In this article, Daksh Gautam, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses whether a company director can be an employee of another.
Introduction
Who is a director?
A director is a person from a group of managers who leads or supervises a particular area of a company. The company that uses this term often has many directors spread throughout different business functions and roles.
Director under Companies Act, 2013
In Section 2 clause (34) of the Act prescribes that “director” means a director appointed is a person appointed to perform the duties and functions of the director of a company in accordance with the provision of the Companies Act 2013
Types of Directors
There are various types of directors. They include:
- Residential Director
- Independent Director
- Small shareholders Director
- Additional Director
- Alternate Director
- Shadow Director
- Nominee Director
In simple words, there are two main types of directors known as “Executive” and “Non-executive” Director.
An executive director can be a whole time Director of the company i.e. a person who devotes his whole time of working hours to the company and has a significant personal interest in the company as a high source of income.
In contrast, the non-executive director is a Director who is not a whole time Director he does not get involved in the day-to-day work but is involved in planning exercises of the company and policymaking.
Role and Functions of a Director
A Director is a person who determines future of a company. All essential decisions of the company or organization are taken by a director. He focuses on:
- Effective management and
- Efficient performance
A director of a company has various roles to play – as a legal officer, an employee, an agent of the company etc. With the variety of roles comes various functions and responsibilities.
Read on the duties of a director here
Can a Company director be an employee of another company?
Definition of an employee
An employee is an individual who was hired by an employer to do a specific job. the employee is hired by the employer after an application and interview process results in his or her selection occurs after the applicant is found by the employer to be the most qualified applicant to do the job.
Under Companies Act 2013 – what does it say?
The Companies Act, 2013 was introduced to bring forth changes in company law to match current business trends. There is no provision that expressly mentions that a director can be an employee of another company nor does it prohibit the same.
The director is on the driver’s seat for the company, the director is responsible for its company’s existence and future depends on the director’s intellect and his ability to predict a situation.
In short if one is an executive director then it is quite difficult for one to be an employee, for obvious reasons as it could be challenging and pushing human limits and ability.
It is easy to become an employee or a director in another company/organization when you are on the non-executive part of directorship.
Example
Mr. A, an employee in company VCF Ltd. wants to start his own startup, Intelligent Biz Solutions Ltd. and act as a director in the same. Will he be allowed for the same?
Possible hiccups
Employment Contract
If the employment contract between Mr. A and VCF Ltd. strictly prohibits Mr. A from taking up another employment during the term of his present employment, then he may face legal challenges prohibiting him from working in both places at the same time. He will have to choose one of the options.
Time constraints
He may not have the time to provide both the jobs with his best. He will be able to focus fully on being an employee at VCF Ltd. by meeting deadlines and other employment related activities or he can focus on getting investments, approvals etc as a director in the startup. Doing both is a far cry.
Low efficiency
As stated before, the director plays an important role in the company – from making decisions to taking responsibility for the company in crisis. Working in two jobs will lower the efficiency of the person as a director of one company as well as an employee of the other company.
Conflict of Interest, Breach of confidentiality etc.
In the case where both the business concerns pertain to the same field, there is a high chance that certain business concerns may overlap. This could result in various issues such as possible conflict of interest/breach of confidentiality etc.
Conclusion
Director is a proper/trusted authority of a company but there is nothing that prohibits him from being an employee of any other company. Also, it becomes easy if we can determine his position in the company. The act doesn’t prohibit it and it can rather be said that act is silent on it and there is no laid provision regarding it, neither there is any leading case where it has been opposed because anyway he can be director of 20 companies at a time. So, mere employment won’t have any effect on the company where he holds the position of director.
Points to be kept in mind
- You can be an employee of another company while being a director of a company – Companies Act, 2013 does not clearly specify or prohibit the same.
- There are possible hiccups that one may face while being in such a situation – Low efficiency, time constraints, conflict of interest etc.
- Check your employment contract thoroughly before signing – some contracts contain specific clauses which prohibit the employee from having two jobs at the same time
