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Overview
The Company is a legal entity managed by its Board of Directors, a collective body of individuals who govern the organization. The appointment of a director refers to the process of selecting and appointing individuals to serve as directors on the Company’s board. The procedure of appointment or resignation of Director is governed by the Companies Act, 2013. The Board of Directors plays a crucial role in the management, governance, and decision-making of the Company. The management, the governance, and the decision-making of a companies are all significantly impacted by the board of directors.
Important Points
- The minimum number of directors that a Company must have is determined by the category of the company. i.e. A public company is required to have a minimum of three directors, but a private company is required to have a minimum of two directors. However, One Person Company is required to have atleast one director only.
- Eligibility Requirements: Section 164 of the Companies Act, 2013 deals with the disqualifications for appointment of director. This section specifies various conditions wherein a person cannot be appointed as a director of the Company. He can’t be of unsound mind, undischarged insolvent, an order disqualifying him for appointment as a director has been passed by court, etc.
- Responsibilities and liabilities of Directors: Directors are obligated to act in the best interests of the companies, its shareholders, and any other relevant stakeholders. They are obligated to behave in a manner that is beneficial to the companies, to conduct themselves with due diligence, and to comply with all legal and regulatory requirements. Directors have the potential to be held accountable for any violations of their obligations or failures to comply with the law.
Necessity
- Governance and Decision-Making: Directors are very necessary for the successful governance and decision-making processes of a companies. They contribute a wide variety of abilities, areas of experience, and points of view to the board, which is beneficial for strategic planning, risk management, and maintaining compliance with laws and regulations.
- Compliance with the Law: According to the Companies Act of 2013, the nomination of directors is a mandatory legal obligation. The Act requires that every business, regardless of its form or category, shall have a minimum number of directors in accordance with the requirements that are outlined in the Act. It is vital to comply with this criteria in order to guarantee that the company’s activities are conducted in a lawful and valid manner.
- Expertise and Work History: Directors bring their expertise, abilities, and work histories to the boardroom, all of which may be extremely beneficial to the growth of the companies. Appointing members who come from a variety of different backgrounds and have experience that is pertinent to the company’s field of operation and operations improves the board’s capacity to make well-informed decisions and efficiently handle issues.
- Accountability and Oversight: Directors play a critical part in holding the companies responsible to shareholders and other stakeholders while also playing an important role in supervising the operation of the organisation. They serve as checks and balances to ensure that the companies conducts its business in an ethical manner, abides by all applicable laws, and looks out for the interests of its stakeholders.
- Strategic Guidance: The Directors are responsible for contributing to the formulation and carrying out of the Strategic Goals and Plans of the Company. Their expertise and unique perspectives contribute to the formulation of long-term plans, the identification of opportunities and dangers, and the promotion of the growth and sustainability of the organisation.
- Investor Confidence: Confidence in the company’s future may be instilled in investors and other stakeholders when the board of directors is comprised of strong and competent members. The enhancement of a company’s reputation and appeal to prospective investors and business partners may be accomplished by populating the board of directors with competent individuals who are honest, knowledgeable, and have a proven track record.
Process of Appointment of Director
- The Director Identification Number (DIN) must be obtained.
- The individual who is being considered for appointment to the board of directors is required to apply to the Ministry of Corporate Affairs (MCA) for a Director Identification Number (DIN).
- Through the MCA’s online portal, a DIN application may be submitted by uploading the necessary papers and making the needed payment, as well as being made available for download.
- Check for Eligibility and Exceptions to the Rule:
- Verify that the prospective director satisfies the eligibility requirements and is not barred from serving in any capacity under the Companies Act of 2013.
- It’s possible to be disqualified for a variety of reasons, including being an undischarged bankrupt, having a criminal conviction on your record, or having a mental condition that’s considered unsound.
- Resolution of the Board:
- The appointment for an additional director should be approved by the Board of Directors of the Company.
- The resolution must include the director’s full name, DIN, as well as any other pertinent information.
- The resolution has to be approved in a board meeting that has been properly called and has the necessary quorum, and its passage needs to be documented in the meeting’s minutes.
- Disclosure and Consent to act as Director:
- It is necessary to have written confirmation of the proposed director’s agreement to serve on the board of directors in form of DIR 8 and MBP 1.
- The consent in the Form DIR-2 should be filed with the companies, declaring that the individual is willing to serve as a director and that they are not disqualified to do so.
- The director is obligated to make the board of directors aware of any other companies or companies in which he or she has a financial interest.
- Approval from the Shareholders:
- The power to appoint directors vests with the shareholders. However, the Company may appoint additional directors with the approval of Board of Directors by passing a resolution in the meeting of Board The additional director appointed shall hold office till the next annual general meeting. The Company may however, regularize the appointment of such director in the next Annual General Meeting.
- Intimation to Registrar:
- Within thirty days following the appointment, the Company is required to file E for DIR-12 with the jurisdictional Registrar of Companies
- Keep the Company’s Registers Up to Date:
- The companies is required to update its registers after appointment of new directors.
Process of Resignation of Director
- Intimation to the Board: Any director who wishes to step down from their position from directorship is required to inform the board of directors of the company in writing of their decision. The date that the resignation will take effect, the reasons for the resignation (if wanted), and any other pertinent information should all be included in the resignation letter.
- Meeting of the Board of Directors: The board of directors should call a meeting of the board of directors in order to discuss and accept the resignation. The resignation has to be documented in the meeting’s official minutes and accepted by the board in the appropriate manner.
