Starting a new business is a very exciting venture for people. To make it your reality, you need to make the critical decision of choosing the right business structure. In this blog, let’s explore the concept of a private limited company and delve into the various types of directors that play a vital role in the company.
Private limited registration is a popular registration choice for various entrepreneurs. Especially considering the several advantages it has to offer. These advantages include ease of raising capital and limited liability. Understanding the different types of directors within such a company is necessary for effective governance and decision-making.
A private limited company is a legally recognised separate entity. It is separate from its owners due to the legal status it receives upon registration. This business structure provides a ton of different benefits to its shareholders. The benefits are:
The liability of shareholders is limited to the amount they invest in a company. This includes the personal assets. These assets and properties are protected from the business liabilities.
Separate Legal Entity
Separate legal existence is a company’s most attractive feature. A company incorporated in India has a separate legal existence. Hence, it can own assets, enter into contracts and sue or be sued in its name.
Ease of Raising Capital
As compared to all other formal and informal business structures, a private limited company can easily raise funds by issuing shares to investors. This helps in making it an attractive option for all those who are seeking external investment.
Another additional benefit of having a separate existence is that the company gets a perpetual existence. Hence, the company continues to exist even if the shareholders change, ensuring business continuity.
In a private limited company, to increase the ease of doing business in India, the government provides a lot of benefits. This includes varied tax benefits. Companies can opt for various tax deductions and incentives.
Types of Directors in a Private Limited Company
Now that you understand the concept of a private limited company, you also need to know about the key persons who are responsible for the company. Directors of a company are responsible for the management, the decision – making and overall governance of a private limited company. Here are the common types of Directors in India:
Managing Director (MD)
The Managing Director is the most important and has the responsibility of managing the day-to-day operations. They play a very crucial role in formulating and implementing various business policies and strategies. Besides, the MD is often the face of a company and interacts with various stakeholders, investors and the public.
The type of Directors that work full time for the company and are involved in its day-to-day affairs are the Whole Time Directors of a company. These Directors usually have specific functions and responsibilities for the company. This includes financial, marketing or operations. The Whole Time Directors are usually professionals with expertise and specialized skills in their fields
An executive Director is a Director involved in the company’s core functions and plays a direct role in decision-making. They hold a key position in the company’s management hierarchy. It is their responsibility to look after the business operations and the core decision-making processes. Their opinion is of utmost importance for the company.
Non-executive Directors are not required to have a full-time involvement with the company’s daily operations. Moreover, they usually provide independent perspectives and often get appointments for their expertise and industrial knowledge. A benefit of becoming a non-executive director can be a board member for multiple companies at the same time. Hence, giving the Director to explore different opportunities and help in growing and scaling a private company.
An independent director is also a non-executive Director. However, these Directors are appointed to bring a certain extent of objectivity and accountability to the board. These Directors are not an integral part of the company, its management or the shareholders.
However, their primary role is to ensure that good corporate governance and compliance regulations are maintained in the company. Hence, the primary duty of Independent Directors is to keep track of the business operations. As a result, they are an important part of the BOD.
When the shareholder or an investor appoints a director, it is the nominee director of a company. The nominee directors represent the interests of a party and have specific objectives to fulfil on behalf of the other person.
Registering your business as a Private Limited Company can provide numerous advantages, such as limited liability and ease of raising capital. Additionally, understanding the roles and responsibilities of various types of directors in company law is crucial for effective corporate governance and decision-making.
Each type of director has a specific function and contributes to the overall success of the company. Whether you are starting a new venture or looking to restructure your existing business, a Private Limited Company structure and the right blend of directors can set you on the path to success.