Board of Directors and Key Managerial Personnel: formula sheet

Key formulas

Minimum number of directors

Public company: 3 | Private company: 2 | One Person Company: 1

These are minimums. Check the company type first in every question.

Maximum number of directors

15, or more with a special resolution

The limit is on the total board, counting all categories.

Resident director

At least one director who stayed in India for not less than 182 days in the previous calendar year

Applies to every company. A newly incorporated company applies the test proportionately.

Woman director

Listed companies, and public companies above the prescribed paid-up capital (₹100 crore) or turnover (₹300 crore) limits: at least one woman director

The limits come from the rules. If the woman director's seat falls vacant, it must be filled at the next board meeting or within three months, whichever is later.

Independent directors

Listed public company: at least one-third of the total directors. Prescribed unlisted public companies: at least two

Prescribed means paid-up capital of ₹10 crore or more, turnover of ₹100 crore or more, or total outstanding loans, debentures and deposits above ₹50 crore. Any fraction in the one-third is rounded up to one.

Additional director's term

Holds office up to the next AGM or the last date on which the AGM should have been held, whichever is earlier

Section 161(1). Barred if he failed to get appointed in a general meeting.

Alternate director

Director absent from India for a period of not less than 3 months

Section 161(2). He vacates office when the original director returns to India. He cannot hold office longer than the original director could.

Casual vacancy

Board fills the vacancy at a Board meeting; members approve it in the immediate next general meeting

Section 161(4). The new person holds office only up to the date the original director would have held it.

Small shareholders' director

Listed company: one director, on notice from 1,000 small shareholders or one-tenth of all small shareholders, whichever is less

A small shareholder holds shares of nominal value not more than ₹20,000.

Appointment authority

Director appointed by the company in general meeting (Section 152(2))

Save as otherwise expressly provided in the Act.

DIN condition

No DIN (Section 154) or prescribed number (Section 153) → no appointment (Section 152(3))

The person must also furnish the DIN and a declaration of non-disqualification (Section 152(4)).

Consent

Consent to act; filed with Registrar within 30 days of appointment (Section 152(5))

Until consent is given, he must not act as director.

Criminal conviction (Section 164(1)(d))

Imprisonment ≥ 6 months → disqualified until 5 years pass from expiry of sentence; proviso: imprisonment ≥ 7 years → not eligible to be appointed as a director in any company (the proviso mentions no five-year period)

Applies whether or not the offence involves moral turpitude.

Unpaid calls (Section 164(1)(f))

Calls unpaid and 6 months elapsed from last day fixed for payment → disqualified

Applies to shares of that company held alone or jointly.

Section 188 conviction (Section 164(1)(g))

Convicted for related party transactions offence in the last 5 years → disqualified

Counted as the preceding five years.

Default by company (Section 164(2))

Company fails for 3 continuous financial years to file financial statements or annual returns, or deposits, debentures or declared dividend remain unpaid for 1 year or more → director ineligible for 5 years

Ineligible for re-appointment in that company and appointment in other companies. A person newly appointed to a defaulting company does not incur it for 6 months.

Rotation (Section 152(6))

At least 2/3 of total directors (excluding independent directors) liable to retire by rotation; 1/3 of these retire at each AGM

If the number is neither three nor a multiple of three, take the number nearest to one-third.

Penalty for acting after vacation (Section 167(2))

Fine of ₹1,00,000 to ₹5,00,000

Applies if he functions as director knowing the office has become vacant.

Board size

Minimum 3 directors (public), 2 (private), 1 (One Person Company); maximum 15 unless a special resolution is passed

Section 149(1). Listed company independent directors are counted on this total.

Listed public company proportion

Independent directors ≥ ⅓ × total directors (any fraction rounded up to 1)

Section 149(4). Example: 7 directors gives 2.33, so 3 independent directors.

Term of office

Up to 5 consecutive years per term; maximum 2 consecutive terms

Section 149(10) and (11). Reappointment needs a special resolution.

