APPOINTMENT OF A DIRECTOR IN A COMPANY
As per Section 2(34) of the Companies Act, 2013 “Director” means any person appointed to the board of the company.
In layman language we can define director as a person who is responsible for managing, controlling, directing and managing the affairs and management of the company. Directors are the top personnel in the organization under which the other employees in a company work. There are different types of directors mentioned as per the Companies Act, 2013:
- Residential Director
- Women Director
- Independent Director
- Small Shareholders Director
- First Directors
- Additional Director
- Alternate Director
- Nominee Director
PROVISIONS RELATED TO APPOINTMENT OF DIRECTOR
As listed above there are different types of directors as listed in the Companies Act, 2013. Every director have their own selection criteria and eligibility
As per Section 149 (3) every company shall have a residential director which means that company shall have minimum of 1 director in the company who is resident of India ( should have stayed in India for a period of not less than 182 days in a year) . A company cannot have both directors as foreign director
As per Companies (Appointment and Qualification of Directors) Rules, 2014 every listed company and every other public company having paid up share capital of Rs. 100 crores or more or turnover of Rs. 300 crore or more shall appoint one women director on its board. The criteria for share capital and turnover shall be taken as per the latest audited financial statements
- Companies incorporated under the Companies Act 2013 shall be given a period of 6 months to comply with these requirements from the date on which it is applicable to them.
- In case any vacancy occurs for the position of women director, it shall be filled up the board within a period of 3 months from the date of such vacancy or not later than immediate next board meeting whichever is later.
As per Companies (Appointment and Qualification of Directors) Rules, 2014 every listed public company shall have atleast 1/3rd of the total number of directors as independent directors
Also all public companies as on the last audited financials shall have at least 2 directors as independent directors satisfying the below criteria:
- Having paid up share capital of Rs. 10 crore or more ; or
- Having turnover of Rs. 100 crore or more ; or
- Having in aggregate, outstanding loans/ borrowings/debentures/ deposits exceeding Rs. 50 crore or more.
In case the company needs to appoint a higher numberof independent directors due to composition of its audit committee in that case the company may appoint such higher no of independent directors;
In case any vacancy occurs on the position of independent director it shall be filled up the board within a period of 3 months from the date of such vacancy or not later than immediate next board meeting whichever is later;
In case the company failsto fulfill the conditions as listed above for a period of 3 consecutive years in that case the company need not comply with the provisions of this section;
There are certain criterias which are listed in Section 149 (6) for appointment of an independent director that needs to be complied.
Certain declarations have also to be given by an independent director which are listed under Section 149 (7);
Code of conduct for independent director has been prescribed under Section 149 (8);
Remuneration for independent director has been prescribed under Section 149 (9);
The independent director can be appointed for a tenure of 5 years and in case of further re-appointment that shall be done only after passing a special resolution. Provisions related to independent directors is in itself a very vast area. You can refer guide section for all details
Small shareholders director
As per Section 151 of the Companies Act, 2013 every listed company may have one director elected by such small shareholders.
- For the purpose of this section “small shareholder” means a shareholder holding shares of not more than Rs. 20,000 (twenty thousand) or such other sum as may be prescribed
- The tenure of small shareholder’s director shall not exceed a period of 3 years and he/she shall not be eligible for re-appointment after the expiry of this term
- If a person is not eligible or qualify for appointment according to Section 164 , then in that case he can’ t be appointed as small shareholder’s director
- Small shareholder director’s shall not hold office in more than 2 companies.
As per Section 152 first directors of the company and named in the articles of the company . In case they are not so named in the articles of the company in that case the first subscribers to the memorandum of the company shall be deemed as the first directors of the company.
In case any first director of the company has to be appointed , he shall be appointed by the company within 30 days from the date of incorporation of the company.
As per Section 161(1) additional director of the company is appointed by the company by its board of directors . Additional director of the company shall hold office upto the conclusion of the next Annual General Meeting or the last date on which Annual General Meeting shall be held whichever is earlier.
At the annual general meeting , the additional director shall be regularized and he shall be appointed as director . Form DIR-12 for appointment of director for regularization is also filed in this case
As per Section 161 (2) , alternate director can only be appointed in case the same has been authorized by its articles or the same has been authorized by passing a resolution in general meeting
- Director in whose absence the alternate director will be appointed shall be absent for atleast a period of 3 months
- An alternate director shall not hold place for a period more than as that may be permitted to the director in whose place the alternate director is been appointed
As per Section 161 (3) , if the same is authorized by the articles of the company , company may appoint any person as a nominee director as nominated by any financial institution for the time being in force of by any agreement by the Central or State Government keeping in mind the shareholding company holds in that Government Company
The following documents are required for appointment of director:
- Board Resolution for appointment
- Appointment letter given by the company to the director
- DIR-2 (Consent Letter by the Director)
- Copy of Pan as Proof of Identity and National ID or passport for foreign director (In case of foreign national should be attested by the Indian embassy in that foreign country);
- Copy of Aadhar as Proof of Residence and Copy of Bank Statement in country of residence in case of foreign director
- DIR-8 (Intimation regarding disqualification)
- Form MBP-1 (Interest of Director)
- DIN of the director, if not available it has to be applied by filing DIR 3
- Email id of the director
- Phone no of the director
- No. of companies in which person is already a Director and out of such companies the names of the companies in which I am a Managing Director, Chief Executive Officer, Whole time Director, Secretary, Chief Financial Officer, Manager.
