Types of Directors

In one line

Directors are classified by how they got there and by what they do: some are elected by the members, some appointed by the Board between meetings, some sent by an institution, and some are independent of the company altogether.

In exam wording: besides ordinary directors appointed in general meeting under section 152, the Act recognises independent directors under section 149(6), a woman director under the second proviso to section 149(1), a resident director under section 149(3), a small shareholders' director under section 151, and, under section 161, an additional director, an alternate director, a nominee director and a director appointed to fill a casual vacancy.

Why the law has this at all

A Board has to do two things that pull against each other. It must be stable, so that the company is governed continuously, and it must be answerable to the members, who appoint it once a year.

Every category in this chapter is a compromise between those two.

The Board cannot wait for a general meeting when a director dies in March or when it needs another pair of hands. So sections 161(1) and 161(4) let the Board appoint, and then cut the appointee's tenure short so the members get the final say.

A director who goes abroad for six months should not leave his seat empty, but neither should he be able to install a permanent substitute. So section 161(2) allows an alternate, whose office ends the moment the original returns.

A lender or a Government that has put money in wants somebody on the Board watching it. So section 161(3) recognises the nominee director.

And the members who own very little would never elect anybody. So section 151 gives listed companies a small shareholders' director.

Some words this chapter uses

An executive director works in the company; a non-executive director does not. Whole-time director is defined in section 2(94) as a director in the whole-time employment of the company. Managing director is defined in section 2(54). A casual vacancy is one arising before a term expires in the normal course. Proportional representation is a voting system giving minorities seats in proportion to their votes. Small shareholders are defined in the Explanation to section 151.

The broad classification

Before the statutory categories, the practical one, which an answer should give first.

By involvement. An executive director is in the whole-time employment of the company: the managing director under section 2(54) and the whole-time director under section 2(94). A non-executive director attends the Board but does not run the business.

By independence. An independent director under section 149(6) is a non-executive director who additionally satisfies a long list of tests designed to ensure he has no material connection with the company.