- Letter of Resignation from Director: The director’s letter of resignation should be kept as part of the company’s records. It can be provided as evidence of the director’s desire to resign whenever it is necessary for regulatory and compliance purposes, and it acts as proof of that intention.
- Form DIR-11: The resigning director may submit a copy of their resignation to the Registrar of Companies (ROC) within 30 days from the resignation date through Form DIR-11.
- Form DIR-12: The Company must submit Form DIR-12 to the Registrar of Companies (ROC) within thirty days of the resignation taking effect.
- Register of Directors: The Company is required to make the appropriate changes to its Register of Directors in order to reflect the resignation of the director. The register has to be immediately and precisely updated, specifying the date that the resignation will become effective.
- Disclosure in Annual Financial Statements: The fact that the director has resigned their position needs to be included in the disclosure in the annual financial statements and annual report of the companies.
Type of Director
Directors within a company can be categorized into several types based on their specific roles and responsibilities. The main categories include:
- Managing Director (MD): A Managing Director is a director who possesses significant managerial authority over the company’s operations and is entrusted with substantial powers of management of the affairs of the Company. Managing Directors are also known as MDs. They are the ones who are in charge of the day-to-day operations and have a stronger say in the decision-making process.
- Whole-time Director (WTD): A director who is employed by the companies on a full-time basis and has major responsibility in the administration of the company is referred to as a Whole-time Director. They focus their whole attention on the operations of the business and are eligible to obtain payment in exchange for the services they provide.
- The acronym “Independent Director” (ID) refers to a non-executive director who is not related to the companies or its promoters in any way. An independent director is also known as a “ID.” They bring a viewpoint that is uninfluenced to the board, which is an essential part of their job in the governance of the company.
- Additional Director: The board of directors of the Company can appoint additional director- who shall hold the office till the ensuing general meeting and at the general meeting the appointment of director shall be regularised by the shareholders. Their appointment is provisional, and it is contingent upon the approval of shareholders at the upcoming annual general meeting (AGM).
- Alternative Director:An alternate director is a member of the board of directors who is given the responsibility of filling in for a regular director in the event that the regular director is unable to attend board meetings or is temporarily gone from the nation. During the time when the primary director is absent, the tasks and obligations of the organisation must be carried out by the alternate director.
- Nominee Director: A financial institution, venture capitalist, or any other body that has invested in the companies can nominate an individual to serve as a Nominee Director for the company. The appointment is made in order to ensure that the investing entity’s interests are adequately represented on the board of directors.
- Small Shareholder Director: The Companies Act of 2013 allows for the appointment of a Small Shareholder Director in certain circumstances. A small shareholder, as that term is used under the Act, has the ability to propose a director to serve as a representative of the small shareholder’s interests on the board. The nomination is determined by the results of an election that is held among small shareholders who are qualified for the vote.
- Women Director: Listed companies and public companies having prescribed capital or turnover are obliged to have at least one female director on their board. This clause intends to encourage gender diversity and inclusion in the governance of corporations.
What is included in this
FAQs
The Director identification Number, often known as a DIN, is a one-of-a-kind identifying number that is provided by the Ministry of Corporate Affairs (MCA) to persons who are willing to be appointed as directors of corporations. A DIN is a director identification number, and all directors are required to have one.
According to the Companies Act of 2013, there are specific requirements to fulfil in order to become a director. The individual must be a natural person, of legal age, and should not have been adjudicated as bankrupt or convicted of specific offences in the past.
As per Section 152 of the Act, the appointment of Directors of the Company shall be approved by the shareholders of the Company. However, the Board of the Company if authorised by its articles may appoint Additional Director, Nominee Director or Alternate Director or may appoint a Director for filing the casual vacancy.
There are several stages involved in the process of removal of a director from their position in a company. The Companies Act, 2013 outlines the precise method in further detail. As per Section 169 of the Act, a company may, by ordinary resolution, remove a director, after giving him a reasonable opportunity of being heard.
The director should disclose his/her interest in other entities in form of MBP 1.
The appointment of directors may typically be made by the board of directors through the use of a board resolution in the majority of circumstances. When selecting an independent director, for example, or in accordance with the provisions of the company’s Articles of Association, shareholder approval may be necessary for the appointment to take place. However, there are situations in which this is not the case.
Providing formal notice of resignation to the board of directors is required in order for a director to step down from their position at any time. On the other hand, the resignation will become effective as of the date that is mentioned in the notification or as of the day that the company receives the notice, whichever date is later.
Under the Companies Act of 2013, there is no specific structure for the letter of resignation that a director is required to submit. Nevertheless, it is advisable to mention the date that the resignation will take effect, the reasons for the resignation (if wanted), and any other pertinent facts. It is imperative that the resignation letter be signed and delivered to the board of directors as soon as possible.
If a director has already handed in their resignation, the only way for them to take it back is if the board of directors has not yet accepted it. If the board has already accepted the resignation, it is not possible to take it back at this point.
A director can quit through electronic methods such as email as long as the resignation is submitted in writing and includes all of the required information. It is advisable to refer the Articles of Association regarding the method of resignation.
The company is required to submit Form DIR-12 to the ROC within thirty days of the day the resignation became effective.
Even after submitting their resignation, directors are continued to be held accountable for any actions or omissions that took place during their time in office. They are responsible for ensuring that any outstanding obligations are completed, returning any business property, and providing any essential help to the companies throughout the period of transition.