Cooling-off

Gap of 3 years after two terms before appointment again

Section 149(11). No other association with the company during the gap, directly or indirectly.

Declaration of independence

First Board meeting attended, first meeting of each financial year, and on any change in circumstances

Section 149(7).

Voting power test

Independent director with relatives must not hold 2% or more of total voting power

Section 149(6)(e)(iii). Relatives' securities are also tested under clause (d).

Remuneration

No stock options; sitting fees, expense reimbursement and profit-related commission approved by members

Section 149(9). With no or inadequate profits, pay follows Schedule V.

Liability

Liable only for acts that occurred with knowledge attributable through Board processes, and with consent or connivance, or where he did not act diligently

Section 149(12). Also covers non-executive directors who are not promoters or KMP.

Removal resolution (Section 169)

Ordinary resolution + special notice + reasonable opportunity of being heard

Not available for a director appointed by the Tribunal under Section 242. A second-term independent director needs a special resolution.

Vacation for absence (Section 167(1)(b))

Absent from ALL Board meetings held during 12 months → office vacant

Applies with or without leave of absence. Absence from only some meetings does not vacate the office.

Vacation on conviction (Section 167(1)(f))

Convicted of any offence + imprisonment of not less than 6 months → office vacant

Moral turpitude is not required. The office is not vacated for 30 days from conviction, and if an appeal is filed within that time, until 7 days after it is disposed of. A further appeal filed within those 7 days extends this until it is disposed of.

Effective date of resignation (Section 168(2))

Later of (date notice received by company, date stated in notice)

A resigned director stays liable for offences during his tenure.

Casual vacancy after removal (Section 169(5)-(7))

Successor holds office for the predecessor's remaining term; the removed director cannot be re-appointed by the Board

Filling the vacancy at the same meeting needs special notice of the intended appointment.

Penalty for acting after vacation (Section 167(2))

Fine of ₹1,00,000 to ₹5,00,000

Applies to a person who functions as director knowing that the office has become vacant on account of disqualification under Section 167(1).

Section 179(1): general power

Board powers = all powers the company can exercise − powers reserved for the general meeting

Subject to the Act, memorandum, articles and valid regulations made in general meeting.

Section 179(3): powers by Board resolution at a meeting

Calls; buy-back; issue of securities; borrowing; investing; loans/guarantee/security; financial statements and Board's report; diversification; amalgamation/merger/reconstruction; takeover or controlling/substantial stake; other prescribed matters

Delegation by a resolution at a meeting is allowed only for clauses (d) to (f): borrowing, investing, loans/guarantees/security.

Section 180(1): special resolution items

(a) sale/lease/disposal of whole or substantially whole of an undertaking; (b) investing merger compensation otherwise than in trust securities; (c) borrowing beyond limit; (d) remitting or giving time for a director's debt

All four need consent of the company by special resolution.

Undertaking and substantially the whole

Undertaking: investment > 20% of net worth (audited balance sheet of preceding year) OR generates 20% of total income of previous year. Substantially the whole: 20% or more of the undertaking's value per preceding audited balance sheet

Learn both 20% tests; they are examined often.

Borrowing limit, Section 180(1)(c)

Existing borrowings + proposed borrowing > paid-up share capital + free reserves + securities premium → special resolution needed

Temporary loans from bankers in the ordinary course are excluded: repayable on demand or within six months.

Penalty under Section 166(7)

Fine: not less than ₹1,00,000, may extend to ₹5,00,000

Under Section 166(5), undue gain must also be paid to the company.

Audit Committee composition (s.177(2))

Minimum 3 directors; independent directors form a majority

Majority of members, including the Chairperson, must be able to read and understand financial statements.

Nomination and Remuneration Committee composition (s.178(1))

3 or more non-executive directors; at least one-half independent

The chairperson of the company may be a member but cannot chair this committee.

