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Understanding Rights, Duties and Liabilities of a Director in a Company

Ishita Ramanipro badge , Last updated: 04 June 2024  
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A company is an imaginary person, ethereal and invisible. A living being possesses both hands and a mind, which enable them to take action, making them capable of making decisions and exhibiting knowledge and intention. Conversely, a corporate entity, being an artificial individual, does not possess any of these attributes. It must thus act via a living person. The company's operations are overseen by the directors. All of the information on the duties, rights, and liabilities of directors will be included in this article.

Introduction

Specific responsibilities and duties are associated with the position of director in an OPC (one-person company), Limited Company, or Private Limited Company. Many corporate directors just see themselves as namesakes in their role, having no idea of the duties and obligations that are expected of them. All of the company's stakeholders will gain from the emergence of companies with strong and ethical boards of directors.

Concerning the companies, directors are bound by fiduciary duties. Consequently, it is incumbent upon the Director to exercise their authority in the best interests of the company or for its profit. The company's interests must also take precedence over a director's own. Thus, it would be a breach of the rights and duties of a director in a company to behave honorably and against the interests of the firm.

Understanding Rights, Duties and Liabilities of a Director in a Company

What does the term " Director" mean?

The Companies Act of 1956 defines the term director as "any person exercising the position of director, by whatever name called" in Section 2 (13) of the Act. The Articles of Association define their duties, benefits upon retirement, and compensation.

Rights and Duties of a Director In a Company

Directors need to have a vision to develop policies that will provide excellent results. It is their responsibility to set the company's goals if they want to succeed at high levels. They have to be capable of carrying out the goals of the company. The director's role and responsibilities follow. To protect both their interests and those of the company, directors have put in place several safeguards. The description of the directors' rights is given below.

Director's Individual Rights in a Company

  1. Examining the accounting records.
  2. The right to be informed of board meetings.
  3. The right to achieve a draft circular resolution.
  4. Entitled to a remuneration for sitting.
  5. Legal right to examine minutes of board meetings.
  6. He has the right to express his disapproval.
  7. Right to cast a vote and attend ballot meetings.
  8. Right to reimbursement for travel, accommodation, and other costs.
  9. The right to organize Board meetings
  10. The right to approach the board of directors for an alternate director.

Collective Rights in a Company

  1. Ability to restrict the transfer of shares
  2. The right to designate a Chairman
  3. The right to designate a Managing Director and suggest dividends
  4. Authority for granting investments.

Duties of a Director in a Company

The Company's agent is the Board of Directors. Still, the Director is required to carry out the following duties while representing the Company:

  1. Act honestly and in compliance with the articles of association of the company.
  2. To support the goals of the Company Act by acting in the best interests of the Company and its stakeholders.
  3. When performing responsibilities, please make sure to use the necessary care.
  4. Concerning independent choices,.
  5. Not to get involved in any scenario where his interests conflict with those of the companies.
  6. He can never delegate his responsibilities to any other individual.
  7. To avoid making an unjust profit or advantage.
 

Liability of a Director in a Company

Directors in a company may be held collectively or jointly liable for any actions that are harmful to the interests of the firm. Despite their independent nature, the Director may be held accountable on the Company's behalf in the following situations:

  1. According to the SEBI (Acquisition of Shares & Takeovers) Regulations, 1997 and SEBI (Prohibition of Insider Trading) Regulations, 1992, SEBI has the authority to take legal action against directors who do not provide the required disclosures.
  2. Repayment of excess share application fees or share application costs.
  3. To pay for the shares required for qualification.
  4. If a director or former director can demonstrate that the non-recovery or non-payment of taxes is the result of egregious carelessness or a duty violation, they will be responsible for paying the tax shortfall and any penalties (during the defaulter's period).
  5. Possession of civil liability for prospectus misrepresentation.
  6. Suppose a director or former director can demonstrate that the non-recovery or non-payment of taxes is the result of egregious carelessness or a duty violation. In that case, they will be responsible for paying the tax shortfall and any penalties (during the defaulter's period).
  7. The directors and the company may be held liable if the majority of shareholders engage in discriminatory conduct or "fraud on the minority." Directors should be aware of this valuable provision and make every effort to benefit from it.
  8. According to the Companies Act, a corporation must obtain insurance to shield itself from damages brought on by its directors. Additionally, a director may pay the cost of insurance to cover losses incurred as a result of the company's liability.
 

Conclusion

The company's board of directors is its lifeblood and is essential to its success. Since greater authority involves greater responsibility, company leadership needs to be in the hands of capable individuals who understand how to use power sensibly. The company is run by a board of directors, and organizational meetings are where all corporate choices are decided.

The author is an operations Director and Co-Founder of Ebizfiling India Private Limited. She has 13+ years of rich and profound experience with various corporate sectors, and has led teams of 50+ professionals. In due process, she gained vast knowledge of all the areas of Indian statutory compliance, including laws & taxation.

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Published by

Ishita Ramani
(Director - Operations)
Category Corporate Law   Report

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