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Appointment of Director

Appointment of Director - Every Company shall have a Board of Directors consisting of Individuals as Director. Additional Director, Alternate Director, Independent Director, Nominee Director are the various types of Directors that can be appointed in a Company.

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28-02-2024
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Scope of Work:

  • 1. Preparation of Board Meeting documents for appointment/ resignation of director; 

     

    2. Preparation of documents for attachment in e-forms;

     

    3. Preparation of e-forms;

     

    4. Arranging for Certification of e-forms;

     

    5. Resubmission of e-forms, if any.

     

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Details about Director

There are several sorts of directors in companies, various types of companies, and various necessary requirements that require corporations to nominate specific types of directors in specific corporations.

 

A director is a person who is appointed as a director in the company, according to Section 2(34) of the Companies Act, 2013. The definition of "director" as used in this Act does not apply to someone who is appointed but not named as a director. Because it will be impossible to define tasks and responsibilities in the case of corporations and firms, only an individual may be nominated as a director. Due to their ineligibility to get a DIN, minors are not permitted to serve as directors (Section 152(3)). As per Section 149(3), atleast one director has to be an Indian resident. 

 

Minimum number of directors: In case of public company it is 3, private company 2 and one person company 1. Though articles of the company might specify for a higher number of minimality. 

 

Maximum number of directors– It is 15 but more can be appointed by passing a special resolution. Requirement of special resolution is not needed in government company and company licenced under section 8 subject to condition. No person shall hold directorship in more than 20 companies and 10 in case of public company as per section 165 of the Companies Act. 

 

For counting the limit, dormant company and company licenced under section 8 subject to condition are excluded. 

 

Types of Directors

Executive Director– Executive directors are those who work for the company and are actively involved in its daily operations. They are quite knowledgeable about the business. Managing directors and full-time directors are also included in this group.

 

Non- Executive directors– Non-executive directors are those who are neither hired by the company nor actively involved in its daily operations. This group primarily consists of independent directors with professional backgrounds, nomination directors, etc.

 

Rotational Directors– Corporations other than private entities and specific government companies must have a minimum of two thirds of its directors resign through rotation. Articles may provide that all directors will retire in turn. Rotational directors may choose to resign by lot or by agreement if they make up at least one-third of the board. Director who is retiring may be reappointed, but not in the circumstances listed in section 152(7). (b). A retiring director is not permitted to continue serving after the AGM has ended. Independent directors and nominee directors chosen by financial institutions are not counted when calculating the overall number of directors.

 

Non-rotational directors– Directors other than rotational are non rotational directors. 

 

First director– Directors specified in the articles at the time of incorporation. If not specified then shall be selected by majority of memorandum subscribers as per Table F and if Table F is not applicable then all the subscribers are first directors. They are appointed till the company appoints subsequent directors. 

 

Manager/ Managing Director/ Whole time directors– As per section 203, every listed company or any public company having paid up share capital of more than 10 crores or a company not falling under above two but having paid up share capital of more than 5 crores is required to appoint managing director/manager/whole time director, company secretary and chief executive officer. A person who fits in the definition provided in the section 2(54) of the Act is known as managing director of the company. Similarly, Manager is defined under section 2(53) and whole-time director in section 2(94). No such person can be appointed for a period of more than 5 years although such restriction is not applicable on private company. Section 196 provides with the appointment of such key managerial persons. Such person must be resident of India, aged between 21 to 70 years (subject to condition for above 70 years) and all other eligibility criteria as per schedule V. 

 

Independent directors– As the name suggests such directors are not related in certain ways with the company. Independent Directors have to comply with the criteria’s given in section 149(6). 

 

Every listed public company shall have not less than one third of its directors as independent. 

 

Nominee director– Such directors are appointed by third party subject to the articles of the company in pursuance with the law or any provisions for the time being in force. For example a director appointed by bank. 

 

Woman director– Following companies must have atleast one director as woman-

1. Every listed company and

2. Every public company having paid up share of 100 crores or more

3. Every public company having turnover of 300 crores or more. Vacancy shall be filled by 3 months from such vacancy or immediate next board meeting after such vacancy whichever is later. 

 

Additional director– All public or private companies can appoint additional director but the articles should allow for the same and such person shall not fail to be appointed as director in general meeting. Such director can be appointed in board meeting or passing resolution by circulation. Such director cannot hold office beyond the next AGM or the due date on which such AGM is ought to be conducted. For example, a company did not organise AGM till 30th September but the additional director in any case cannot hold office beyond 30th September. In case company acquires permission from prescribed authority to hold AGM at a later date then that date shall be the last date for additional director which should not be any date later than 31st December. 