Stakeholders Relationship Committee (s.178(5))

Needed if more than 1,000 security holders at any time in a financial year

Chairperson must be a non-executive director; other members are decided by the Board.

Register of directors and KMP (s.170(1))

Kept at registered office, including securities held in the company, holding, subsidiary, subsidiary of holding company and associate companies

Particulars are as prescribed.

Return to Registrar (s.170(2))

Within 30 days of appointment and within 30 days of any change

Applies to every director and KMP.

Penalty for contravening ss.177 and 178 (s.178(8))

Company: fine ₹1,00,000 to ₹5,00,000; officer in default: penalty of ₹1,00,000

The text as supplied is ambiguous on the officer's penalty figure; check the current text before quoting it. Failure to resolve a grievance in good faith is not a contravention.

Whole-time KMP under Section 203(1)

MD or CEO or manager (else whole-time director) + Company Secretary + CFO

Applies to companies of the prescribed class. All three posts are whole-time.

Mode of appointment, Section 203(2)

Board resolution stating terms and conditions, including remuneration

A Board resolution is needed. A general meeting is not required for these KMP posts under this sub-section.

Holding office, Section 203(3)

Whole-time KMP: one company only, except its subsidiary

A KMP may be a director of any company with Board permission. A person can be MD of one other company with conditions: Board resolution with consent of all directors present, and specific notice to all directors then in India.

Vacancy, Section 203(4)

Vacancy filled by the Board at a Board meeting within 6 months of the vacancy

The period runs from the date the office falls vacant.

Chairperson and MD/CEO, first proviso to Section 203(1)

Same person as chairperson and MD/CEO: only if articles provide otherwise or company has no multiple businesses

The second proviso exempts notified companies in multiple businesses that have appointed CEOs for each business.

Penalty, Section 203(5)

Company: ₹5,00,000. Each director and KMP in default: ₹50,000. Continuing default: ₹1,000 per day after the first, subject to a cap of ₹5,00,000

The daily penalty is a further penalty on the officer in default, capped at ₹5,00,000.

Register and return, Section 170

Register at registered office. Return to Registrar within 30 days of appointment or change

Covers directors and KMP, including securities held in the company, holding, subsidiary and associate companies.

Overall limit (public company)

Total managerial remuneration ≤ 11% of net profits (section 198 basis)

Covers directors, MD, WTD and manager. Remuneration of directors is not deducted while computing profit for this purpose. Can be exceeded by general meeting approval subject to Schedule V.

One MD / WTD / manager

≤ 5% of net profits

Without special resolution. Applies to any one such person.

More than one MD / WTD / manager

≤ 10% of net profits to all together

Without special resolution. Manager is included in the group.

Non-executive directors (MD/WTD/manager exists)

≤ 1% of net profits

Without special resolution.

Non-executive directors (no MD/WTD/manager)

≤ 3% of net profits

Without special resolution.

Sitting fees

Outside the percentage limits; fee ≤ prescribed amount

Section 197(2) and (5). Fee amount is set by the Board within the prescribed ceiling.

No or inadequate profits

Pay only as per Schedule V

Section 197(3). Applies to all directors, including non-executive and independent directors, other than sitting fees.

Excess remuneration

Refund within 2 years (or lesser period allowed by company); hold in trust until refunded

Section 197(9). Waiver of recovery needs a special resolution within two years (section 197(10)).

Penalty for default

Person ₹1,00,000; company ₹5,00,000

Section 197(15).

MD/WTD/manager appointment (section 196)

Term ≤ 5 years; age 21 to below 70; no MD and manager together

Appointment at age 70 or more needs a special resolution with justification in the explanatory statement. Re-appointment not earlier than one year before term expiry.

