Directors play a crucial role in overall management of the company. It’s a legal obligation for every company to appoint a director at the time of incorporation.
The Companies Act, 2013 lays down the provisions for minimum number of directors in the Company: –
| Type of Company | Minimum Number of Directors |
| One Person Company | One Director |
| Private Company | Two Directors |
| Public Company | Three Directors |
In addition to above limits, Section 165 of the Companies Act, 2013 prescribes for the maximum number of directorships a person can hold at the same Time. An individual appointed as director cannot hold directorship in more than 20 Companies.
The number of public companies in which the individual can hold directorship is limited to 10 by the law.
The above provisions limiting the number of directorships ensures proper corporate governance and ethical practices.
In this blog we shall unpack the objectives of provisions of minimum and maximum number of directorships, its exceptions along with applicable penalties. Real world examples are provided at the end for better understanding of the provisions of the Companies Act, 2013.
Objectives of Number of Directorships
The law sets out the clear provisions on how many companies an individual can serve as a director on the Board. The objectives of law makers behind such provisions are as follows: –
- To ensure proper attention of directors on corporate matters.
- To achieve proper corporate governance across all the companies of the country.
- To open doors for more qualified professionals and fresh talent to join boards.
- To reduce risk of fraud and mismanagement
- To balance entrepreneurial freedom with responsibility
- To strengthen investor confidence
The focus point is to modernise corporate practices across the country. The review of directorship positions is necessary to comply and provide meaningful contribution for growth of the company.
Exceptions of Number of Directorships under Section 165 of the Companies Act, 2013
- Exemption to Section 8 Companies: – Section 165 of the Companies Act, 2013 doesn’t apply to section 8 Companies, i.e., directorships in Section 8 companies are not counted towards the limit of 20 companies.
- Exemption to Dormant Companies: – Section 165 of the Companies Act, 2013 include a specific explanation that for reckoning the limit of Directorships of twenty companies, the Directorship in a dormant company shall not be included.
- Exemption to Foreign Companies not having offices in India: – Section 165 applies only to companies incorporated under the Companies Act, 2013 or earlier Companies Acts in India. An individual can act as a director of foreign companies that have no relation to India.
Exceptions provided for number of directorships under the Companies Act, 2013 promote entrepreneurship and social welfare activities while maintaining strong governance in active commercial entities.
Clarification Notes on Counting Rules
- Private companies that are holding companies or subsidiaries of a public company are counted as public companies for the 10-public-company limit.
- Alternate directorships are fully included in the overall count.
Company’s Power to Set Lower Limit for number of directorships
Sub-section (2) of Section 165 of the Companies Act, 2013 provides for a flexible option for the companies. Companies on their discretion can, through a special resolution, prescribe a lower number of directorships, i.e., less than 20 for its directors in other companies.
For Example: – The Management of ASR Private Limited thinks of placing a ceiling on the number of directorships and restricts the limit to maximum of 10 companies. Mr. A, Mr. S, and Mr. R being the directors of ASR Private Limited shall comply with this restriction and shall not serve more than 10 companies as a director.
Penalty For Non-compliance of Section 165
Sub-Section (6) of Section 165 of the Companies Act, 2013 provides for the penalty applicable on the director who holds office of director in contravention of this section.
If a person act as a director in more than 20 companies, then he will be liable to a penalty of Rs. 2,000 for each day during which the violation continues subject to a maximum of Rs.2 lakh.
Conclusion
Being a founder, director or corporate professional, if you are involved in corporate governance, you must navigate through the rules of number of directorships allowed under the Companies Act, 2013.
The Limits prescribed under Section 165 sets a clear limit that aid to create balance the between experienced professionals and preventing overcommitment that potentially harm effective decision-making.
This legal requirement not only helps to create firm boundaries but also encourages directors to promote better corporate governance.
The prescribed limits should be strictly followed because their non-adherence may attract penalties.
If you are consenting to become a director, keep track of your directorship positions and plan wisely because responsible directorship is key to sustainable growth.
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Frequently Asked Questions
Q-1: – What is the maximum number of directorships a director can held?
Answer: – According to Section 165 of the Companies Act, 2013, an individual appointed as director can hold directorship in maximum of 20 Companies.
Q-2: – How many public companies a director can serve?
Answer: – A Director can serve maximum of 10 public companies as a director.
Q-3: – Can a company set a lower limit for number of directorships?
Answer: – Yes, a Company can set a lower limit for number of directorships by passing a Special Resolution.
Q- 4: – Are dormant companies exempted while calculating the number of directorships for a director?
Answer: – Yes, Dormant Companies are exempted.
Q-5: – Does Section 165 apply to Section 8 Company?
Answer: -No, Section 165 does not apply to section 8 Company.
Q-6: – Are Alternate directorships included in the overall count for number of directorships?
Answer: – Yes, Alternate directorships are fully included in the overall count for number of directorships.
Q-7: – How number of directorships is calculated in case of a private company who is holding or subsidiary company of public company?
Answer: – Private companies that are holding companies or subsidiaries of a public company are counted as public companies for the 10-public-company limit.
Q-8: – What Are the penalty provisions for Non-compliance of Section 165?
Answer: – The director who doesn’t comply with section 165 shall be liable to a penalty of Rs. 2,000 for each day during which the violation continues subject to a maximum of Rs.2 lakh.
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