Confused About Designating Your Business Owner? Help Needed on Choosing Between Proprietor and Director

This is Mohan working in a small firm with a turnover of up to 3.5 Crore. We are currently in confusion regarding how to designate our Owner, whether it should be as a proprietor or Director. Please advise on the appropriate designation.

Thank you.

That depends on the registration of the company, whether it is a proprietorship or Pvt Ltd. After that, you can use any word among proprietor or director.

Understanding the Difference Between Proprietor and Director

While it is common for the terms 'Proprietor' and 'Director' to be used interchangeably, technically, they are statutory terms, and their use is strictly governed by the Companies Act and other similar legislation.

A Proprietor is a person who owns a Proprietorship. This is the simplest and easiest form of business registration. In this case, there can only be one owner. Usually, they will have a trading name on the basis of which they will acquire the business PAN card, service or sales tax registration, etc.

A Director is a person who controls a company—whether private or public limited. They have signed a Memorandum of Directorship and have stringent statutory obligations placed upon them. Remember, a company MUST have at least two Directors.

So, the easiest test regarding whether to call your boss a Director or Proprietor is this: If his business is a Private Limited company, then he/she is a Director. If it is a single-person owned entity with a trading name attached, then he/she is a Proprietor.

To bring further clarity, if your boss is in a registered partnership and is performing most of the business's management work, then he/she is a Managing Partner.

Hope this helps you.

Take care!

Designation of 'Director' in Different Business Structures

The designation 'Director' has a specific statutory meaning in the context of a company, as well explained in the earlier post. There are many legal obligations applicable to the Director of a company.

However, in the case of a Sole Proprietor Firm or Partnership Firm, the Proprietor or Partner can be designated as Director, CEO, Manager, etc. There is no harm or any legal complication in assigning any designation to the Proprietor or Partner.

I have never seen a Memorandum of Directorship. Can you post a copy? And tell me which section of the Companies Act it comes under.

This depends upon the registration of the company. If the company is registered under the trust name, you are named as the director with a specific designation. For instance, if you are overseeing the finance department, you are designated as the Director of Finance or Managing Director of the company if the family members are involved. However, if the proprietor is only connected to industries with less than 1 crore, the scenario differs.

With regards,

Understanding the Roles: Director vs. Proprietor

A 'Director' is someone who directs, regulates, supervises, or orders his/her subordinates or other associated members for effective management practices in the organization/institution. In contrast, a 'Proprietor' holds the legal title of ownership of the organization. The owner may be a director and/or have the right to appoint others as director(s).

For example, in a leading brand of telecommunication like Bharti Enterprises (Airtel), the owner is Sunil Bharti Mittal, and Vineet Taneja is the Director of Operations in charge of telecom services. It is possible that the company appoints different directors for its various projects.

Best Regards,
Vikas Ranjan

Although a Director can be in any private or public registered company, a Proprietor is only in a proprietorship firm run by a single person. If you have a good turnover and wish to have a more prestigious title, you could consider designating yourself as President or similar. However, it is up to you; nobody will be bothered, but it is not advisable from a statutory perspective. Have you considered consulting a Chartered Accountant? It may be the best option.

Regards,
Dawar

I just want to share my thoughts with Hussain. I agree with Hussain that the Director may not be answerable, but it is not completely true. In case the Director has committed any wrong deed and it is proven, it goes against the Company Act. The Director is always responsible and answerable. Yes, if the company incurs losses due to reasons other than the misdeeds of the Director, then he may not be held accountable. In the case of a proprietor making losses, the liability falls directly on the proprietor. However, in the case of a Director, it falls on the Company. Nevertheless, whether the company closes or the Director leaves, it damages the reputation of the Director, not necessarily legally, but morally and publicly. One can check the recent Satyam case for reference.

Your comments are welcome.

Regards,
Dawar

Hello, sir. A company director is running his own business (Proprietorship firm). Can he supply goods to his company (Pvt Ltd)?