Quick revision

• NRC: three or more non-executive directors, at least one-half independent; the chairperson of the company may be a member but cannot chair it (section 178(1)).
• The NRC recommends the remuneration policy for directors, KMP and other employees (section 178(3)).
• The remuneration policy must balance fixed and incentive pay and be placed on the company website, if any (section 178(4)).
• The Stakeholders Relationship Committee is needed where there are more than one thousand security holders; its chairperson is a non-executive director (section 178(5)).
• The chairperson of each committee under section 178, or an authorised member, attends general meetings (section 178(7)).
• Whole-time KMP: MD or CEO or manager (or a whole-time director), company secretary and CFO (section 203(1)).
• A whole-time KMP is appointed by a Board resolution stating the terms, including remuneration (section 203(2)).
• A whole-time KMP cannot hold office in more than one company except its subsidiary, though with Board permission may be a director of any company (section 203(3)).
• A vacancy in a whole-time KMP office must be filled by the Board within six months (section 203(4)).
• The return of directors and KMP goes to the Registrar within thirty days of appointment or change (section 170(2)).
• Every company keeps a register of directors and KMP, including their securities held, at its registered office (section 170(1)).
• Section 203(5) penalty: ₹5,00,000 on the company and ₹50,000 on each defaulting director and KMP, with ₹1,000 a day for continuing default, capped at ₹5,00,000.

Common mistakes

• Appointing an alternate director for an absence of any length. Fix: The absence must be from India and for a period of not less than three months.
• Saying an additional director can serve till the end of a fixed term. Fix: His office ends at the next AGM, or the last date on which the AGM should have been held, whichever is earlier.
• Saying a person with a conviction is always disqualified. Fix: Disqualification under Section 164(1)(d) needs imprisonment of not less than six months. If the sentence is seven years or more, the proviso bars appointment in any company, and it mentions no five-year period.
• Treating an appeal as removing the disqualification. Fix: The proviso to Section 164(3) says the disqualifications in clauses (d), (e) and (g) of Section 164(1) continue to apply even if an appeal or petition is filed against the order of conviction or disqualification. Section 167 gives only limited protection from vacation of office.
• Rounding the one-third figure down, for example saying 2 for a board of 8. Fix: Any fraction is rounded off as one. 8 ÷ 3 = 2.67, so 3 independent directors are needed.
• Saying the one-third rule applies to every company. Fix: The one-third rule is for listed public companies. Other classes depend on what the Central Government prescribes.
• Saying a director's office is vacant if he misses some Board meetings. Fix: Vacation under Section 167(1)(b) needs absence from all meetings held in twelve months.
• Requiring a special resolution to remove every director. Fix: Section 169 needs an ordinary resolution. The special resolution is only for an independent director re-appointed for a second term.
• Saying the Board can delegate every Section 179(3) power to the managing director. Fix: Only clauses (d) to (f) can be delegated, and only by a resolution passed at a meeting. Buy-back, issue of securities and approving financial statements stay with the Board.
• Including temporary bank loans in the borrowing limit test. Fix: Section 180(1)(c) excludes temporary loans from bankers in the ordinary course. These are repayable on demand or within six months. Loans for capital expenditure are not temporary.

Exam tips

• In MCQs, the traps are numbers: three months for an alternate, 182 days for a resident director, fifteen as the maximum. Learn them cold.
• In case scenarios, read the company type and size first. Then decide which categories are mandatory before you read the rest.
• Always write the word whichever is earlier when you answer on additional directors, and show the two dates you are comparing.
• Do not quote section numbers you cannot recall. Sections 161(1), 161(2) and 161(4) are safe for additional, alternate and casual-vacancy directors. State the other rules in plain words.
• In a written answer, list the director types in a short table-like list of bullets with one line each on who appoints, and for how long.
• Write the section number with each ground, such as Section 164(1)(f) for unpaid calls. Examiners look for it.
• Memorise the number-period pairs: six months and five years for conviction, seven years for permanent bar, six months for unpaid calls, three years and one year for default.
• In case questions, check DIN and consent first. Many scenarios hide a missing consent filing.