- Particulars of Membership No. and Certificate of Practice no. if applicant is a member of any professional institute like ICAI, ICSI, ICMAI, BCI, etc.
PROCESS OF APPOINTMENT OF DIRECTOR
Under the Companies Act, 2013 there are different procedure mentioned for appointment of different types of directors as mentioned above.
Following procedure shall be followed for appointment of director:
- Firstly the company shall identify the person to be appointed as director of the company .
- Once the applicant has been identified , respective documents shall be submitted by the person (as mentioned above) to the company for proceeding with his appointment
- The director shall be appointed in board meeting as additional director and thereafter he shall be regularized as a director in the upcoming general meeting;
- It is also of great importance to identify the category of Appointment, i.e. Executive, Non-Executive, Independent, Nominee, etc.
- After the meeting is been held the company shall proceed with the appointment of director by filing Form DIR-12 with the Registrar of Companies
- In case the first directors of the company are appointed they are to be appointed within 30 days from the date of incorporation
ADVANTAGES OF APPOINTMENT OF DIRECTOR IN COMPANY
Every type of director mentioned under the Companies Act hold their own importance . Mentioning below are the advantages of their existence in the organization
Advantages of director in a company
- Director manages all the affairs of the company in a very efficient way
- In case any of the director is not able to attend the meetings, in that case alternate director acts in place of him so that the affairs of the company continues and there is no deadlock in the management of the company
- Every person has their own expertise. Every director holds their own level of expertise. Some are good in managing the finances of the company and some are good at the management level.
- Board of Directors of the company is that team of the company that manages all the polices of the company and all the decisions right from the ground level to the top most level
Time involved in appointment of director in company is about 1-2 working days , as the form is approved through STP (Straight Through Processing ) Mode.
FREQUENTLY ASKED QUESTIONS (FAQs)
Under this head we are covering some of the FAQs related to appointment of director in companies:
What is the minimum and maximum no of directors required to be appointed?
In case of private company – Min no of directors is 2
In case of public company – Min no of directors is 3
In case of OPC – Min no of director is 1
Provided that the company may appoint more than 15 directors after passing a special resolution.
How long will the directors be liable for the offences occurred during his tenure?
The director shall be liable for the acts / transactions occurred during his tenure even after resignation and disassociation with the company.
Can a director be appointed by the Board of the company?
As per the provisions of Section 152 of the CA, 2013, the directors of the Company are required to be appointed by the shareholders of the Company in general meeting, the Board of the Company, if authorised by the AOA of the company can appoint director under following circumstances:
Appointment of additional director
Appointment of nominee director
Appointment of alternate director
Appointment of director for filling casual vacancy
Is it mandatory for director to be appointed to hold DIN?
Yes, a person proceeding for appointment as a director of a company needs to hold DIN.
Is there is any tenure mentioned for the director’s appointment?
There is no tenure mentioned for the appointment of director as per the Companies Act, 2013 . However in case the person is appointed as Additional Director in the Board Meeting of the company in that case the person holds position as Additional director of the company until the conclusion of the next general meeting.
Also in case of independent director they are appointed for a period of 5 years
Is it mandatory for a director to hold digital signature?
Yes a person who intends to be appointed as a Director in a Company, should obtain a digital signature for filing the application
What are the disqualifications for appointment of director?
As per Section 164 of the Companies Act,2013, a person shall be ineligible for appointment as director if he is of unsound mind, is an undischarged insolvent, has been convicted by court of any offence, an order has been passed by the court of tribunal disqualifying him to be appointed as director ,he has not got DIN , has not paid calls in respect of any shares held by him and 6 months have been elapsed since the last call has been paid or the annual return or financial statements of the company in which he is already a Director, failed to file the same with the authority.
In our views , director is the heart of any organization . He manages the organization in a very diligent manner and all takes care that the organization works in a synchronized way so that the work in no effected neither the employees working in the organization.
As far for the purpose of knowledge we have covered all the main sections and the provisions related to them.
However for more brief reading to the same you can also refer the section mentioned with the relevant headings.