Detailed Numerical Framework

DIRECTORS Detailed Numerical Framework Companies Act, 2013 · Section-wise Reference 01 Board Strength Section 149(1) – Minimum and Maximum Director Limits Particular Number Explanation Minimum – Public Company 3 Ensures collective decision-making; avoids concentration of power Minimum – Private Company 2 Smaller governance requirement due to closely-held nature Minimum – OPC 1 Only one member exists; single director is sufficient Maximum Directors 15 Prevents board inefficiency caused by an excessively large body Special Resolution required No Central Government approval needed — important exam point More than 15 ■ Exam Note Section 149(1) prescribes minimum and maximum limits. Exceeding 15 directors requires a Special Resolution — Central Government approval is NOT required. 02 Directorship Limits Section 165 – Maximum Number of Directorships Allowed Particular Limit Explanation Maximum total directorships 20 Includes alternate directorships across all companies Max in public companies 10 Includes public companies AND private companies that are holding/subsidiary of a public company Penalty (per day of default) Rs. 2,000/day Continuous penalty for each day of non-compliance Maximum penalty cap Rs. 2,00,000 Ceiling on total penalty liability ■ Key Insight Private companies that are a holding or subsidiary of a public company are treated on par with public companies for the purpose of the 10-company limit. ■ Practice Problem A person holds directorship in: 8 public companies + 5 private subsidiaries of public companies + 7 other private companies. Public-equivalent count = 8 + 5 = 13 → EXCEEDS the limit of 10. Total count = 8 + 5 + 7 = 20 → Within total limit of 20. Verdict: VIOLATES Section 165 on the public-company count. 03 Age Limits – MD / WTD / Manager Section 196 + KMP Provisions Position / Condition Limit Explanation Minimum age for MD / WTD / Manager 21 years Below 21 — disqualified; appointment void Maximum age for MD / WTD / Manager 70 years Beyond 70 requires Special Resolution with justification Not permitted Non-compliant appointment attracts penalties Below 21 or above 70 without SR ■■ Exam Trap Appointment above 70 is NOT illegal — it is merely conditional on passing a Special Resolution with an explanatory statement. The provision is enabling, not prohibitory. 04 Residential Director Section 149(3) – Mandatory Local Presence Requirement Number / Period Explanation Stay in India (previous calendar year) 182 days Minimum days the director must have been physically present in India Minimum number of such directors At least 1 Every company must have at least one resident director ■ Purpose Ensures local accountability and that the company is subject to jurisdictional control. A director who stays < 182 days in the prior calendar year does not qualify. 05 Independent Directors (IDs) Section 149 + Schedule IV – Criteria, Tenure & Disqualification Particular Limit / Threshold Explanation Listed company – mandatory IDs 1/3rd of total board Rounded up; non-compliance leads to penalties Unlisted public – paid-up capital trigger >= Rs. 10 crore Company must appoint minimum 2 IDs if this threshold is crossed Unlisted public – turnover trigger >= Rs. 100 crore Any one of the three thresholds is sufficient to trigger requirement Unlisted public – loans/deposits trigger >= Rs. 50 crore Outstanding loans, debentures or deposits in aggregate 5 years Each term is fixed; not liable to retire by rotation 2 terms (10 years total) After two consecutive terms, mandatory break before reappointment 3 years Cannot be associated with the company in any capacity during cooling-off Shareholding limit <= 2% of paid-up capital Holding more disqualifies from being considered independent Pecuniary transaction limit <= 10% of total income Financial dealings beyond this threshold destroy independence Rs. 50 lakh Guarantees by relatives beyond this amount cause disqualification Tenure per term Maximum consecutive terms Cooling-off period after 2 terms Relative guarantee limit Particular NPO funding threshold ■ Core Concept Limit / Threshold Explanation >= 25% of total receipts NGO/NPO receiving 25%+ from the company — ID is disqualified Independence = Absence of financial influence + absence of control. Any pecuniary relationship — direct or through relatives — that crosses the prescribed thresholds is treated as a threat to independence. 06 Small Shareholder Director Section 151 – Minority Investor Protection Particular Limit / Number Explanation Shareholding limit (small shareholder) Rs. 20,000 nominal value Defines who qualifies as a 'small shareholder' 1,000 shareholders OR 10% Whichever is lower — either condition alone is sufficient Notice period before meeting 14 days Mandatory advance notice to company Tenure 3 years Fixed term; not subject to rotation Cooling-off / reappointment restriction 3 years gap Cannot be reappointed immediately after tenure ends Maximum companies served 2 companies Cannot hold SSD position in more than two companies simultaneously Same industry — invalid Appointment invalid if director serves in a competing/same-industry company Minimum demand to trigger appointment Industry restriction ■ Purpose Protects retail/minority investors who individually hold small stakes but collectively deserve representation on the board. 