Board Structure, Roles and Responsibilities
What the exam tests
Board structure questions test composition, eligibility, tenure, meeting mechanics and committee architecture. You must distinguish executive, non-executive, independent and nominee directors, and apply the Companies Act 2013, LODR and Secretarial Standards to a given board.
Core rules and concepts
- Size and composition: a public company may have 3–15 directors under s.149(1); more than 15 needs a special resolution. A listed public company needs at least one-third independent directors under s.149(4). Prescribed companies need at least one woman director (s.149(1) proviso) and a resident director who stays in India at least 182 days in the financial year (s.149(3)).
- Independent directors: s.149(6) criteria; s.149(7) declaration; s.150 databank registration; s.149(11) tenure of two terms of five years with a three-year cooling-off. They may receive fees, reimbursement and profit-linked commission, but not stock options (s.149(9)).
- Duties: s.166 requires good faith, care, skill, diligence, independent judgement and avoidance of conflicts. Schedule IV adds the independent director's code.
- Meetings: at least four board meetings a year with a maximum gap of 120 days (s.173); quorum is one-third of total directors or two, whichever is higher (s.174); SS-1 governs notice, agenda, minutes and video-conferencing.
- Committees: audit (s.177; LODR Reg 18), nomination and remuneration (s.178; Reg 19), stakeholders' relationship (Reg 20), risk management (Reg 21, top 1000 listed) and CSR (s.135).
Worked example
A board has 14 directors: five independent, one woman director and one resident director who was outside India for 200 days in the year. Size is valid (below 15). Five independents exceed one-third of 14 (4.67, rounded up to 5). The woman director satisfies the gender requirement. The resident director breaches s.149(3): 365 − 200 = 165 days, below 182. The company must regularise the residency requirement and disclose the vacancy or composition change.
Traps that cost marks
- Counting alternate directors or nominee directors as independent.
- Ignoring the 182-day residency test.
- Allowing an independent director to take stock options.
- Confusing the audit committee's oversight role with executive approval of transactions.