Director vs Chairman: All You Need To Know

For any private limited company in India, the director and chairman play an important role in the functioning of the company. They make crucial decisions for the company’s business operations and lead it towards growth. 

According to the proviso to section 203(1) of the Companies Act, 2013, a person cannot be both the chairman and the managing director of a company at the same time, unless it is provided for by the articles of the company or if the company does not engage in multiple businesses. 

But what’s the difference between a chairman and a director? And why does it matter? To learn about these two roles, keep reading!

Who is a Director?

The term “Director” has been defined under the Companies Act, 2013, as someone appointed to the Board of a company. The Board of Directors refers to a group of individuals elected by the company’s shareholders to manage the company’s affairs. 

A company is an artificial legal person created by the law. Hence, it cannot act physically. Therefore, it is imperative that there is an agency of natural persons so the company can operate. The company mainly acts with the directors, as they’re involved in making important decisions. In other words, the Board of Directors is the highest decision making body within the Company.

A company can have directors with roles like chairman, secretary, or treasurer. A skilled director directs the day-to-day operations and may come up with a corporate or annual business plan that the company must follow. This enables the company to improve and enhance its operations in order to make them more effective and economical. 

One of the company's most significant directors in a company, the managing director is in charge of the company's external communications. Usually, they are the ones who announce important developments for the business. A director regularly oversees a management team to whom they can assign their assignments. 

Who is a Chairman?

The Companies Act 2013 does not define the term “Chairman”. A company’s chairman is the most senior member of the board of directors. The chairman is typically elected by the company’s shareholders. The responsibilities of chairman include protecting the interests of the investors. They may often work outside the company’s daily operations as they are tasked with overseeing the board and ensuring the company's overall strategy and direction, rather than directly managing the day-to-day activities.

Although the chairman is the most senior member of the board, they do not have absolute control over the board. Still, they are very influential and powerful as they can set the agenda of the meeting as well as influence the outcome of votes. 

In addition to dealing with external investors, the chairman must be aware of the company's CSR objectives and ESG issues, as well as whether the company is following sound corporate governance. 

The board chairman is in charge of assessing the board of directors' performance to make sure that their decisions align with the objectives of the business. But not every successful business is in profit all the time. After a challenging financial period, the Chairman may need to take into account additional criteria, like stability and recovery. In case an executive director fails to meet expectations, the chairman may organize a replacement with the help of the Board and other senior executives.

Director vs Chairman: Differentiation Table

After having understood the answers to the questions, “Who is a Director?” and “Who is a Chairman”, it’s time to move on to the answer to “What is the difference between Director and Chairman?” To explain this difference, we shall take the help of a differentiation table for Director vs Chairman. 

Conclusion

The Director and Chairman play distinct roles in a company and contribute to smooth business operations and effective decision-making. While the chairman leads the board of directors for important business decisions, the director requires approval from the chairman-led board for crucial business decisions. 

Generally, a chairman is appointed directly by the shareholders. However, a director is generally appointed by the board of directors. If the chairman feels like a specific director’s performance isn’t up to mark, they may organize a replacement with the assistance of the board. However, a sole director isn’t authorized to organize a replacement of the chairman. 

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Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.