Younger Boards and Start-ups: the role of professionals therein

It was recently reported that nearly 30% of all the Director Identification Numbers (DIN) allotted by the Ministry of Corporate Affairs (MCA) in financial year 2021-22 was given to people aged less than 30 years. If we look at the total number of young applicants of DIN, about 73% of the total DINs were allotted to applicants less than 45 years of age.(1) Majority of these young directors have been registered from the states of Maharashtra (20,000), followed by Uttar Pradesh (13,000), Gujarat (7,050) and Karnataka (5,900). One may note that Maharashtra is a Fintech hub, Karnataka is the start-up hub and Gujarat is the manufacturing hub of India. The proximity to the national capital has probably led to the growth in Uttar Pradesh. It is interesting to see that the MCA has, for the first time, provided an age-wise data of registered directors.(2) While comparison of the above data with last year’s data is not possible as there is no such data as such, this definitely comes as a breath of fresh air. The data essentially shows two things –

• The increasing number of start-ups in the country; and

• The increasing number of younger professionals ready to take up the position of Independent Directors (ID) in the Boards of companies that have such requirement.

Both go to prove that the boards of Indian companies are essentially getting younger. What is a DIN? DIN is an 8-digit Unique Identification Number that is allotted by the Central Government to any person willing to join the Board of Directors of a company. It is mandatory for a director to have a DIN number and a pre-requisite before joining the Board. So if a person opens a company of his own (and we all know the benefits of having a company over other forms of organization like partnership firms, sole proprietorship or LLPs), he needs a DIN. The concept of DIN was introduced for the first time when sections 266A to 266G were introduced in the erstwhile Companies Act, 1956 by the Companies (Amendment) Act, 2006. Section 153 of the present Companies Act, 2013 provide for the application for DIN and section 154 deals with the allotment of DIN. Rule 9 of the Companies (Appointment and Qualification of Directors) Rules, 2014 deals with the procedure for the same. Indian Start-up ecosystem In India the startup culture has, in the recent years, caught the fancy of the younger population. This has led to the increased number of new company incorporations. MCA data for FY 2021-22 shows that approximately 1,67,000 companies were incorporated in India during the financial year. This has raised the total number of registered companies in India to 23.18 lakhs. Today fresh graduates are seeing entrepreneurship as an attractive alternative to a regular job. In fact, the incubation centres in colleges and universities are seeing development of start-ups even before the students actually graduate. To a large extent certain Government schemes like the Start-up India, Digital India, Make in India and other schemes for the MSME sector has also provided the much needed fillip. Initiatives towards ‘Ease of Doing Business’ has also led to easier and faster incorporation of companies. Several regulatory requirements have also been relaxed for smaller companies [however as against this the regulatory burden of larger companies has been constantly on the rise]. Funding in start-ups has also become easier to get these days; in the last calendar year 2021 itself, Indian start-ups received US $11 billion in funding from private equity and venture capital firms. Role of Young professionals

Increased number of companies incorporated implies increased compliance burden in the economy. The process of incorporation itself is a highly technical compliance work. Once incorporated, there are several regulatory requirements which have to be taken care of by companies in their day to day activities. Even though there are relaxation for smaller companies, but certain compliances are mandatory for all, big or small. This would mean increased engagement for professionals, and since most start-ups cannot pay a fat cheque, there will be more involvement of younger professionals in the compliance-related work of start-ups. Interestingly, many young professionals are also choosing the start-up path for their own innovative ideas of which edu-tech companies probably features at the top. Senior Professionals and start-ups In a recent survey it has been found that almost three-fourths of the senior professionals prefer to work for a startup over bigger companies for a variety of reasons of which the following are some:

• Better growth opportunities

• Diverse experience

• Possibility of better impact at the workplace

• Flexibility of work timings

• Flexibility of work location

• Politics free culture

• A flat hierarchy

In addition to the above, new ideas and solutions that start-ups come up with are a big factor of attraction towards them. Further, start-ups provide scope for innovation and creativity. Senior professionals are being attracted to start-ups as a fresh start in their career paths due to the above reasons. Further, in India’s positive start-up environment there is a huge number of senior professionals who decide to go on the start-up path and become founders themselves. Independent Directorships A large number of the new applicants for DIN are probably the professionals who wish to take up the position of Independent Director (ID) in the Boards of larger companies. Total number of people that have registered with the Independent Directors Databank as on date is 20,189, of which a substantial majority comprises of young and senior professionals like Company Secretaries, Chartered Accountants, Cost Accountants and lawyers. Of this total number, only 5,655 are women. The databank is an initiative of the MCA to register high quality of candidates for filling up the position of IDs in various companies. It is mandatory for persons willing to be appointed as an ID to register themselves with the databank. It may be noted that every listed company is required to have one-third of its total number of directors as Independent Directors. Further certain unlisted public companies are also required to have independent directors as follows: (a) company with paid-up share capital of Rs. 10 crores or more; (b) companies with turnover of Rs. 100 crores or more; and (c) companies with total outstanding loans, debentures and deposits of Rs. 50 crores or more. 1 The analysis is based on the following data from MCA portal for the FY 2021-22: Total number of DINs issued – 4,20,000 approx DINs issued to people < 30 years – 1,23,000 approx DINs issued to people aged 31-45 years – 1,82,000 approx

2 One downside noticed in the data is the gender gap noticed in it. Of the new directors

below 30 years, 75% were male and 25% were women and in the age group of 31-45, 67% were male and 33% were female.