval.

  • Women directors

The companies who have their securities listed on the stock exchange and have a turnover of Rs three hundred crores or more must have a women director in the company.

  • Additional Directors

An individual or a group of individuals can act as an additional director by obtaining the position of a director only untilthe next Annual General Meeting take place.

Appointment of directors

In a company, either public or a private, a sum total of two-thirds of directors are appointed by the shareholders. The rest of the members that is one-third members, that remains are appointed according to the guidelines that are mentioned in the Article of Association. In case the Articles are silent, the directors must be appointed by the shareholders.

The Companies Act, 2013decides the minimum and maximum number of directors a company can appoint. As per the Companies Act, 2013, a private company is required to appoint at least two directors; while a public company must appoint at least three directors and a one person company is required to appoint at least 1 director.

Director Disqualification

The Director Disqualification is done as per Section 164 of the Companies Act, 2013 for the below reasons –

  • The Director is of unstable mind and stands so declared by a competent court.
  •  The Director is an un-discharged insolvent.
  • The Director has applied to be adjudgedas in debt and his application is pending.

Duties of Director in a Company

Section 166 of the Companies Act, 2013 states the responsibilities of Directors. Some aspects of a company that he must follow are as follows –

  • He must act according to the articles of the company.
  • He must be involved in the promotion of the objects of the company and work towards the benefit of the members of the company, shareholders, employees and the society.
  • He must undertake his duties with due and diligence and must exercise independent judgment.
  • He must not be involved in situations which creates any sort of disagreement with the interests of the company.
  • He must not take any unjustified advantage from the company, either for himself or for his associates or partners.
  • If the director infringes any provisions that are mentioned in the agreement, he would be considered punishable and he will liable to pay a fine of Rs 100000 or more, which may also extend up to Rs 500000.

Conclusion

Directors are important individuals to a company that guide and manage the crucial affairs of the company in a manner that is most suitable to them. With the years of experience and knowledge they gain over the years of working in various companies, they understand the critical work situations and take necessary measures to resolve issues with regards to the company.