Directors: formula sheet

Key formulas

Minimum number of directors

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

Section 149(1)(a). Check the type of company first.

Maximum number of directors

15, but more than 15 is allowed after passing a special resolution

Section 149(1)(b) and first proviso. A special resolution needs a three-fourths majority of votes cast.

Woman director

At least one woman director in such class or classes of companies as may be prescribed

Second proviso to section 149(1). The class is set by the rules, so say 'prescribed class' in your answer.

Resident director

At least one director who stays in India for not less than 182 days in the financial year

Section 149(3). For a newly incorporated company, it applies proportionately at the end of the financial year of incorporation.

Independent directors in a listed public company

At least one-third of total directors; any fraction is rounded off as one

Section 149(4) and its Explanation. Example: 7 directors gives 2.33, which rounds to 3 independent directors.

Limit on directorships

Maximum 20 companies in all, of which public companies maximum 10

Section 165(1). Alternate directorships count. Dormant company directorships are not counted in the limit of twenty. Private companies that are holding or subsidiary of a public company count towards the limit of ten.

Penalty for breaching the directorship limit

₹2,000 per day after the first day, maximum ₹2,00,000

Section 165(6). It applies to a person who accepts an appointment in violation of the section.

Nominee director meaning

Nominated by a financial institution under law or agreement, or appointed by a Government or any other person, to represent its interests

Explanation to section 149.

Additional director: source of power and term

Articles authorise Board → appointment at any time → office till the earlier of next AGM or last date the AGM should have been held

A person who failed to get appointed as a director in a general meeting cannot be appointed as an additional director.

Alternate director: trigger and limits

Director absent from India for a period of not less than 3 months → Board appoints alternate, if articles or a general meeting resolution authorise

The alternate must not be an alternate for another director in the company and must not already be a director of the same company. For an independent director, the alternate must qualify as an independent director.

Alternate director: end of office

Vacates office when the original director returns to India; term never longer than the original director's

If the original director's term ends before he returns, automatic re-appointment provisions apply to the original director, not the alternate.

Nominee director

Board appoints a person nominated by an institution (under law or agreement) or by the Government (shareholding in a Government company), subject to the articles

The nominating party chooses the person. The Board gives effect to the nomination.

Casual vacancy

Vacancy in office of a director appointed in general meeting, before term ends → Board fills at a Board meeting → members approve at the immediate next general meeting

The new director holds office only up to the date the replaced director would have held it.

Who is an independent director (s.149(6))

Not MD / WTD / nominee director + integrity and expertise (Board's opinion) + not promoter or related + no pecuniary relationship + relatives and professional-link tests satisfied

Learn it as a checklist. Each limb is a separate test, and failing any one disqualifies.

Mandatory appointment (s.149(4))

Listed public company: independent directors ≥ 1/3 of total directors; fraction rounded up to one

Example: 10 directors gives 3.33, which rounds to 4 under the Explanation. Other public companies are covered only if prescribed.

Tenure (s.149(10) and (11))

Term up to 5 consecutive years; reappointment by special resolution for a second term; maximum 2 consecutive terms; 3-year gap before returning

During the 3 years the person cannot be appointed in or associated with the company in any other capacity, directly or indirectly.

Declaration (s.149(7))

At first Board meeting attended, then first Board meeting of every financial year, and on any change in circumstances

The declaration states that the director meets the independence criteria.

Remuneration (s.149(9))

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

If profits are absent or inadequate, remuneration follows Schedule V, in addition to sitting fees.

Liability (s.149(12))

Liable only if the act occurred with his knowledge (through Board processes) and with his consent or connivance, or he did not act diligently

Same protection applies to non-executive directors who are not promoters or KMP.

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

3 or more non-executive directors; at least one-half independent; chairperson of the company may be a member but not chair

Applies to every listed public company and prescribed classes.

DIN requirement

No appointment without DIN (S.152(3)); DIN and non-disqualification declaration furnished (S.152(4))

Consent to act must be filed with the Registrar within 30 days of appointment (S.152(5)).

Conviction disqualification

Imprisonment ≥ 6 months → disqualified until 5 years after expiry of sentence; imprisonment ≥ 7 years → ineligible in any company

Section 164(1)(d) and its proviso. The six-month test is on the sentence, not the period actually served.

Unpaid calls

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

Section 164(1)(f). Applies to shares held alone or jointly.

Section 188 offence

Convicted under S.188 in last 5 years → disqualified

Section 164(1)(g).

Company default disqualification

Financial statements or annual returns not filed for 3 continuous financial years, or deposit, debenture or dividend default for ≥ 1 year → 5 years' bar

Section 164(2). Bar runs from the date of the company's failure. Six-month grace for a person newly appointed to an already defaulting company.

Private company articles

A private company may add disqualifications in its articles (S.164(3))

This power belongs to private companies only. It is in addition to the disqualifications in Section 164(1) and (2).

