A company is one such form of business structure where the management and ownership are completely separate. The shareholders are owners of the company who invest in it and help it grow. Then, these shareholders appoint the Board, which consists of the original managers the company. It is one of the most important tasks to decide who can be a director in a company. The reason being the fact that Directors govern all business operations and are also the ones to make certain important decisions for the company.
Even while you register a pvt ltd company in India, having a Board of Directors is must. The ones who can be a director in a company handle the entire decision making process. Let’s take a look at what a Director means, who can be a director, and the reasons why a director can be disqualified from their position in this Article.
Who is a Director?
According to the Companies Act, 2013 a Director is a member of the Board. Whereas, the board is the key managerial entity of a company, The board is responsible for managing the operations of the business and taking important decisions. Hence, a person who is capable enough to make life-changing decisions of a company is someone who can be a Director in a company in India.
To understand in simpler terms, while comparing a company to a family, Directors are like the elders, i.e., the decision makers and the wise members of a family.
Also Read: Types of Directors in a Private Limited Company
Who can be a Director of a company?
Apart from the fact that the person wanting to be a Director of a company must be a natural person, there are no other specific requirements to become a member of the board in a company under companies act. However, certain eligibility criteria are mandatory. These include the following:
A Director is someone who determines the company policies and might also enter into contracts on behalf of the company. Hence, a person who can be a Director in a company must have attained the age of 18 and must be competent to enter into a contract. However, when it comes to Full Time, Independent and Managing Directors, the prescribed age limit is 21 to 70 years.
There is no barr or restriction of Nationality when it comes to appointment of Directors in a Private Limited Company. However, to incorporate a company in India, at least one member of the Board should be an Indian National.
Any person desirous of wanting to have be a Director in a company must have a valid DIN (Director’s Identification Number). It is a number unique to each person. This helps the MCA keep a track record of details of BODs in India. Read more about DINs in “What is DIN and How to apply for DIN?“
As per the Indian Laws, any individual who is eligible is only allowed to be a director in 20 companies at a time. Out of which, only 10 can be public companies. Hence, any person who can be a director in a company must ensure that he or she is not crossing this threshold. If a situation arises where the person becomes a director in more than the prescribed limits, they will have to resign from their position from such exceeding companies.
Disqualifications of a Director
It is also possible that a person who was eligible to be a director becomes ineligible at a later stage in life. The criteria of disqualification of a Director are as listed here:
Unsound mind or insolvency
A person who can be a Director of a company must have the skills of managing the entire operations of a company. This is only possible with the soundness of mind. Further, it is also the most basic rule that a person of unsound mind is not capable of being a manager in a company. Similarly, insolvent people with pending bankruptcy claims are not entitled to being a director in a company either.
Under the Indian Laws, a person who has been sentenced to imprisonment for a period of more than 7 years, for any unlawful activity is someone who cannot be a director in India.
Filing returns annually is a very important aspect of businesses and individuals. Any person who has pending return payments for any preceding years, he is not eligible.
The relationship between a company and its Board is very complicated. Especially considering it is fiduciary in nature, completely based on trust. Hence, it is very important to choose who can be a director very wisely. The eligibility criteria to add a director in India is not too stringent. It is put in place keeping in mind the best interests of the company.