To obtain the goals prescribed in Memorandum of Association of the company, business depends upon Board of Directors (jointly) and directors (individually). Directors of a Business are its eyes, ears, brain, hands and other necessary limbs.
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The Cadbury Committee in 1992, which itself was set up following the business scandals involving BCCI, Poly Peck and Maxwell, supplied respectability to the idea of independent directors, by focusing on independent directors as a part of the brand-new practices for better governance. Independent directors function as an oversight body in monitoring the performance and must raise warnings whenever suspicion happens. They are anticipated to be more aware and question the business on relevant concerns in their position as trustees of stakeholders.
The organization of independent directors is a crucial instrument for making sure excellent corporate governance and it is needed that the performance of the organization is seriously analysed and correct safeguards are made to ensure effectiveness.
Companies Act 2013 mandates visit of independent directors by noted business and other class of companies. It also prescribes other aspects such as maximum tenure of independent directors, separate meeting of independent directors, tenure, their qualifications, liability, appointment, reimbursement and so on. The Central Federal government has actually excused section 8 companies from the requirement of consultation of Independent Director.
An executive director holds a position on the executive board. They have ” executive duty” for running the business’s business They will typically be chosen by employees and investors and might be an employee, officer or stakeholder in the business. Other directors may be agents of, for instance, an institutional investor or a union.
Distinction Between Executive Director and Independent Director
|EXECUTIVE DIRECTOR||INDEPENDENT DIRECTOR|
|This is an employee of company||This is not a staff member of business|
|ESOPs can be given to such director||ESOPs can not be approved to such director|
|They are accountable to retire by rotation||They are not liable to retire by rotation|
|They are selected for one year and can be reappointed||They can be appointed for 5 years at a time and can serve 2 consecutive terms.|
|They can not become chairman of various committees of board||Chairman of committees of board needs to be independent director|
|They can have monetary relationship with the company||They can not have any monetary relationship with the business|
|No Requirement to hold a different conference of executive directors just||At least one conference need to be held of Independent directors only|
|No minimum number of executive directors required to be selected|| Noted: 1/3rd of overall director need to be independent directors
Unlisted: a minimum of 2 directors should be independent directors
|Every Business is required to appoint executive directors||Only business fulfilling particular specifications are required to select independent directors|
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