Independent directors have remained in the limelight of the Companies Act, 2013. They are distinct from ordinary directors in the sense that the latter is involved in the day-to-day operations and management of the company while the Independent Directors acts as a non-executive director. But who are independent directors under companies act 2013 and what function do they perform? Also, is every company required to appoint independent director? Let’s dive deeper into the appointment of independent directors under Companies Act, 2013.
The Independent directors are mandatory to be appointed by the prescribed companies as per the provisions of the Companies Act, 2013. They serve as non-executive directors of the Company that help companies in improving the credibility, accountability and governing standards. They possess integrity and credibility and do not form part of the promoter or founder group of the Company. As the name suggests, they are independent from the management of the company and the company law lays down explicit guidelines for the independence of the independent directors as well.
As per the provisions of the Companies Act, 2013, the following companies are required to appointment of independent directors in the following composition:
Type of Company
Number of Independent Directors to be Appointed
Listed Public Companies
At least 1/3rd of the total number of directors should be independent directors.
Unlisted Public Companies with
At least 2 directors as independent directors.
The following are the applicability for appointing Independent Directors. However, we need to keep the following points in mind while appointing independent directors:
Following are some of the key points to remember in relation to independent directors under Companies Act, 2013:
The company act and rules made thereunder explicitly lays down the criteria for appointment of independent directors, including the criteria for independence. For instance, the independent director should be a person of integrity and possess relevant experience and expertise. He should not be the promoter of the Company, its holding, subsidiary or associate company. Further, he should not be related to any promoter(s) or director(s) of the company, its holding, subsidiary or associate company in which he has been appointed as an independent director under Companies Act, 2013. Apart from these, there are explicit provisions relating to the shareholding and guarantees given. You can consult the ASC Group for more information.
Following are some key roles and responsibilities of the independent directors:
The appointment of Independent Director under the Companies Act, 2013 ensures that there is a need for an independent watch on the operations and performance of the company. The Independent directors act as a guide and advisors to the board of directors of the company. The company law lays down strict and explicit provisions to ensure that the independence of the independent directors is maintained and they act with integrity and transparency. In case you need more information on appointment of Independent Directors, feel free to contact the ASC Group.
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