Can You Be an Employee and a Director in a Sister Company at the Same Time?

Dear Seniors, please let me know whether it is possible for a person who is an employee of an organization to be one of the Directors of a sister concern (a wing) of the same company at the same time.

Regards,
Gargi

It is possible. Many public (limited) and private limited companies have these practices. Usually, the senior-most executive, like the president, senior vice president, or CEO of a company, will be a director on the board of the smaller group company or a subsidiary of the parent company. His appointment will be governed by the processes under the Companies Act and as per the proceedings of the board. In many companies, the person will be on the board as a whole-time director as well.

Kind regards,
Dayanand L Guddin

Appointment of Directors is regulated by the Companies Act, and there is no provision in the Companies Act that restricts any employee from becoming a Director of their parent company, sister concern, associate company, or group company. There is no provision that a Director cannot be an employee of any parent company, sister concern, associate company, or group company.

This is not my area of expertise. Experts can provide comments or corrections if needed.
Regards.

As far as I see it, the only note of caution in this scenario is whether the terms of employment of the company in which this person is employed restrict him from taking up any other job or office of remuneration. Generally, employment contracts prevent an employee from taking up any other full-time or part-time job or assignments elsewhere. If this is the case, management can give a specific no objection to the employee that the management is okay with him taking up a director role in the sister concern.

Regards,
Sreejith

Appointment of the directors is governed by the Companies Act of 1956. As such, there is no restriction on any person becoming a director in any company, even if he or she is currently employed. However, this provision applies only to directors who actively participate in board meetings and other related committee meetings as per their nomination.

Executive Director Restrictions

In the case of an executive director (meaning a director involved in the day-to-day operations of a company), he/she cannot simultaneously be an employee of another company, apart from the one that has appointed him/her as an executive director. Therefore, it is essential to verify whether the individual appointed as a director holds an executive director position. If so, the appointment would be considered null and void. Conversely, if the appointment is in a professional category, it is fully acceptable under the law.

Regards,
Vinay Somani

In case of an executive director (meaning a director involved in the day-to-day activities of a company), he/she cannot be an employee of any other company besides the one that appointed him/her as an executive director. Therefore, you need to verify whether the person appointed as a director is an executive director. If he/she is an executive director, then the appointment is null and void. However, if he/she is appointed as a director in a professional category, it is completely acceptable according to the law.

Dear Vinay ji, may I know under which provision the Executive Director (ED) cannot be an employee elsewhere? To my knowledge, there is no such provision. I may be wrong. According to me, an ED is a whole-time director and, by virtue of his nature of responsibility, he cannot be employed elsewhere. Please correct me if I am wrong.

Please read Section 275, along with Sections 277 and 278 of the Companies Act. (Refer to the book "Ramaiya on Companies Act" for a better understanding of Company Law).

You may also check the ruling of the Bombay High Court, which will clarify aspects of the directorship of a person as a Whole-Time Director. The ruling was provided in the case named Ramaben A Thanawala v Jyoti Ltd (1957) 27 Comp Cas 105 (Bom).

Regards,
Vinay Somani

Dear Vinay ji, Thank you very much for your reply, which helped me enhance my knowledge. In fact, as I mentioned, the Companies Act is not my subject. Nonetheless, I have reviewed sections 275, 277, and 278 of the Companies Act. I have also studied the case law of Ramaben A Thanawala v Jyoti Ltd., which is quite old. Unfortunately, I could not refer to the book by Ramaiya on the Companies Act.

Addressing Doubts on Directorship and Employment

In response to the query, I stated that there is no provision in the Companies Act that restricts any employee from becoming a Director of their parent company, sister concern, associate company, or group company. There is no provision stating that a Director cannot be an employee of a parent company, sister concern, associate company, or group company.

However, the sections you mentioned deal with the restriction on any person holding the office of Director in more than 15 companies simultaneously. These sections do not address whether a Director can be an employee or whether an employed person can hold a Directorship in any company.

The Ramaben A Thanawala case pertains to the remuneration of Directors, which is not relevant to our current discussion. It's worth noting that this case is quite old, and there has been an amendment in the limit of Directors' remuneration, which could be a separate topic for discussion.

My intention in making the above submission is to share my views so that we can exchange knowledge and insights.

Thank you.

Appointment of Directors

No doubt, individuals can be appointed as Directors, except when they are disqualified from holding such a position. Please read the attached document.

Similar to the appointment of Ministers and Politicians, the appointment of directors in a company is a straightforward process, as evident from the attached notes. This information is intended for general reading. For specific issues requiring examination and advice based on established cases, please contact us.

Regards.

Thank you for reading the case law and sections. I would like to clarify that those sections are to be read along with the commentary, which will not be available on the internet or in the bare act. Merely reading the section will not clarify all aspects. Furthermore, the case law I have quoted explains which remuneration can be accepted as WTD. To make it more specific, I am attaching the Essence of Ramaiya scanned document. It will provide a clear view on the above discussion.

Regards,
Vinay

May I know under which provision the ED cannot be an employee elsewhere? To my knowledge, there is no such provision. I may be wrong. According to me, the ED is a whole-time director, and by virtue of his nature of responsibility, he cannot be employed elsewhere. Please correct me if I am wrong.

Thank you very much for your attachment supporting my comments. In fact, company law is not my subject, which I repeat here.

Clarification on Director Roles

The right and specific answer to the querist would be: It is possible that a person who is an employee of an organization can be one of the Directors of a sister concern (a wing) of the same company at the same time, but not a whole-time Director or Managing Director.

Regards.

Dear friends, some more notes on this issue are attached for your information.

Thank you.