Company Law and Practice · Members and Shareholders

Director Elected by Small Shareholders under Section 151

Updated 11 October 2026 · Fact-checked

Section 151 lets a listed company have one director elected by small shareholders, in the manner and on the terms prescribed. A small shareholder holds shares of nominal value of not more than ₹20,000, or such other sum as may be prescribed. Answer by stating the provision, applying the nominal value test, and concluding.

Understand Director Elected by Small Shareholders (Section 151)

A company is run by its board, but in a large listed company most shareholders hold only a few shares. Their voice in electing directors is weak. Section 151 gives them a route to have one director who represents their interests.

The section applies to a listed company. It says such a company may have one director elected by small shareholders. The manner of election and the terms and conditions are as prescribed in the Rules. So the Act gives the enabling power, and the detailed procedure sits in the rules.

The key term is small shareholder. The Explanation to the section defines it as a shareholder holding shares of nominal value of not more than twenty thousand rupees, or such other sum as may be prescribed. The test is on nominal (face) value, not on the market price of the shares. A person holding 1,000 shares of ₹10 face value has nominal value of ₹10,000 and qualifies, even if the market value is far higher.

Note the wording carefully. The section says a listed company may have such a director. It does not use the word "shall". Also, the section speaks of one director. Keep these three points in mind: listed company, one director, nominal value up to ₹20,000.

For procedure questions, the official text only says the election is in the manner and on the terms prescribed. State the detailed steps from the Rules only if you remember them reliably, and say clearly that they are prescribed by the Rules.

Key rules to remember

Who may have the director: Listed company → may have one director elected by small shareholders; The wording is "may", and the number is one.
Small shareholder test: Nominal value of shares held ≤ ₹20,000 (or such other sum as may be prescribed); Test on nominal value, not market value. Exactly ₹20,000 qualifies.
Nominal value of holding: Number of shares × face value per share; Use this to check whether a given holding qualifies.
Manner and terms: Election as prescribed; The Act leaves the manner, terms and conditions to the rules.

How to solve Director Elected by Small Shareholders (Section 151) questions

Use this method for any question on the director elected by small shareholders.

1Identify the company type. Section 151 applies to a listed company. If the company is unlisted, say the section does not apply.
2State the provision: a listed company may have one director elected by small shareholders, in the prescribed manner and on prescribed terms.
3Check each shareholder's holding. Compute number of shares × face value. Ignore market price.
4Compare with the limit: nominal value of not more than ₹20,000 (or such other sum as may be prescribed). Equal to ₹20,000 qualifies.
5Apply the facts: who is a small shareholder, and whether the company can have such a director.
6Add the procedural point that the manner of election and terms are as prescribed.
7Write a clear conclusion in one line.

Quickest way: Three-point check

When to use it: Use this for short-answer or case-based questions where time is limited.

Listed company? If no, Section 151 does not apply.
Holding × face value ≤ ₹20,000? If yes, small shareholder.
Write: one director, may be elected by small shareholders, as prescribed. Then conclude.

Common mistakes in Director Elected by Small Shareholders (Section 151)

Testing the small shareholder limit on market value of shares.
Students think of the value of the investment in everyday terms.
Fix: The Explanation uses nominal value of shares held. Multiply shares by face value.
Saying the section applies to every company.
Students remember the topic as a director provision and forget the condition.
Fix: Start every answer with: the section applies to a listed company.
Saying a listed company must appoint such a director.
Students assume investor protection provisions are compulsory.
Fix: The text says a listed company "may" have one such director. Use the word may.
Treating a holding of exactly ₹20,000 as outside the definition.
Students read the limit as "less than".
Fix: The words are "not more than", so ₹20,000 qualifies.
Saying small shareholders can elect several directors.
Confusion with other representation provisions.
Fix: The section provides for one director elected by small shareholders.
Quoting the detailed election procedure from memory without basis.
Students mix the Rules with the Act.
Fix: Say the manner and terms are as prescribed, and cite details from the Rules only if you are sure.

Worked examples

Example 1

Sunrise Textiles Ltd, a listed company, wants to know whether Meera, who holds 1,500 equity shares of face value ₹10 each (market price ₹400 per share), is a small shareholder under Section 151.

Show the solution

Provision: under Section 151, a small shareholder holds shares of nominal value of not more than ₹20,000, or such other sum as may be prescribed.
Compute the nominal value: 1,500 × ₹10 = ₹15,000.
The test is on nominal value, so the market price of ₹400 is irrelevant.
Compare: ₹15,000 is not more than ₹20,000.

Answer: Meera is a small shareholder. She can take part as a small shareholder in the election of the director under Section 151.

Example 2

Greenfield Agro Pvt Ltd, an unlisted company, proposes to have a director elected by its small shareholders. Advise whether Section 151 permits this, and state how many such directors a listed company may have.

Show the solution

Provision: Section 151 says a listed company may have one director elected by small shareholders, in the prescribed manner and on prescribed terms.
Facts: Greenfield Agro is unlisted, so the section does not apply to it.
The company is not barred from having directors in other ways, but it cannot rely on Section 151 for this purpose.
For a listed company, the section provides for one such director, and the word used is may, not shall.

Answer: Section 151 does not apply to Greenfield Agro Pvt Ltd because it is unlisted. A listed company may have one director elected by small shareholders, as prescribed.

Exam tips

Begin with the words: listed company, one director, prescribed manner. These three points earn the core marks.
Always show the multiplication of shares by face value in numerical questions, then compare with ₹20,000.
Write the limit as stated: nominal value of not more than ₹20,000 or such other sum as may be prescribed.
Use the word may. Do not write that the appointment is compulsory.
End the answer with a one-line conclusion citing Section 151 of the Companies Act, 2013.

Practice questions from Members and Shareholders

Director Elected by Small Shareholders (Section 151): frequently asked questions

Who is a small shareholder under Section 151?

A small shareholder is a shareholder holding shares of nominal value of not more than ₹20,000, or such other sum as may be prescribed. The test uses nominal value, not market value.

Is it compulsory for a listed company to have a small shareholders director?

The section says a listed company may have one director elected by small shareholders. It uses the word may. Answer in those words.

How many directors can small shareholders elect under Section 151?

The section provides for one director elected by small shareholders.

Does Section 151 apply to private or unlisted companies?

No. The section applies to a listed company. An unlisted company cannot use this provision.

Where is the election procedure given?

Section 151 says the election is in such manner and with such terms and conditions as may be prescribed. The details are in the rules made under the Act.