Understanding the Board of Directors: Functions, Types, and Roles

When registering or running a company in Nepal, one important component you’ll encounter is the Board of Directors. Whether you’re a startup founder or managing an existing business, understanding the board’s roles and responsibilities can help your company stay compliant and operate more efficiently.

In this blog, we’ll explain:

• What is a Board of Directors?
• Functions of the Board
• Types of Directors
• Roles and Responsibilities
• Legal Requirements in Nepal

What is a Board of Directors?

A Board of Directors (BoD) is a group of individuals elected by the shareholders of a company to oversee the company’s management and make key decisions. The board acts on behalf of the shareholders to ensure that the company is run in their best interests.

In Nepal, every Private Limited Company and Public Limited Company is required to appoint directors during or after company registration.

Functions of the Board of Directors

The board plays a strategic and supervisory role. Here are the main functions:

1. Strategic Planning
   • Set company goals and long-term plans.
   • Approve major investments or expansions.
2. Corporate Governance
   • Ensure the company complies with legal and ethical standards.
3. Hiring Senior Management
   • Appoint the CEO, Managing Director, or other executives.
4. Financial Oversight
   • Approve budgets, monitor financial performance, and ensure transparency.
5. Shareholder Communication
   • Represent shareholder interests and provide regular updates.

Types of Directors

Different types of directors can serve on a board. In Nepal, these commonly include:

1. Executive Director
   • Actively involved in the day-to-day operations.
2. Non-Executive Director
   • Not part of daily management but contributes to policymaking and strategy.
3. Independent Director (common in public companies)
   • Brings impartiality and independent judgment.
4. Nominee Director
   • Appointed by a specific shareholder or stakeholder.
5. Alternate Director
   • Appointed to act in place of a director who is temporarily unavailable.

Roles and Responsibilities of Directors

Directors in Nepal have certain duties under the Companies Act, 2063 (2006). These include:

• Act in Good Faith: Always act in the best interest of the company and its shareholders.
• Avoid Conflicts of Interest: Directors should not use their position for personal gain.
• Maintain Confidentiality: Sensitive company information must be protected.
• Attend Board Meetings: Regular attendance is expected for decision-making.
• Ensure Legal Compliance: Fulfill all legal obligations like tax filing, AGM conduction, and documentation.

Legal Requirements for Directors in Nepal

Here are some key legal points to know:

• A Private Limited Company must have at least one director.
• A Public Limited Company requires at least three directors.
• Directors must be above 18 years of age and not disqualified by law.
• Director details must be updated with the Office of the Company Registrar (OCR).
• Any changes (resignation, appointment, removal) must be officially recorded.