Duties of Directors of Private Limited Company (Part 2)


Duties of Directors of Private Limited Company

This article is in continuation to our previous article on duties of directors of a Private Limited Company. We discussed most of the legal duties of directors of Private Limited Company in our previous article. This article contains certain moral duties as per ethical and professional conduct for a director as well.

An independent director shall:

  1. uphold ethical standards of integrity and probity,
  2. act objectively and constructively while exercising his duties;
  3. exercise his responsibilities in a bona fide manner in the interest of the company;
  4. devote sufficient time and attention to his professional obligations for informed and balanced decision making;
  5. not allow any extraneous considerations that will vitiate his exercise of objective independent judgment in the paramount interest of the company as a whole, while concurring in or dissenting from the collective judgment of the Board in its decision making;
  6. not abuse his position to the detriment of the company or its shareholders or for the purpose of gaining direct or indirect personal advantage or advantage for any associated person; (vii) refrain from any action that would lead to loss of his independence;
  7. where circumstances arise which make an independent director lose his independence, the independent director must immediately inform the Board accordingly; and
  8. assist the company in implementing the best corporate governance practices.

Role and functions of Directors of Private Limited Company

The independent directors shall:

Register a Private Limited Company in India image

  1. help in bringing an independent judgment to bear on the Board’s deliberations especially on issues of strategy, performance, risk management, resources, key appointments and standards of conduct;
  2. bring an objective view in the evaluation of the performance of board and management;
  3. scrutinize the performance of management in meeting agreed goals and objectives and monitor the reporting of performance;
  4. satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible;
  5. safeguard the interest of all stakeholders, particularly the minority shareholders;
  6. balance the conflicting interest of the stakeholders;
  7. determine appropriate levels of remuneration of executive directors, key managerial personnel and senior management and have a prime role in appointing and where necessary recommend removal of executive directors, key managerial personnel and senior management; and 
  8. moderate and arbitrate in the interest of the company as a whole, in situations of conflict between management and shareholder’s interest.

Moral Duties of Directors of Private Limited Company

 Independent directors shall:

  1. undertake appropriate induction and regularly update and refresh their skills, knowledge and familiarity with the company;
  2. seek appropriate clarification or amplification of information and, where necessary, take and follow appropriate professional advice and opinion of outside experts at the expense of the company;
  3. strive to attend all meetings of the Board of Directors and the Board committees of which he is a member;
  4. participate constructively and actively in the committees of the Board in which they are chairpersons or members.
  5. strive to attend the general meetings of the company;
  6. where they have concerns about the running of the company or a proposed action, ensure that these are addressed by the Board and, to the extent that they are not resolved, insist that their concerns are recorded in the minutes of the Board meeting;
  7. keep themselves well informed about the company and the external environment in which it operates;
  8. not to unfairly obstruct the functioning of an otherwise proper Board or committee of the Board;
  9. pay sufficient attention and ensure that adequate deliberations are held before approving related party transactions and assure themselves that the same are in the interest of the company;
  10. ascertain and ensure that the company has an adequate and functional vigil mechanism and to ensure that the interests of a person who uses such mechanism are not prejudicially affected on account of such use;
  11. report concerns about unethical behavior, actual or suspected fraud or violation of the company’s code of conduct or ethics policy;
  12. acting within his authority, assist in protecting the legitimate interests of the company, shareholders and its employees; and
  13. not disclose confidential information, including commercial secrets, technologies, advertising and sales promotion plans, unpublished price sensitive information, unless such disclosure is expressly approved by the Board or required by law.

Hope you have liked our series on duties of directors of Private Limited Company as we summarized the second part of series here. Keep following Registrations India blog for more information on Private Limited Company Registration and Regular compliance thereof. You can also share our articles or comment in the comment box below.

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Once you register a private limited company in India and get the incorporation certificate, you need to ensure that everyone in your team is accountable for the work. Most important person in a Private Limited company is the Director. Though a director can officially under take any and all tasks he wants to there are certain duties that are required to be performed by a Director as per Indian Laws. Below we will discuss the duties of directors of private limited company as per the Companies Act, 2013.

Duties of Directors of Private Limited Company

  1. Section 166 of the Companies Act 2013 provides that a director of a company (including a private company) shall act in accordance with the Articles of the company.
  2. A director of a company shall act in good faith in order to promote the objects of the company for the benefits of its members as a whole, and in the best interests of the company, its employees, the shareholders, community and for the protection of environment.
  3. A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
  4. A director of a company shall not involve in a situation in which he may have direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
  5. A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners or associates.
  6. A director of a company shall not assign his office and any assignment so made shall be void.

Register a Private Limited Company in India imageDisclosure of Interest by Directors

Amongst the various duties of directors of private limited company one important duty is mentioned in Section 184 of the Companies Act 2013 which provides for disclosure of interest by every director. He has to disclose his interest in any company, corporate body, Firm, LLP, or other association of Individuals and his share holding (exceeding the limit of 2% specified in section 184(2)in the prescribed manner.

