Governance and compliance are two of the most significant elements within a corporate setup that would provide transparency and efficiency. Section 149 of the Companies Act 2013 lays down the base for corporate governance in terms of the composition and qualifications necessary for the Board of Directors. Not only does it specify the number of directors a company may have, but it also introduces the term of an independent director to support more ethical governance. Starting from mandates over director residency requirements to women directors, Section 149 continues supporting accountability and board diversity. To any company looking forward to maintaining synchronization with regulatory and strong governance practices, these requirements hold a crucial dimension. This article discusses the details related to Section 149 that will provide key information about the effect it creates in companies and their governance systems.

Detail Analysis of Section 149 of the Companies Act 2013

Section 149 of the Companies Act, 2013 addresses the constitution and appointment of the Board of Directors of different companies under various heads, containing some key requirements and provisions as follows:

1. Composition Requirements

• There shall be at least three directors for the public companies.

• Two directors for private companies

• OPC will have only one director.

• A company may have any number of directors but not exceeding fifteen. Companies wanting more than fifteen directors need a special resolution to be passed

• Some prescribed categories of companies are to be represented by at least one lady director.

2. Compliance Timeline

• Companies existing at the time of coming into force of this Act shall make the above composition within a period of one year.

3. Residency requirement

• At least one director of the company shall have been resident in India for a period of at least 182 days in the preceding calendar year.

4. Independent Directors

• As many as one-third of the members of the board of all companies listed on a stock exchange shall be independent directors. The Act also defines qualifications as well as roles played by independent directors to facilitate corporate governance.

• Independent directors are for a term not exceeding five years and are liable to re-appointment based on a special resolution passed by the members.

• They are not liable for retirement by rotation. Stock options are not part of their remuneration but may comprise fees, reimbursement of expenses, or profit-related commissions approved by the members.

5. Liability

• Independent directors and non-executive directors who are not promoters or key managerial personnel are liable only for acts of omission or commission by the company that occur with their knowledge, attributable through board processes, and with their consent or connivance, or where they have not acted diligently.

Other Provisions:

• The Act specifically clarifies that the provisions regarding automatic rotation of directors shall not apply to independent directors.

• With penalties imposed for violations of these rules, there is much focus on developing a strong governance framework in companies.

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In Summary,

Section 149 of the Companies Act 2013 mandates every company to have a Board of Directors, with some number, varied according to the size of the company: three in the case of a public company, two in the case of a private company, and one in the case of One Person Company. The section also emphasizes diversity by requiring at least one woman director as well as prescribing terms for independent directors to enhance unbiased decision-making. It also ensures a residency requirement such that at least one director is a resident in India for at least 182 days of any preceding year to be in keeping with the local regulations and governance norms.

FAQs on Section 149 of the Companies Act 2013

Q1. What is the minimum number of directors required by different types of companies under Section 149?

Section 149 mandates that public companies shall have at least three directors, private companies two directors, and one-person companies one director. This ensures that there is adequate governance and decision-making diversity.

Q2. Why has Section 149 prescribed the appointment of a woman director?

To enhance gender diversity on corporate boards, the inclusion of a woman director introduces varied perspectives and strengthens the corporation's decision-making process.

Q3. What are independent directors according to Section 149?

Independent directors provide unbiased judgment about the company's policy and performance, which would thereby increase transparency as well as safeguard shareholder interest from any management malpractice.

Q4. How many years may one serve as an independent director on the board of a company under Section 149?

An independent director may be appointed for a term of up to five consecutive years and shall be eligible for reappointment for another term by a special resolution. They are not allowed for reappointment before the lapse of two terms of three years.

Q5. Under what conditions does Section 149 put the residency requirement of the directors?

At least one director of every board in the company should have spent at least 182 days in India in the previous calendar year so that there is always a director on the board who knows what the local operation and regulation is.