Board of Directors : Definition, Composition and Criteria

Who are Board of Directors (BOD)?

The Board of Directors (BOD) acts as a governing body of a company, whose members are elected by shareholders (in the case of public companies) to set the strategy, oversee management, and protect the interest of shareholders and stakeholders. Section 2(20) of the Companies Act 2013 states the meaning of a Company. This section states that “Company means the incorporation of a company by association of different persons under the laws established by the Companies Act 2013 or any other previous company act. The persons who run the company are known as Directors of the company. The term Director is defined under Section 2(34) of the Companies Act, 2013. As per the definition of the act, a director is a person who runs the day-to-day functionality of the company and the board of the company appoints the director.

Section 2(10) of the Companies Act, 2013 defines the Board of Directors of the company as the combined group of directors. They manage and oversee the functioning of all the directors and take any necessary steps if required.

Key Takeaways:

• The Board of Directors (BOD) is elected by shareholders in the case of a public company.
• The Board of Directors (BOD) makes important decisions on issues such as mergers and dividends, hires senior managers, and sets their pay.
• Every public company must have a Board of Directors.

Composition of Board of Directors

The Board of Directors plays a very critical role in the functioning of the company. These people are responsible for taking all the big steps for the company and formulating the policy upon which the company runs. The meeting of these directors is called a Board Meeting. There are different Board meetings and each has distinct importance; Annual General Meetings, General Meetings, and Special Meetings all are parts of Board Meetings.

Section 149 of the Companies Act, 2013 mandates that every incorporated company must have a Board of Directors.

• The section also specifies that in the case of a public company, a minimum of three directors and in the case of a private company a minimum of two directors is required.
• The section also specifies that in the case of a one person company only one director is required.
• At any point in time, there can be a maximum of fifteen directors in a company and if the company wants to appoint more than fifteen directors then they can pass a special resolution for the same.
• The company act also clearly establishes that there must be a director on the board who has stayed at least 182 calendar days in India in the previous year.
• An individual can become a member of a maximum of 20 companies.
• After the enactment of the Companies Act 2013, it is also mandatory to have a women director on the board of directors for a company.

Criterias under LODR for Listed Companies

The Board of Directors combination slightly changes the Listing Obligations and Disclosure Requirements for listed companies.

• In the case of a listed company, the Board of Directors must have a combination of executive and non-executive directors and at least one woman director.
• As per the Companies Act 2013, the percentage of non-executive directors in a listed company is at least 50% of the board.
• The executive director in a company generally represents the senior management of the company and holds the top position in the company.
• While the non-executive director generally does not have any management responsibility. They ensure the safeguard of the company and perform day-to-day tasks.
• In the case of a listed company when the chairman of the board is a non-executive director then one-third of the board must comprise independent directors.
• In the case where the chairman of the board is an executive director, then a minimum of half of the board must comprise independent directors.

Committees under the Board of Directors

There are various committees under the Board of Directors, some of them are as follows.

1. Audit Committee

• Section 177 of the Companies Act, 2013 explains the function and need for an audit committee in a listed company. It is essential according to the Companies Act, 2013 that every listed company and a set of companies must have an audit committee.
• The act specifies that the committee must contain a minimum of 3 members.
• An independent director shall be the chairman of the audit committee.
• The total number of independent directors must be equal to or more than two-thirds of the total directors in the committee.
• The act also specifies that at least one of the members should be well versed in the field of audit and finance and all the members should have some knowledge of finance.

2. Nomination and Remuneration Committee

• Section 178 of the Companies Act, 2013 explains the function and need for a Nomination and Remuneration Committee in a listed company.
• As per this section, this committee shall have a minimum of three directors.
• The number of directors must be equal to or more than 50% of the total number of members.
• The director of this committee shall be an independent director.

3. Stakeholders Relationship Committee

• This committee is mainly responsible for resolving any grievances that the security holders of the company might have.
• In a listed company the role of security holders is very important and because of that this committee is created.
• This committee looks into various aspects of the interests of the shareholders and their well-being.
• They resolve any issues present while ensuring to maintain a good relationship between the shareholders and the company.
• As per the act, a non-executive director is the chairperson of this committee.

4. Corporate Social Responsibility Committee

• Every company that comes under the purview of the CSR provision of the Companies Act 2013 must constitute a Corporate Social Responsibility Committee in their company.
• The number of directors in this committee must be equal to or more than three and it must consist of one independent director.
• In case any private company has only two directors and it falls under the CSR purview of the act then it can make its CSR committee with two directors.

Conclusion

The Board of Directors is an essential organ of any company. All the major decisions regarding the company are taken by the Board of Directors. They are responsible for building an organizational setup that follows the articles of the company and it is their responsibility to make the members follow the articles of the company. They can also take action if any person is not following the articles of the company. They always act in the best interest of the company.

Board of Directors- FAQs

What is the maximum number of Directors in a company?

The maximum number of Directors in a company is 15 but the company has the power to increase the number of directors by passing a special resolution.

Which section of the Companies Act 2013 defines “Director”?

The term Director is defined under section 2(34) of the Companies Act, 2013.

Which section of the Companies Act 2013 defines “Board of Directors”?

Section 2(10) of the Companies Act 2013 defines the Board of Directors of the company as the combined group of directors.

What is the meaning of CSR in the Companies Act, 2013?

The meaning of CSR is Corporate Social Responsibility and it is governed by Section 135 of the act. Under this section, it is mentioned that if any company falls under the ambit of section 135 then the company must do CSR activity.

Can a company run without a Board of Directors?

No, as per the Companies Act, 2013 a company cannot run without their Board of Directors. 

Reference:

• Ministry of Corporate Affairs
• Department of Public Enterprises

Note: The information provided is sourced from various websites and collected data; if discrepancies are identified, kindly reach out to us through comments for prompt correction.