Appeal or petition proviso

Disqualifications under S.164(1)(d), (e) and (g) continue to apply even if an appeal or petition is filed against the order of conviction or disqualification (proviso to S.164(3))

This proviso is not limited to private companies. Do not mix it up with the private company power to add disqualifications. For vacation of office, also check the 30-day and appeal protection in the proviso to Section 167(1).

Vacation of office

Disqualification under S.164 → office vacant (S.167(1)(a)); absence from all Board meetings in 12 months → vacant (S.167(1)(b))

For S.164(2), office is vacated in all companies other than the defaulting company.

Penalty for acting after vacancy

Fine ₹1,00,000 to ₹5,00,000 (S.167(2))

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

Removal of a director (Section 169(1))

Removal = ordinary resolution + special notice + reasonable opportunity of being heard

Applies before the term expires. Not available for a director appointed by the Tribunal under Section 242.

Independent director on second term

Removal of independent director re-appointed under Section 149(10) = special resolution + hearing

This is the first proviso to Section 169(1). A first-term independent director is removed by ordinary resolution.

Special notice (Section 169(2))

Special notice needed for: (a) the removal resolution; (b) the resolution to appoint a replacement at the same meeting

Both resolutions need special notice.

Rights of the director on removal notice (Section 169(3) and (4))

Copy of notice sent forthwith + right to be heard (member or not) + written representation circulated if time permits

If circulation fails, the director can require the representation to be read out at the meeting. The Tribunal can stop this if the right is abused for needless publicity of defamatory matter.

Filling the vacancy (Section 169(5) to (7))

Replacement at the same meeting (with special notice) holds office only for the predecessor's remaining term. Otherwise a casual vacancy.

The removed director cannot be re-appointed by the Board.

Resignation effective date (Section 168(2))

Effective date = later of (date notice is received) and (date specified in notice)

The director stays liable for offences that occurred during the tenure.

Absence ground (Section 167(1)(b))

Absent from all Board meetings held in 12 months (with or without leave) = office vacant

It is all the meetings in the period, not just some.

Conviction ground (Section 167(1)(f))

Convicted of any offence + sentenced to imprisonment of at least 6 months = office vacant

The office is not vacated for 30 days from conviction or order, and during appeal as per the provisos.

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

Fine of ₹1,00,000 to ₹5,00,000

Applies to a person who functions as director knowing the office is vacant.

Compensation (Section 169(8))

Removal does not take away compensation or damages due under the contract or terms of appointment

Removal under this section also does not limit other powers to remove a director under the Act.

General power of the Board (Section 179(1))

Board powers = all powers the company can exercise, minus what the Act, memorandum, articles or regulations reserve to the general meeting

The Board is subject to the Act, memorandum, articles and regulations made in general meeting. It cannot do what must be done in general meeting.

Powers exercised only by Board resolution at a meeting (Section 179(3))

Calls on shares; buy-back; issue of securities; borrowing; investing funds; loans, guarantee or security; approving financial statement and Board's report; diversifying business; approving amalgamation, merger or reconstruction; takeover or acquiring controlling or substantial stake; other prescribed matters

These must be exercised by resolutions passed at Board meetings, and not by any single director. Only the powers in clauses (d) to (f) can be delegated.

Delegable powers (proviso to Section 179(3))

Clauses (d) to (f): borrow money, invest funds, grant loans or give guarantee or security

Delegation is by a Board resolution passed at a meeting, to a committee, the MD, the manager or another principal officer, on specified conditions.

Special resolution needed (Section 180(1))

Sale, lease or disposal of an undertaking; investing merger or amalgamation compensation otherwise than in trust securities (the Act says: to invest otherwise in trust securities the compensation received); borrowing above paid-up capital + free reserves + securities premium; remitting a director's debt

Temporary loans from bankers in the ordinary course are outside the borrowing limit. Temporary loans are repayable on demand or within six months.

Undertaking tests (Section 180(1)(a) Explanation)

Undertaking: investment > 20% of net worth, or generates 20% of total income. Substantially the whole: 20% or more of the value of the undertaking

Net worth and value are taken from the audited balance sheet of the preceding financial year. Income is of the previous financial year.

Borrowing limit (Section 180(1)(c))

Money to be borrowed + money already borrowed > paid-up share capital + free reserves + securities premium

If this is exceeded, a special resolution is needed. It must specify the total amount up to which the Board may borrow (Section 180(2)).

Penalty for breach of duties (Section 166(7))

Fine: minimum ₹1,00,000, maximum ₹5,00,000

Under Section 166(5), a director guilty of undue gain must also pay the company an amount equal to that gain.

Overall limit (section 197(1))

Total managerial remuneration ≤ 11% of net profits

Applies to a public company, for its directors (including MD and WTD) and manager, for a financial year. Net profits are computed under section 198, and directors' remuneration is not deducted from gross profits for this purpose. The company in general meeting may authorise more, subject to Schedule V.

