If he is an employee of a company which is totally different he can do so.
No he cannot be held liable moreover, he should disclose this fact before the employer.
My friend runs a Pvt Limited startup where he is one of the Directors and a Promoter/ Co Founder of the company, holding some shares as well . He now wants to join a job and has received an offer from a company in a totally unrelated area of business. Can he join this company? Any steps he should undertake to make it a smooth employment in the new company? Will he be held legally liable or under threat of termination necause of being a director for his startup?
Should he voluntarily sign an undertaking that it's just a figurehead position with no salary and no admin work & responsibilities that will interfere with his job? Or should he just not declare it?
If he is an employee of a company which is totally different he can do so.
No he cannot be held liable moreover, he should disclose this fact before the employer.
He must inform the company where he is director that he has received an offer and is taking up employment with another organisation
2) that said organisation is in unrelated area of business
3) he would not be removed as director if he has informed in advance and taken their consent
There is no prohibition under Companies Act, 2013 against Director taking up job in another company. You can take the job without any legal problem.
There is no provision which expressly states that a director can be or cannot be an employee of another company.
A person can be director in one company and employee in other company.
There is no provision in Companies Act, 2013 that prohibits the same.
There are many people who are in employment elsewhere and become director in their own company.
Unless the contract of employment between Mr. XYZ and AAA Ltd. explicitly forbids Mr. XYZ from taking up another job in the duration of his present work, therefore he may face legal issues preventing him from concurrently working in both positions. He will select one of the choices.
Unless the contract of the employment of this person with his present employer explicitly forbids him from taking up the proposed directorship in another company which may hinder his employment in due course of his employment, he may be subjected to legal action by his employer to prevent him from working concurrently in both the positions.
When both business concerns are related to the same sector, there is a strong probability of both business concerns overlapping.
This could lead to several issues, such as potential conflicts of interest/confidentiality, etc.
The director is a trustworthy authority of a corporation, but nothing prohibits him from becoming an employee of any other corporation. It is also easy to decide his place in the business.
The legislation does not forbid it, and it can also be said that it is vague and that there is no explicit clause in this respect, nor is there any leading case against since it could be the head of 20 companies at a time anyway.
Thus, mere employment will not affect the company in which he is the director.
Briefly, if you’re the Managing Director, you shouldn’t work for obvious reasons because it can be challenging and stretching human limits and capacity.
Your friend can be sleeping partner of the founder company then later on can join new company as employee.
Will he be held legally liable or under threat of termination necause of being a director for his startup?
absolutely not!
not at all
Or should he just not declare it?
he can inform the employer company
From examining all the facts of your query I want to say that-
You must know that according to Section 149 of the Companies Act only an individual can be appointed as a director and not the firms, corporates or any other association can be selected as a director. It implied that the government employees may also apply for the position of a director if they fulfil other criterion.
It is also pertinent to mention Section 64 here. Section 64 of the Companies Act says about disqualifications for appointment of director-
(1) A person shall not be eligible for appointment as a director of a company, if —
(a) he is of unsound mind and stands so declared by a competent court;
(b) he is an undischarged insolvent;
(c) he has applied to be adjudicated as an insolvent and his application is pending;
(d) he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and five years has not elapsed from the date of expiry of the sentence:
Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for seven years or more, he shall not be eligible to be appointed as a director in any company;
(e) a court or Tribunal has passed an order disqualifying him for appointment as a director and the order is in force;
(f) he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
(g) he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or
(h) he has not complied with subsection (3) of section 152.
(2) No person who is or has been a director of a company which—
(a) has not filed financial statements or annual returns for any continuous period of three financial years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay the attention due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as a director of that company or appointed in other company for five years from the date on which the said company fails to do so.
(3) A private company may in the articles provide for separate disqualifications for appointment as a director in addition to those specified in sub-sections (1) and (2):
Provided that the exclusions referred to in clauses (d), (e) and (g) of sub-section
(1) shall not take effect—
(i) for thirty days from the date of conviction or order of disqualification;
(ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order until expiry of seven days from the date on which such appeal or petition is disposed of; or
(iii) where any further appeal or petition is preferred against order or sentence within seven days until such further appeal or petition is disposed of.
So, in disqualifications, it is not mentioned that the director has to do only one employment and government employees are not barred from applying so. Please understand that one thing that Company Law talks about is in Section 184 that is the disclosure of interests. Some of my junior friends are right that there is no provision which expressly states that a director can be or cannot be an employee of another company. The director has to reveal its disclosure of interest in any other company, firms or organization. The above provisions are about are related to Company law, one has to note what are the rules and regulations that have to be adhered by the government employees before getting employed anywhere else. You can quickly become an employee or a director of another company/organization if you are part of the non-executive board. Detailed discussion is required with complete documents.
You may contact my secretary to connect with me for clarification.
Gopal Verma,
Advocate on Record & Amicus Curiae,
Supreme Court of India
Yes, shareholders of a private limited company can be employed elsewhere.
There is no restriction on the Companies Act, 2013 for a shareholder to hold an employee position in another company
In a situation, the person might face an issue as he is in the employment of the company or holding a board seat, which will not be agreeable to the new employer.
Thank you
Dear Sir
He is not prohibited from being the employee of another company in a different field as there is no such provision in the companies act, so he cannot be held liable.
However he cannot conceal such information from the company and should have revealed it beforehand.
Thank you
- There is no provision in Labour Laws , that an employee working in a private employee cannot do a separate business or job, like a government employee cannot enter into dual employment, i.e. cannot do financial, gain from another source, unless he is authorized in writing by the concerned department.
- Hence, he will have to follow the restriction & rules, which you have signed at the time of joining your position in another company.
- If there is no restriction for the same, or your offer letter/appointment letter does not say anything about the same, then he can legally be a director of the company .