07 Woman Director Section 149 + Rules – Mandatory for Qualifying Companies Trigger / Condition Threshold Explanation Automatic applicability At least 1 woman director mandatory for every listed company Paid-up capital threshold >= Rs. 100 crore Unlisted public companies crossing this must comply Turnover threshold >= Rs. 300 crore Either capital or turnover threshold alone triggers the requirement Listed company (all) ■ Exam Note The requirement applies to large companies. Vacancy created by the exit of the sole woman director must be filled at the earliest and at most at the next board meeting. 08 Managing Director / Whole-Time Director Section 196 – Appointment, Tenure and Filing Particular Maximum tenure per appointment Limit Explanation 5 years Reappointment is permissible; cannot exceed 5 years per term Particular Limit Explanation 30 days Mandatory compliance; delay attracts penalty Applies (with exceptions) Generally cannot hold position in multiple companies concurrently; Central Government may permit exceptions Filing with ROC after appointment Multiple company restriction 09 Alternate Director Section 161 – Temporary Substitution During Absence Particular Minimum absence period triggering eligibility Tenure of alternate director Term cap Limit Explanation 3 months outside India Original director must be absent from India for at least 3 months Until original director returns Office automatically vacates the moment original director returns to India Cannot exceed original's term Alternate director cannot hold office beyond the original director's remaining term 10 Appointment Compliance – Time Limits Mandatory Filing & Vacancy-Filling Deadlines Compliance Action Time Limit Remark Filing DIR-12 (change in directors) 30 days From date of appointment/resignation Filing MGT-14 (resolutions) 30 days For special/ordinary resolutions passed at general meetings Small Shareholder Director (SSD) filing 30 days Within 30 days of appointment 6 months Board must fill vacancy within 6 months of occurrence Filling KMP vacancy (Company Sec / CFO / CEO) 11 Managerial Remuneration Section 197 – Profit-Based Limits (Net Profit) Category Limit (% Net Profit) Explanation Overall ceiling – all managerial persons 11% Absolute cap; no individual limit can breach this aggregate Single MD or WTD 5% Individual maximum for a single managerial person Multiple MD / WTD (combined) 10% Shared cap when two or more managerial persons are appointed Non-executive directors — with MD/WTD present 1% Lower limit due to reduced executive responsibility Non-executive directors — without MD/WTD 3% Higher limit reflecting increased responsibility in absence of MD ■ Key Rule All individual percentage limits (5%, 10%, 1%, 3%) are sub-limits WITHIN the overall 11% ceiling. They are not additive. 12 Remuneration in No-Profit / Inadequate-Profit Situations Schedule V – Effective Capital-Based Limits Effective Capital Maximum Remuneration per annum Less than Rs. 5 Crore Rs. 60 Lakhs Rs. 5 Crore – Rs. 100 Crore Rs. 84 Lakhs Rs. 100 Crore – Rs. 250 Crore Rs. 120 Lakhs Above Rs. 250 Crore ■ Concept Rs. 120 Lakhs + 0.01% of excess When a company has no profits or inadequate profits, remuneration is governed by Schedule V and is calculated on the basis of Effective Capital, not profits. 13 Key Managerial Personnel (KMP) Requirements Section 203 – Mandatory Appointment Thresholds Particular Limit Explanation Paid-up capital threshold to appoint KMP Rs. 10 Crore Companies with paid-up capital of Rs. 10 Cr+ must mandatorily have KMPs 6 months From date of vacancy; Board must fill within this period 5 years (per term) Reappointable; same 5-year cap applies to managerial persons KMP vacancy filling deadline Tenure of MD / WTD / Manager 14 Penalties – KMP Default Section 203 – Penalties for Non-Appointment / Non-Compliance Liable Party Penalty Amount Remark Rs. 5,00,000 One-time penalty for default Rs. 50,000 Individual officer's penalty Daily continuing penalty Rs. 1,000/day Accrues each day default continues after initial penalty Maximum total penalty Rs. 5,00,000 Cap on cumulative liability for the officer Company Officer in default 15 Disqualification of Directors Section 164 – Grounds and Duration of Disqualification Ground / Condition Imprisonment sentence Re-entry gap after disqualification Limit / Period Explanation >= 6 months Conviction carrying sentence of 6 months or more triggers disqualification 5 years Must wait 5 years before becoming eligible for appointment again Ground / Condition Serious criminal offence Non-payment of calls on shares Related party transaction lookback Limit / Period Explanation >= 7 years' sentence → permanent Offences with 7+ year sentences result in permanent / indefinite ban 6 months default Failure to pay calls on shares for 6 months disqualifies the director 5 years Court can look back 5 years for RPT-based disqualification proceedings 16 Proportional Representation Section 163 – Appointment by Proportional / Cumulative Voting Particular Directors appointed via proportional voting Frequency of election Limit Explanation At least 2/3rd of total Minority shareholders can ensure representation through cumulative voting Every 3 years This category of directors retires every 3 years and is re-elected ★ ULTRA MEMORY STRUCTURE STRUCTURE 3–2–1 → minimum board formation 15 → maximum directors 20–10 → directorship control limits 5 + 5 → tenure (per term + total for IDs) 3 → cooling-off period 11% → overall remuneration ceiling 5% / 10% → individual / combined MD limits 1% / 3% → PAY non-executive rates 60 – 84 – 120 → Schedule V slabs (no-profit) PROTECTION 182 days → residential director requirement Rs. 20,000 → small shareholder definition Rs. 50 lakh → relative guarantee limit 2% → shareholding cap (ID) 10% → pecuniary transaction limit (ID) Companies Act, 2013 · Director Provisions Quick Reference · For examination and professional use