Registering a Company in India is not just about creating a legal entity but also creating a governance system that decides the decision-making process, the accountability lies with whom and how company interacts with the statutory authorities.
Board of directors are the heart of this governance system. They act as a backbone of a company’s governance framework.
A detailed framework under the Companies Act, 2013 has been prescribed which governs the number of directors a company must have along with what powers they carry and legal duties or obligations when something goes wrong. This results into transparent and robust corporate governance of the company.
Irrespective of role you have, it may be a company founder, director, compliance professional, or law student, it’s very crucial and essential to understand the composition, powers, and legal duties of the Board of Directors.
In this blog, we shall walk you through the composition of Board of directors, their powers and legal duties under the Companies Act, 2013.
Let’s unpack it all!
Who are Board of Directors?
Generally put, the board of directors are the apex decision making body of a company. They frame strategies, oversee management, protect shareholder interest and ensure the Company comply with all the rules and regulations of all the governing laws.
Section 2(34) of the Companies Act, 2013 defines the term, director. Accordingly, a “director” means a director appointed to the Board of a company.
Specific legal duties have been prescribed for each director on the board, and they can be held personally liable and face serious legal consequences for decisions that goes against the law. This personal liability clause ensures transparent and accountable governance framework that aligns with global standards.
Composition of the Board of Directors Under Companies Act, 2013
The Companies Act, 2013 prescribes for the limits for composition of the Board of Directors. Secondly, it also prescribes for mandatory inclusion of certain categories of directors depending on the type and Share Capital of the company.
Minimum and Maximum Number of Directors
| Type of Company | Minimum Number of Directors | Maximum Number of Directors |
| Private Company | 2 Directors | The maximum number of directors allowed is 15, which can be increased by passing special resolution in a general meeting. |
| Public Company | 3 Directors | |
| One Person Company | 1 Director |
Types of Directors under the Companies Act, 2013
| S. No. | Type of Director | Explanation |
| 1 | Independent Director | Independent Director is non-executive director who have no material relationship with the company. They are governed by Section 149(6) of the Companies Act, 2013. |
| 2 | Woman Director | Proviso to sub-section (1) of Section 149 of the Companies Act, 2013 lays down the requirement of Woman Director. Also read our detailed article on Woman Director. |
| 3 | Managing Director, Whole-Time Director, and Manager | These are key managerial personnel (KMP) entrusted with substantial powers of management. Managing Director exercises substantial management powersWhole-Time Director is employed full-time by the companyManager is entitled to manage the whole or substantially the whole affairs of the company A company cannot appoint both an MD and a Manager simultaneously. |
| 4 | Nominee Directors | Nominee directors are appointed by: Financial institutionsBanksGovernment bodies to safeguard their interests in the company, especially where financial assistance is involved. Also read our Detailed Article on Nominee Director |
| 5 | Additional Director | An Additional director is appointed by Board of directors and holds a temporary position on company’s Board of directors to fulfil immediate business needs. They hold office with the same powers and responsibilities as a regular director, but only until the company’s next Annual General Meeting (AGM), where their appointment must be regularized by the shareholders. |
| 6 | Alternate Director | An Alternate Director is a proxy appointed by the Board to act in the place of an existing director when they are absent for an extended period (typically three months or more). They hold the same powers, duties, and responsibilities as a regular director, but their tenure automatically ends as soon as the original director returns. |
Appointment of Board of Directors
Generally put, Directors are appointed by shareholder in a General Meeting of the company. There is an exception to this rule where under Section 161 directors are appointed by Board of Directors in a board meeting. Additional Director, Alternate Director, Nominee Director and Directors appointed to fill casual vacancy are appointed by Board of Directors.
Every proposed director shall submit the copy of Form DIR-8, i.e., the Consent to act as director and shall hold a Valid Director Identification Number (DIN).
If the proposed director does not hold a Valid DIN, DIN shall be applied in Form DIR-3 and once DIN is received, the appointment of Director is filed in Form DIR-12 with the ROC on MCA Portal.
In case of public companies, at least two third of the directors of the company are liable for rotation, i.e., they vacate their office and seek re-election periodically.
Powers of Board of Directors
Section 179 of the Companies Act, 2013 and Articles of Association of the Company governs the powers of the Board of Directors.
There are few powers which can be exercised by passing a Valid board resolution at Board meeting and there are certain restrictions conferred by Section 180 of the Companies Act, 2013. The transactions mentioned in section 180 requires approval of Shareholders via Special Resolution.
| S.No. | Sections | Powers | Details |
| 1 | Section 179(3) of the Companies Act, 2013 | Powers exercisable by passing a Board Resolution at a meeting | Making calls on unpaid share capital.Authorizing the buyback of securities.Issuing securities, including debentures.Borrowing moneys (subject to Section 180 limits).Investing the company’s funds.Granting loans or giving guarantees or security.Approving financial statements and board reports.Diversifying the business of the company.Approving amalgamation, merger, or reconstruction.Taking over a company or acquiring a controlling stake. |
| 2 | Section 180 of the Companies Act, 2013 | Restrictions on the Powers of the Board. | Sell, lease, or dispose of the whole or substantially the whole of the company’s undertaking.Invest the compensation received from any merger or amalgamation in securities (other than trust securities).Borrow money that exceeds the aggregate of the company’s paid-up share capital, free reserves, and securities premium.Remit or give time for the repayment of any debt due from a director. |
Legal duties of Board of Directors under Companies Act, 2013
Section 166 of the Companies Act, 2013 lays down the legal duties of directors. Let’s unpack all of them!
| S.No. | Legal Duty | Description |
| 1 | Duty to Act in Good Faith | Directors must act: In good faithIn the best interests of the companyFor the benefit of its members, employees, shareholders and the community |
| 2 | Duty of Care, Skill and Diligence | Directors are expected to: Exercise reasonable care and diligenceApply their skills and expertise effectivelyParticipate actively in board meetings |
| 3 | Duty to Avoid Conflict of Interest | They must: Disclose any direct or indirect interest in contractsAbstain from discussions and voting where conflicts exist |
| 4 | Duty Not to Achieve Undue Gain | Directors must not: Make secret profitsGain personal benefit at the company’s expenseMisuse company property or information |
| 5 | Duty Not to Assign Office | A director cannot assign their office to another person. If such assignment is made, such assignment shall be void-ab-initio. |
| 6 | Civil Liability | Directors may be held liable for: Misstatements in prospectusBreach of fiduciary dutiesNegligence resulting in company losses |
| 7 | Criminal Liability | If directors are involved in cases like: FraudOppression and mismanagementFalse statements or suppression of facts directors can face fines and imprisonment as well depending on the severity of the offence. |
Conclusion: Board of Directors
Companies Act, 2013 considers a board of directors as powerful, accountable and legally responsible authority for decision making. They are the architects that shapes the future of the company.
Understanding composition of Board of directors, their powers along with the legal duties they are assigned through the Companies Act, 2013 is not just crucial but a necessity for every director, founder, entrepreneurs and young Professionals. Constituting a well-structured, transparent and ethical Board creates a major difference between sustainable growth and corporate failure.
At My Legal Business LLP, we help founders, directors and entrepreneurs to understand the legal complexities of incorporating a company along with the understanding of legal powers and duties the law confers upon them.
Contact us today for consulting on legal complexities before you decide to incorporate a company.
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