Directors are the backbone of good corporate governance. They act as trustees, making sure companies follow ethical practices and comply with laws. In today’s fast-changing business and regulatory world, the role of a Director has grown more complex. This article serves as a simple and practical guide to understand what is expected from a Director—both in law and in spirit.
Understanding the Role of a Director
As per Section 2(34) of the Companies Act, 2013, a “Director” means a person appointed to the company’s Board. Put simply, they’re responsible for making major decisions, guiding strategy, and ensuring the company meets legal obligations.
They can be:
- Executive Directors – involved in day-to-day operations.
- Non-Executive Directors – who offer guidance and oversight.
Directors must follow rules in the Companies Act, the company’s Articles of Association, and any shareholders agreements. The Board, as a whole, is responsible for managing the affairs of the company.
“Directors have the fiduciary responsibility towards all the stakeholders of the Company, including Shareholders, Employees, and all others”
Responsibilities of Directors
General Responsibilities
Basic expectations from any Director include:
- Working for the Company’s Best Interest – Ensure the company and its stakeholders are treated fairly, ethically, and sustainably
- Making Independent Decisions – Avoid being influenced by others; always act in the company’s best interest
- Assessing Risks and Controls – Check regularly that the company has good internal checks and knows its business risks
- Maintaining Confidentiality – Do not share confidential company information with outsiders.
- Encouraging Ethical and Sustainable Practices Support business practices that are good for society and the environment.
Statutory Responsibilities
General Duties:
- Financial Responsibilities:
- Maintain integrity of Financial Statements, by maintenance of proper records, internal controls;
- Usage of appropriate accounting standards, while maintaining transparency and confidentiality.
- Governance
The Directors have a fiduciary duty towards the Company and all its stakeholders, including but not limited to:
- Acting in Good Faith, in order to promote the business objects of the Company, its employees, its shareholders and all other stakeholders.
- Exercising reasonable care, skill, and diligence in performance of duties.
- Governing the Company in accordance with the Provisions of the Companies Act, 2013, Articles of Association, Shareholders’ Agreements, and any applicable laws, rules, regulations and guidelines.
- Avoidance of any conflict with the business interests of the Company, and avoiding any undue gain to himself / his relatives or related entities.
Directors’ Liability and Penalties
The Punishments / Penalties /Fines for the Directors, for failing to execute his duties under the Companies Act, 2013 are as under:
- Pecuniary Penalties: It may extend from Rs. 50,000/- (Fifty Thousand Only) to Rs. 5,00,000/- (Five Lakh Only), and may extend to three times the amount involved, on a case-to-case basis.
- Imprisonment: The Directors may also face an imprisonment from 6 months, and may extend up to 10 years, on a case-to-case basis.
- Disqualification: Further, the person may also be Disqualified from acting as Director in future.
Conclusion
Compliance is not always easy, but good practices make it manageable. Here are simple habits Directors can adopt to stay compliant:
- Set strong ethical policies and enforce discipline when needed.
- Use a compliance tracker to monitor legal deadlines.
- Create board committees to divide responsibilities effectively.
- Ensure the board includes independent and women directors as needed.
- Maintain a secure data room for statutory registers and records.
- Appoint Key Managerial Personnel (KMP) wherever required by law.
- Do proper due diligence before signing off on contracts or financials.
- Keep clear communication among directors for major decisions.
“Compliance is not always easy, but good practices make it manageable”
Disclaimer:
The content of this article is intended for informational purposes only and should not be construed as professional advice. While we strive to ensure the accuracy and reliability of the information provided, we make no warranties or representations regarding its completeness or applicability. Readers are encouraged to seek professional guidance tailored to their specific circumstances. The views and opinions expressed in the article are those of the author and do not necessarily reflect the official policy or position of our organization.
