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Understanding 3Rs of a Director – Roles, Rights, and Responsibilities

A company is an artificial entity. It requires natural persons to make informed decisions and to carry out business activities. Directors are appointed by the shareholders of the company to represent their interests, by setting long term goals and ensuring that the policies and processes are in place, to achieve the objectives of the company. They act as trustees for the assets of the company.

Role of a Director

The primary role of a Director is to safeguard the interests of all stakeholders, and not only those of shareholders. He/she also plays the role of a watchdog, to ensure transparency in the functioning of the company, so that no frauds and wrongdoings are committed by management personnel. He/she has to perform the role of superintendence, direction and control.

Responsibilities of a Director

While a number of responsibilities of a Director are given under the Companies Act, 2013 and SEBI LODR Regulations, 2015, the overarching responsibilities include –

  • To act in good faith, in order to promote the objects of the company for the benefit of all the stakeholders.
  • To act in accordance with the Articles of the company.
  • To exercise reasonable care, skill, and diligence whilst carrying out all functions.
  • To exercise independent judgement.
  • To avoid any situation of conflict of interest.
  • To not disclose any confidential information about the company.
  • To not misuse the office of Director.
  • To attend all meetings of the Board and committee, as also the AGM.
  • To come prepared for meetings.
  • To ask for additional information, if required.

Rights of a Director

  • At the time of onboarding, a proper induction programme.
  • To receive notice and agenda papers of board/committee meetings.
  • To participate in board/committee meetings.
  • To have access to accurate, relevant and timely information for fulfilling his/her responsibilities.
  • To have access to the minutes, official documents, and financial statements of the company.
  • To have the company take a Directors and Officers (D&O) insurance policy.
  • To receive remuneration by way of sitting fee, stock options (not applicable for Independent Directors), profit linked commission, and reimbursement of expenses for participation in the Board and other meetings.
  • To receive legal advice for any matters relating to the company.

Rights of a Board, as a collective body/

While a number of rights of the Board are given under the Companies Act, 2013 and SEBI LODR Regulations, 2015, the overarching rights include –

  • To decide on Board composition, including appointment of Chairperson.
  • To finalise strategy, along with management.
  • To discuss the business of the company.
  • To decide annual operating plans and budgets.
  • To receive a compliance certificate, as well as steps taken/ planned to be taken by the company to rectify instances of non-compliances, if any.
  • To have an overview of legal matters.
  • To have exposure to risks
  • To decide the process of succession planning.

Tejal Patankar