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Non executive/ Passive/ Sleeping - Directorship ?

21 February 2023

Question: Can a non executive director of an unlisted company be an employee of the same company For example, the son of a micro enterprise pvt ltd company was included as a director when he turned 19. But that son was studying and immediately after grad, he joined as a trainee, a full time employment with a fixed salary, in his parents pvt limited unlisted company? Given the case of no profit or loss and hence no income as a director. Is this possible, is it legally right.

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1 Replies

Sanjay (hhgh) (0 Points)
Replied 21 February 2023

In general, it is possible for a non-executive director of an unlisted company to also be an employee of the same company. However, it is important to ensure that this arrangement is set up correctly and in compliance with applicable laws and regulations.

One key issue to consider is the potential for conflicts of interest. As a director, the individual has a legal duty to act in the best interests of the company as a whole, rather than in their own personal interests. This duty could be compromised if the individual is also an employee, as they may be more likely to prioritize their own job security or career development over the company's broader goals.

To avoid conflicts of interest, it is important to establish clear lines of authority and decision-making, and to ensure that the individual's duties as an employee do not interfere with their responsibilities as a director. It may also be helpful to disclose the dual role to other directors and stakeholders, and to have the individual recuse themselves from any discussions or decisions where their personal interests could be seen to conflict with the company's interests.