Composition of Board of Directors Companies Act 2013

Narendra Kumar

14 May, 2020

A company, though a legal entity in the eyes of law, is an artificial person, existing only in contemplation of law. It has no physical existence. It has neither soul nor body of its own. As such, it cannot act in its own person. It can do so only through some human agency. The persons who are in charge of the management of the activities of a company are called directors. They are collectively known as Board of Directors or the Board. The directors are the brain of a company. They occupy a pivotal position in the structure of the company. Directors take the decision regarding the management of a company collectively in their meetings known as Board Meetings or at the meetings of their committees constituted for certain specific purposes. Let’s take a look at the composition of the board of directors companies Act, 2013.

Minimum / Maximum Number of Directors in a Company- Under Section 149

• Section 149 of the Companies Act, 2013 requires that every company shall have a minimum number of 3 directors in the case of a public company, 2 directors in the case of a private company, and 1 director in the case of a One Person Company.
• A company can appoint a maximum of 15 fifteen directors. A company may appoint more than fifteen directors after passing a special resolution in general meeting and approval of Central Government is not required.
• The maximum number of directorships, including any alternate directorship a person can hold, is 20.
• It has come with a rider that the number of directorships in public companies/ private companies that are either holding or subsidiary company of a public company shall be limited to 10.
• At least 1 director who has stayed in India for a total period of not less than 182 days in the previous calendar year shall be appointed by every company.
• At least one woman director shall be appointed in every listed company within one year from the commencement of the Act.
• Every other public company having paid up share capital of ₹ 100 crores or more or turnover of ₹ 300 crores or more as on the last date of audited financial statements, shall appoint least one woman director within one year from the implementation of the Act.
• All the listed public company would have at least 1/3 of the total number of directors as independent directors (fraction is to be rounded off to one).

Under LODR for Listed Companies

Board of Directors

• The composition of the board of directors of the listed entity shall be as follows; Board of Directors shall have an optimum combination of executive and non-executive directors with at least 1 woman director and not less than fifty percent of the board of directors shall comprise of non-executive directors.
• Where the chairperson of the board of directors is a non-executive director, at least one-third of the board of directors shall comprise of independent directors and where the listed entity does not have a regular non-executive chairperson, at least half of the board of directors shall comprise of independent directors.
• However where the non-executive chairperson is a promoter of the listed entity or is related to any promoter or person occupying management positions at the level of board of director or at one level below the Board of Directors, at least 1/2 of the board of directors of the listed entity shall consist of Independent Directors (ID).

Audit Committee

• All the listed entity shall constitute an independent audit committee according to the terms of reference but subject to the following:
• The audit committee shall consist of a minimum of 3 directors as members.
• Two-thirds of the members of the audit committee shall be independent directors.
• At least one member shall have accounting or related financial management expertise and all members of the audit committee shall be financially literate.
• Independent director shall be the chairperson of the audit committee and he shall be present at AGM to answer shareholder queries.
• The Company Secretary shall act as the secretary to the audit committee.
• Finance director or head of the finance function shall be invited at the discretion of the audit committee, head of internal audit and a representative of the statutory auditor and any other executives to be present at the committee meetings provided such that occasionally the audit committee may meet without the presence of any executives of the listed company.

Nomination and Remuneration Committee

The board of directors shall constitute the nomination and remuneration committee as follows:

• The committee shall comprise of at least three directors
• All directors of the committee have to be non-executive directors
• Not less than 50% of the directors shall be independent directors.
• An independent director shall be the Chairperson of the nomination and remuneration committee: Provided that the chairperson of the listed entity, whether executive or non-executive, may be appointed as a member of the Nomination and Remuneration Committee and shall not be the Chairperson of that Committee.

Stakeholders Relationship Committee

• To specifically look into the mechanism of Redressal of grievances of shareholders, debenture holders and other security holders the listed entity shall constitute a Stakeholders Relationship Committee.
• The chairperson of this committee shall be a non-executive director.

Risk Management Committee

• The board of directors shall constitute a Risk Management Committee.
• The majority of members of the Risk Management Committee shall consist of members of the board of directors.
• The Chairperson of the Risk management committee shall be a member of the board of directors and senior executives of the listed entity may be members of the committee.