Definition
Independent Director
An independent director is a board member with no material relationship with the company, brought in to provide objective oversight.
Independent directors are meant to act as a check on management and controlling shareholders, protecting the interests of minority shareholders. Under SEBI LODR and the Companies Act, listed companies must have a minimum proportion of independent directors (often at least half the board where the chair is an executive or promoter), and their appointment and removal require shareholder approval by special resolution.
Independent directors must clear an eligibility test and register in the IICA databank. They chair key committees like the audit committee and play a central role in vetting related-party transactions.
Related terms
- Board of DirectorsThe board of directors is the group elected by shareholders to oversee a company's management and set its strategic direction.
- Audit CommitteeThe audit committee is a board sub-committee that oversees financial reporting, internal controls, audits and related-party transactions.
- Related-Party TransactionsRelated-party transactions (RPTs) are deals between a company and parties connected to it, such as promoters, directors or group entities.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.