Tag Archives: Director

Director employed elsewhere


A director may be an employee in any organisation and may draw a salary from that other organisation. However, there may be two different situations –

  1. Director is actually an employee of that other organization and nominated by that organisation as a director in this company by virtue of an agreement;
  2. Director is a promoter director of a company but due to some reason join another organisation under a contract of employment. His employer may or may not have knowledge of his directorship in any company.

Indian law does not prohibit outside employment by a director of a company outside its own company. The prospective employer will take a call whether one of its employees should continue to be a director in its own private company.

The prospective employer will pay the employee for his 100% quality working time and 100% quality services. Where prospective employer feels, the employees should not have any other responsibilities except that of employment and of personal life, it may ask the employee to resign from other responsibilities.

The underlying question shall always remain, will that employee be able to honestly devote his time and efforts for its prospective paymaster, the employer.

According to Section 166 of the Companies Act, 2013, a director has certain duties towards the company.

DUTIES OF DIRECTORS (SECTION 166):

  1. A director of a company shall act in accordance with the articles of the company.
  2. A director of a company shall act in good faith to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of the environment.
  3. A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
  4. A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
  5. A director of a company shall not make or attempt to make any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
  6. A director of a company shall not assign his office and any assignment so made shall be void.

If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Where a director took employment outside the company, he needs to be careful in the performance of his duties towards the company. He needs to answer the following question to himself:

a. can he exercise his independent judgement in the decision making the process of the company?

b. is there any conflict of interest?

If yes, I do not find any restriction on his gainful employment.

However, a company may by way of Articles of Association restrict its directors from outside employment.

However, one should not sail in two boats unless both boats are compatible.

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Election of Directors – Companies limited by Guarantee without Share Capital


I received this interesting question on Quora and replied here. Other replies to the answer prompt me to post a short write up here on my blog. It seems it is a quite confusing and lesser explored area of most of us. We all students of corporate law at least once wonder about it and sometimes continue to do so.

The base question is – “How to decide voting rights of members in a guarantee company not having share capital?”

Here, before coming to the main question, it is prudent to discuss briefly the concept of the member under the Companies Act, 2013. Most of us use the terms members and shareholders as interchangeable. It is not so. All shareholders are generally members, but all members are not shareholders. When we say so, we usually think about shareholders pending registration of transfer or transmission. We miss 50% of the theoretical portion of the subject – Company limited by guarantee.

According to clause (55) of Section 2 the “member”, in relation to a company, means—

(i) the subscriber to the memorandum of the company who shall be deemed to have agreed to become a member of the company, and on its registration, shall be entered as a member in its register of members;

(ii) every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company; and

(iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository.

Membership of a company may or may not be in the form of shareholding. Membership is transferable. In the case of a company limited by shares, a member may transfer his membership by transfer of share. In the case of a company limited by guarantee, a member may transfer his membership by just transferring membership. If a reader is confused about such transfer of share, he may just discuss himself about a transfer of shares not fully paid.

As I mentioned some of my earlier answers on the Quora and on my blog, a company limited by shares and a company limited by guarantee have no practical difference except one. A reader may look into the definition given here as the footnote[1].

May you for a moment consider a company having a share capital with all members decided to pay only at the time of liquidation or winding up. It is akin to a guarantee company. A company with uncalled unpaid shares has no practical difference with a guarantee company. ( see footnote [2])

The voting rights in a guarantee company may be decided on the basis of the ratio of guarantee or say the amount of percentage of guarantee given by a member against total guarantee given to the company by all member combine.

A, B, C and D may form a guarantee company by a promising guarantee of Re.5,000/, Rs. 15,000/-, Rs. 12,000 and Rs 8,000/-respectively. They may have respectively 5, 15, 12 and 8 votes in the General Meeting of the company.

Now, you may understand how to elect directors in general meeting other than first directors.

All practical provisions related to appointment of directors and passing any resolution shall remain the same.

Note -To my understanding, there will not be any differential voting rights in the guarantee company. Readers may also discuss the same.

[1] Two other important definitions in this regards are as under

(21) “company limited by guarantee” means a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.

(22) “company limited by shares” means a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.

[2] It is a secondary thing that present law requires receiving of money shares subscribed in the memorandum of association by the promoters.

Chairman, Managing Director, CEO, Proprietor – the Difference


Difference between various business positions is quite confusing for the general public. Here, we will discuss, what is the difference between a chairman, a managing director, a CEO, and a proprietor?

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Qualification of Independent Director


The qualification of independent director is among few provisions where the Companies Act, 2013 become stringent after amendments. The Companies Amendment Act, 2017 read with Notification S.O. 1833(E) dated 7th May 2018 amended sub-section (6) of 149.

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Designation and Category of Directors


When an applicant files a form for incorporation of a company, we need to select the designation and category of first directors in incorporation Form 32 (popularly called Spice) or wherever company appoints a director. There are four different categories of directors. We will discuss confusion regarding these categories of directors.

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Directorship within limit


Ministry of Corporate Affairs issued an advertisement (a Public Notice) in newspapers asking all directors to bring down number of their directorship to the permissible limit as prescribed under Section 165 of the Companies Act, 2013.

“All such individual who are holding directorship in more than, the limit of number of companies prescribed per the aforesaid mentioned provisions of the Act, are hereby notified to bring down the number of their directorship to / below the permissible limits as also prefer compounding application before the competent authority in terms of Section 621A of the Companies Act, 1956 within 30 days hereof and get the offence compounded. In case of non – compliance with the above directions, the jurisdictional ROC will initiate prosecution without further individual notices to them.”

In this blog post, we will discuss this Public Notice and applicable provisions.

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BASIC INFORMATION FOR INVESTORS


Recently, this blog received request form small promoters and investors asking information to receive information about company. Individual investors express fear about own investment in own companies.

Though, I suggest them to get professional help from local company secretary or chartered accountant, if company secretary is not available in their locality. But a simple, Do It Yourself (DIY) may help them.
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