 

Alternate director– When a director is leaving India for a period of 3 months then Board may appoint an alternate director (who is not director in the same company nor holding alternate directorship for anyone else in the same company) by articles or passing special resolution. He/she shall have same position as of original director. He shall hold the post till the director in place of whom he is appointed returns back or the period of holding office of the original director comes to an end. Directors by small shareholders– Only listed companies whose shareholders having nominal value of less than 20000 proposes to appoint a small shareholder’s director have to give notice atleast 14 days before the meeting.  1000 small shareholders or 10% of total number of shareholders  whichever is lower is required to give such notice. Such a director shall not be appointed for a period of more than 3 consecutive years then a cooling period of 3 years before such appointment in the same company. A person can hold such  directorship in two companies  maximum second one not being the competitor of the first one. Grounds of disqualifications, vacation of office, independent director are as it is applicable on such directors as well. 

 

Casual vacancy– Such vacancy can be filled by board if the director vacating the position was appointed in general meeting. Although there is no obligation to fill such vacancy. Term of such director shall not exceed the term of director for whom such vacancy was filled. Proportional representation– Except for the government companies, to avoid the situation of dominance of majority voting hands over the minor ones a company can appoint not less than 2/3rd of directors by proportional representation so that minority shareholders are not deprived off  their powers and rights in the company. Every person has right to showcase his ability to stand in the position of director in the public company. As per section 160 of the Act, any person can give his signed candidature at the registered office of the company atleast 14 days prior to the meeting with a deposit of Rs. 1 lakhs  (Rs. 10000 in case of Nidhi company). Such amount is refunded if the person acquires such position or he gets atleast 25% of votes in favour. 

 

Procedure for Appointment

Every Company who wishes to appoint a Director in the Company is required to follow the below mentioned procedure;

 

1. Obtain Digital Signature Certificate of the Director

2. Apply for Director Identification Number (DIN)

3. Prepare Consent and Disclosure Letters for appointment as Director in the Company

4. Hold Board Meeting approving the appointment of Director

5. File Form DIR-12 with Authorities

 

Costs Involved

The Form filing fees for Appointment of Director procedure is as follows;

1. DIN Application Form – Rs. 500

2. DIR-12 Form – Rs. 300 to Rs. 600 depending upon the Capital of the Company

 

Timeline: Form DIR-12 is required to be filed with the authorities within 30 days of passing of the Board Resolution approved the appointment of Director.

 

Reasons for Disqualification

Disqualification of director (Section 164)- Following are not eligible to be a director-

1. A person of unsound mind

2. Undischarged insolvent

3. Person applied for to be adjudicated as an insolvent and his application is pending.

4. A person who has been imprisoned for more than 6 months and 5 years have not elapsed.

5. Court or Tribunal disqualifying such person

6. A person who has not paid any call on share and 6 months have elapsed.

7. Convicted in offence of related party transaction in preceding 5 years.

8. A person who has not been allotted with DIN.

 

Any company in which such candidate is director and such company has not filed annual return for consecutive period of 3 years or defaulted in payment/redemption of deposits/ debentures or its interest or defaulted in payment of declared dividend is also not eligible for reappointment in the same company and appointment in any other company for a period of 5 years. 

 

Penalties for Non-Compliance

If a company is in default in complying with any of the provisions of this Section and for which no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.

Required Documents

1. Proof of Identity (PAN – Indian National / Passport – Foreign National)

 

2. Proof of Address (Electricity Bill / Aadhar / Bank Statement)

 

3. Passport Size Photo

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FAQs

The proposed Director must have a valid DIN at the time of appointment as Director. The director designate must have a valid Digital Signature Certificate (DSC) issued by the Certifying authority in India to apply for a DIN. After the Board meeting, e-Form DIR-12 is required to be filed with MCA portal.

1. Copy of PAN as proof of Identity;

2. Copy of Electricity Bill/Aadhar Card/Voter ID/Passport/Driving License.

Foreign nationals are allowed to become Directors of an Indian Private Limited Company. The Board of Directors of the Indian Private Limited Company must have one Director who is both an Indian Citizen and Indian Resident. However, there is no requirement for the Indian Director to be a shareholder in the Company.

To act within powers in accordance with the company's constitution and to use those powers only for the purposes for which they were conferred. to promote the success of the company for the benefit of its members. to exercise independent judgement. to exercise reasonable care, skill and diligence.

Any person intending to become a director in a new Company is required to apply for the allotment of Director Identification Number only through SPICe eform at the time of incorporation.

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