Board of Directors Definition
The board of directors is those elected people in the organization whose responsibility is to take the strategic decision for running the organization whether it’s for the profitable cause or Nonprofit organization. The board of directors is the whole sole responsibility for the management of the enterprises. Board of Directors (BOD) also referred to as Board of the company, Trustee of the company. It can also be said that directors are the real brain of the company.
A person on the board of directors can be a director or the officer in the company.
Structure of the Board of Director
- Chairman: Chairman is the top of all board of director, He can be executive as well as non-executive person. He is responsible for the overall business of the business.
- Managing Director: Managing director is appointed by the board of director basically by the executive directors for looking at the performance of the executive directors, Look for the business hygiene and provide insights, guidance to them.
- Executive Director: They are the real directors of the company who are managing the different area of the company and take the strategic decision, getting salary drawn from the company
- Non-Executive Director: Non-executive directors are basically appointed to have a different view or opinion besides executive directorship.
Roles & Responsibilities of the Board of Director
#1 – Responsibilities of the Board of Director
- Set out the rules, Governance, Policies, the strategy of the company
- To make the annual budgets including cash, Sales target, Expense approval for the forthcoming year.
- Responsible for the organization performance
- Responsible for the compensation arrangement of the top officials
- To elect the CEO of the company by casting their votes
#2 – Roles of Board of director
- They have to establish the vision of the company.
- Ensure that companies are implementing the strategies as desired by them.
- Doing the SWOT analysis of the organization in a timely manner.
- To check that internal control are effective at the organization level.
- Communicate with the higher management of the companies.
- To maintain official relations with the relevant stakeholders.
- To work with the best interest of the shareholders.
Important Points Related to Board of Directors
Some of the important points related to directors of the board are as follows –
#1 – Type of Directorship
Executive and Non-Executive Directors
In a literal sense, there is no difference between executive and non-executive directors but difference arises in the way that the executive director has more knowledge of the company while the non-executive director has knowledge of outside companies as well so can make a better decision and provide logical and competitive insights.
#2 – Board Meeting
Board members are required to arrange a board meeting at the defined intervals. As per the UK companies act, Board of directors need not to hold a specific meeting in a year but should require for the healthy decisions board meeting should be help as per the requirement so it’s generally said that least 4 board meeting during the year to discuss the performance, declaration of dividend, adoption of books of accounts, directors performance, appointment of directors, compensation reviews.
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#3 – Directors Remuneration
Director’s compensation is decided by the board of the company. If the company is listed on the exchange then compensation of the directors will be fixed by the remuneration committee which will follow the transparent and clear rules for deciding the compensation that needs to be paid to the BOD. They will not directly or indirectly involve in this decision making.
In the annual account of the company, it is a compulsory requirement to disclose the amount paid to the directors during the period with a detailed sheet showing individual records.
#4 – Maximum & Minimum No of Directors
A public company needs to have at least 3 directors and if the company is private then they need to have at least 2 directors.
One Director Company: Startup or a one-person company (OPC) is allowed to have only a single director to be appointed and at the same time director can be the shareholder of the same company and also be the whole sole person of the business who is running that business.
A public company can appoint a maximum of fifteen directors but can appoint even more than that bypassing the special shareholder resolution.
#5 – Maximum no. of Directorship
This is about the company can have minimum and maximum no. of director, but a director can be appointed as a director in how many companies at the same time?
A person can be a director not more than 20 companies at the same time. So if the person was a director in more than 20 companies then he has to select those companies in which he wanted to remain as a director within the prescribed limit and terminate its directorship in other companies and also intimate his choice to all the companies.
Where Directorship is not Allowed?
- Directors do not have a conflict of interest while working for the company
- They should not engage with the person in known while working on behalf of the company
- They should not use the company assets for their self-disposal
- They should follow the confidentiality rules of the company
- Avoid Trading on the shares of the company as it may be a case of insider trading i.e. trading on the basis of material unpublished information.
Disqualification of Directors
- If a person is of age less than 16 years then he can’t apply for the directorship in the company
- The bankrupt person that is not properly discharged also can not apply
- A person who is from the firm of auditor
- Directors should avoid the financial transaction with the company
- Directors should not have taken any loan or ask for a guarantee from the company
This has been a guide to what is a Board of Directors and its definition. Here we discuss the structure along with the roles & responsibilities of directors of the board. You can learn more from the following articles –