Limit for MD, WTD or manager

One such person ≤ 5% of net profits; more than one ≤ 10% of net profits together

Exceeding these needs a special resolution of the company in general meeting.

Limit for other directors

Non-executive directors ≤ 1% of net profits if there is an MD, WTD or manager; ≤ 3% in any other case

Exceeding these needs a special resolution. These percentages are exclusive of sitting fees under section 197(5).

Term of appointment (section 196(2))

Maximum 5 years at a time; no re-appointment earlier than 1 year before expiry

Applies to MD, WTD and manager.

Age limits (section 196(3))

At least 21 years and below 70 years

A person who has reached 70 may be appointed by a special resolution with justification in the explanatory statement.

Disqualifications (section 196(3))

Undischarged or past insolvent; suspended payment or compounded with creditors; convicted with sentence of more than 6 months

Each is a bar to appointment or continuing in the post.

Appointment procedure (section 196(4))

Board approval, then resolution at next general meeting; return to Registrar within 60 days

Central Government approval is needed only if the appointment is at variance with the conditions in Part I of Schedule V.

Refund of excess pay (section 197(9))

Refund within 2 years or lesser period allowed by company; held in trust until refunded

Waiver needs a special resolution within two years from the date the sum becomes refundable.

Penalty (section 197(15))

Person in default ₹1,00,000; company ₹5,00,000

Penalty for default in complying with the section.

Quick revision

• Section 203: listed and prescribed companies must have whole-time KMP: MD, CEO or manager (or a whole-time director in their absence), company secretary and CFO.
• Whole-time KMP are appointed by a Board resolution stating terms and conditions, including remuneration.
• A whole-time KMP cannot hold office in more than one company at the same time, except in its subsidiary; with Board permission, he may be a director of any company.
• A vacancy in a whole-time KMP office must be filled by the Board at a Board meeting within six months.
• Section 170: keep a register of directors and KMP, with their shareholding, at the registered office.
• Section 170: file a return of directors and KMP with the Registrar within thirty days of appointment and within thirty days of any change.
• Section 178: the Nomination and Remuneration Committee has 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: a Stakeholders Relationship Committee is needed where security holders exceed one thousand, and its chairperson must be a non-executive director.
• Section 102: a statement of material facts for special business must disclose the interest of directors, manager, other KMP and their relatives.
• At an AGM, business other than financial statements, dividend, appointment of retiring directors and auditors' appointment and remuneration is special business.
• Section 203(5) default: company penalty of ₹5,00,000; each director and KMP in default ₹50,000, with a further ₹1,000 per day of continuing default, capped at ₹5,00,000.

Common mistakes

• Saying a private company needs three directors. Fix: Link each number to its company type: public 3, private 2, OPC 1.
• Saying a company cannot have more than 15 directors. Fix: Always add that a company may appoint more than fifteen directors after passing a special resolution.
• Saying an alternate director can be appointed for any absence from India. Fix: Write that the absence must be for a period of not less than three months from India.
• Saying the Board can appoint as additional director a person who was rejected by members in a general meeting. Fix: State the bar: a person who fails to get appointed as a director in a general meeting cannot be appointed as additional director.
• Treating every non-executive director as independent. Fix: A non-executive director is only one who has no executive role. An independent director must also meet every test in section 149(6). All independent directors are non-executive, but not the reverse.
• Forgetting to round up the one-third requirement. Fix: The Explanation to section 149(4) says any fraction is rounded off as one. So 3.33 becomes 4.
• Saying a person is disqualified on any conviction. Fix: Disqualification needs imprisonment of not less than six months. A fine alone or a shorter sentence does not trigger Section 164(1)(d).
• Treating the five-year period as running from conviction. Fix: The five years run from the date of expiry of the sentence.
• Saying removal always needs a special resolution. Fix: Removal is by ordinary resolution. A special resolution is needed only for an independent director re-appointed for a second term.
• Forgetting special notice for the replacement appointment. Fix: Section 169(2) requires special notice for both the removal and the appointment of someone in place of the removed director at that meeting.

Exam tips

• Begin every answer with the company type. Most mark loss comes from using the wrong minimum number.
• Quote section 149(1) for numbers, 149(3) for the resident director, 149(4) for independent directors and 165 for the number of directorships.
• For the woman director rule, say 'prescribed class of companies' instead of stating a class from memory unless you are sure of it.
• In a table-style comparison such as executive versus non-executive director, write the role, involvement in management and remuneration pattern in separate points.
• End case answers with a one-line conclusion that says valid or invalid, and what the company must do.
• Cite section 161 and name the sub-section: (1) additional, (2) alternate, (3) nominee, (4) casual vacancy.
• Write the exact period for each: next AGM (or last date it should have been held), three months' absence, and remaining term.
• In fact-based questions, hunt for a trigger detail such as a failed candidate, an absence shorter than three months, or a person already an alternate. These usually decide the answer.