It is also provided that he cannot participate in the meeting where any contract or arrangement is considered. The provisions of New Section 184 apply to private Companies also.

 If any director contravenes this provision he will be punishable with imprisonment for a term which may extend to one year or with minimum fine of Rs.50000/- which may extend to Rs.1,00,000/- or with both.

Report of Board of Directors

New Section 134 provides that Board of directors shall approve the financial statements, including the consolidated financial statement, before submission of the same to auditors for their report. It is also provided that the Board of directors shall prepare its report and attach auditor’s report and board’s report to the financial statements before placing the same before the Annual General Meeting.

This article on duties of directors of private limited company has another part which will be published in due course. Stay updated with various legal compliance in India with RegistrationsIndia.com

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How to Convert LLP to Private Limited Company?

How to Convert LLP to Private Limited Company?

Conversion of a Limited Liability Partnership (LLP) to a Private Limited Company is not prescribed in the LLP Act, 2008. The Act is silent about such conversion and so is Companies Act, 2013. As on date the only procedure available for conversion is prescribed by Companies Act, 1956 which is old. Alternatively a person who wants to do such conversion can simply dissolve the LLP and start a new company.

The procedure for voluntary dissolution of an LLP is as follows:

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  1. First a resolution is a passed wherein at least three-fourths of partners must agree with dissolution. The resolution passed must be filed with the Registrar within the next 30 days.

  2. Once the resolution is filed all the partners who agree with the dissolution must submit their affidavits as to the position of debt and the time period within they'll pay them in full.

  3. In case the LLP has creditors, prior consent is required from them.

  4. Along with the above mentioned affidavits, partners are also required to file Statement of assets and liabilities from period since the financial statements were last closed up to the date of winding up. If the LLP owns assets then valuer's report needs to be filed too.

  5. Simultaneously a liquidator too needs to be appointed within 30 days of passing of resolution but if the LLP has creditors then such liquidator shall be first get approval from at least two-thirds of the creditors in value.

  6. Then the liquidator needs to wind up the affairs of the LLP and if two-thirds of partners and creditors agree to the terms then a resolution is passed stating the reason for dissolution and closure of accounts. The resolution is then filed with the Registrar and the liquidator shall file an application with Tribunal.

  7. If the Tribunal is satisfied with the procedures it will give its consent to the dissolution. A copy of the consent is then filed with Registrar along with liquidator's report. The Registrar will then publish a notice in the Official Gazette stating that the LLP now stands dissolved.

The partners can then form a private limited company the procedure for which is stated in the article here.

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How to Convert my Proprietorship to Private Limited Company [Easiest way]?

How to convert my Proprietorship to Private Limited Company [Easiest way] image.png

How to Convert my Proprietorship to Private Limited Company [Easiest way] ?

Small business houses which are sole proprietorships often convert to private limited companies to spread their business and increase profits. Conversion to a private limited company is quite simple although it increases a number of mandatory compliances which are strictly required by Companies Act, 2013. The process of conversion of sole proprietorship to private limited company is called corporatization. In order to Convert my Proprietorship to Private Limited Company, a person needs to have the following:

  • A license under  Shop Act or other relevant law.
  • ₹1 lac. This is the minimum share capital required to incorporate a private limited company.
  • Minimum 2 directors are required. Shareholders and directors can be the same.
  • Digital Signature Certificate (DSC) for a director.
  • Director Identification Number (DIN) for all directors.

Conversion process

  • The first step is to obtain a DSC.
  • Get approved DINs because it is important for incorporation of the company.
  • Search names for your company, at least 6 of them.
  • Submit an application with the Registrar of Companies (ROC) for availability of names. Submit 6 names of the proposed company for deliberation. You are also required to submit the Main Object Clause that specifically depicts the business company will be involved in.
  • Make representation at ROC. Either the promoters need to be present or their representatives.
  • Submit Memorandum of Association (MOA) and Articles of Association (AOA) with ROC along with Forms 1, 18 and 32 and letter of authority.
  • File all the other necessary documents with ROC. The Registrar will then issue Certificate of Incorporation (COI).

Your private limited company is now formed and ready to perform.

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Advantages of conversion

A company enjoys various benefits like limited liability, transfer of shares, perpetual succession, easy access to funds, better availability of resources, tax benefits etc. When it comes to starting a private limited company, it is better to convert the existing sole proprietorship as it has certain benefits, viz.

  • Capital gain tax is not charged on transfer of assets.
  • Brand value continues because of the old name.
  • Absorb unabsorbed depreciation.
  • Can carry forward and set off losses.
  • All the assets and liabilities transfer directly.

Here is the complete Procedure for registering a private limited company, alongwith expenditure involved and list of documents required.

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