Executive and Non Executive Director : Meaning, Differences, Requirements

Meaning of Executive Director

An Executive Director is the working director of an organization whom we can say a full-time employee. It is also known as inside or internal director. Generally, it has a specified role in finance director, marketing operations etc on regular basis. This term is more popular in non-profit organizations than commercial enterprises. The care standard needed from executive directors is very much higher than that needed for Non- executive directors. However, both types of directors are equally significant and liable under tax laws. In this article, we will let you know Executive Vs Non-Executive Director and what are the requirements of these two.

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What is Non-Executive Director

A Non- Executive Director is the Non- working director of an organization which does not come under the category of an Executive director. Therefore, he/she does not participate in the day-to-day activities of the firm. But he/she may participate in the planning process and policy-making process. Sometimes, included lending prestige to the firm as a benefit of his standing in the community. The company expects the non- Executive director to monitor and challenge the performance of the executive directors and the management. Further, they are also expected to take a determined stand in the interests of the firm and its stakeholders. They are equal in term of liability to the executive directors under certain statutory requirements such as tax laws.

Executive Vs Non-Executive Director

Following are the differences between Executive Vs Non-Executive Director:

  • Usually, an Executive Director is an employee of executive functions in the management and administration of the company. On the contrary, Non- executive directors are independent of corporate management.
  • The directors have the first priority to rely on is the management of the corporation. The board will not inform about the details of how the corporation is managed.
  • There is a requirement of the degree of skill for an executive director. Whereas Non-executive directors are not bound to be continuous attentive towards the affairs of the corporation.
  • The executive director has the powers of managing on a regular basis that is exercisable without reference to the board as a delegated executive function of management. Other than managing director, appointment carries no express or implied the grant of executive power.
  • Executive director if other than a managing director may depend on whether he has some feature of the company’s constitution or conduct of the company in general meeting or not. Besides, the delegation of executive function evidence by the board of directors operating as an executive of the company. Given below are the requirements of Executive Vs Non-Executive Director:

    Requirements for Executive Director

    Following are the requirements under the companies act:

    Condition 1.  A person should be a director of the company to become an Executive director.

    Condition 2. A person should be a whole-time director to become an Executive Director of the company.

    Condition 3. Overall, Director + Whole time employee of the company indirectly will be considered as the Executive Director due to (2)(1)(k) whether designated by the company as an executive director or not.

    Requirements for Non- Executive Director

    1. Build Personal Attributes: The qualities that a non-executive director must have are independent, challenging, passionate, objective, entrepreneurial, mature, intelligent, supportive, well-rounded, interesting, and smart.

    2. Possess a Business Background: financial analysts, chartered accountants, MBAs, and other people coming from a heavy business background secure more easily a non-executive director job.

    3. Get Through The Interview:  Feel free to quiz the chairman about the big issues and the organization’s concerns. This would give you a good idea of the governance path you need to follow for maintaining the direction and morale of the organization.

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Requirements for becoming the director of a Company

Appointment of Director as per Companies Act 2013