A director is someone elected or appointed to manage a company’s business and affairs.Every registered company must have at least one director. Who your directors are, and key information about them, is recorded on the Companies Register.
The Companies Act 2013 is an Act of the Parliament of India on Indian company law which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company. The 2013 Act is divided into 29 chapters containing 470 sections as against 658 Sections in the Companies Act, 1956 and has 7 schedules. However, currently there are only 438 (470-39+7) sections remains in this Act. The Act has replaced The Companies Act, 1956 (in a partial manner) after receiving the assent of the President of India on 29 August 2013. The Act came into force on 12 September 2013 with few changes like earlier private companies maximum number of members were 50 and now it will be 200. A new term of “one-person company” is included in this act that will be a private company and with only 98 provisions of the Act notified. A total of another 184 sections came into force from 1 April 2014.
The Ministry of Corporate Affairs thereafter published a notification for exempting private companies from the ambit of various sections under the Companies Act.
The 2013 legislation has stipulations for increased responsibilities of corporate executives in the IT sector, increasing India’s safeguards against organised cyber crime by allowing CEO’s and CTO’s to be prosecuted in cases of IT failure.
The law requires that every company must have at least 3 directors in case of public limited companies, minimum 2 directors in case of private limited companies and minimum 1 director in case of one person companies. A company can have maximum 15 directors. The company could appoint more directors by passing the special resolution in its general meeting.
- Residential Director
As per the law, every company needs to appoint a director who has been in India and stayed for not less than 182 days in a previous calendar year.
- Independent Director
Independentdirectors are non-executive directors of a company and help the company to improve corporate credibility and enhance the governance standards. In other words, an independent director is a non-executive director without a relationship with a company which might influence the independence of his judgment.
The tenure of the Independent directors the hall up to 5 consecutive years; however, they shall be entitled to reappointment by passing a special resolution with the disclosure in the Board’s report. Following companies need to appoint at the least two independent directors:
- Public Companies with Paid-up Capital of INR 10 Crores or more,
- Public Companies with Turnover of INR 100 Crores or more,
- Public Companies with total outstanding loans, deposits, and debenture of INR 50 Crores or more.
- Small Shareholders Directors
A listed company, could upon the notice of minimum 1000 small shareholders or 10% of the total number of the small shareholder, whichever is lower, shall have a director which would be elected by small shareholders.
- Women Director
A company, whether be it a private company or a public company, would be required to appoint minimum one woman director in case it satisfies any of the following criteria:
- The company is a listed company and its securities are listed on the stock exchange.
- The paid-up capital of such company is INR 100 crore or more with a turnover of INR 300 crores or more.
- Additional Director
A person could be appointed as an additional director and can occupy his post until next Annual General Meeting. In absence of the AGM, such term would conclude on the date on which such AGM should have been held.
- Alternate Director
Alternate director refers to a personnel appointed by the Board, to fill in for a director who might be absent from the country, for more than 3 months.
- Nominee Directors
Nominee directors could be appointed by a specific class of shareholders, banks or lending financial institutions, third parties through contracts, or by Union Government in case of oppression or mismanagement.
Disqualification of Director :-
Under company law, a director can be disqualified for any of the following reason:
- He is of an unsound mind and is declared so by the court.
- He is insolvent.
- He is in the process of declaring insolvency and his application is pending.
- He has been convicted by a court of any offence (whether or not involving moral turpitude) and has been imprisoned for at least six months. However, if a person has been convicted of any offence and has served a period of seven years or more, he shall not be eligible to be appointed as a director in any company.
- If an order has been passed disqualifying him of being appointed as a director by a court or Tribunal.
- He has not paid any calls with respect to any shares of the company held by him, whether alone or jointly with others, and a period of six months has elapsed from the last day fixed for the payment of the call.
- He has been convicted of offences dealing with related party transactions at any time during the last preceding five years.
- He has failed to acquire a Director Identification Number.
- Self-attested copy of PAN
- Self-attested copy of identity and address proof such as passport or Aadhar card or Election card
- Passport size photograph of the director to be appointed
- Consent to act as director in format of DIR-2
- Copy of resolution passed by the shareholders
- Notice for shareholders meeting
First Step is to take consent letter from the Directors in DIR-2 along with ID and address proof. Along with this, other forms like DIR-8 declaration, disclosure of interest in MBP-1 should be collected from the proposed Directors.
Next step is to analyse the Articles of Association to understand whether the appointment can be made only by calling a meeting of the shareholders or whether the Articles permit the Board to appoint an Additional Director who can be confirmed in the next General Meeting.
In the first case i.e. the director can only be appointed by the shareholders, then the Directors need to call a shareholders meeting (which can be Annual General Meeting or the Extra Ordinary General Meeting, depending on the timing). Notice for such meeting will need to contain the agenda of appointment of Director with the consent letters and other attachments.
In the second case, in my opinion, director can be appointed by Board Meeting or by Circulation by resolution. In both case, notices should contain the agenda along with consent letters and other attachments.
Once the resolution has been passed in either of the above cases, prepare an appointment letter and then file Form DIR -12 within 30 days of the passing of the resolution.
Note: Any proposed Director should have Director Identification Number (DIN) before he or she is eligible to be appointed as a Director. If DIN is already existing and active, then the process is as above.
If not, then DIR -3 needs to be filed to obtain the same.
The time period to file for the appointment of the director takes about 10 – 15 working days.
Is DIN mandatory ?
Director Identification Number (DIN) is a mandatory requirement for all existing and new directors (or proposed directors) of a company.
After What Duration can the Director resign ?
- Notify the directors first about resignation and provide a notice period of 30 days or as stipulated in standing orders.
- Notify the Registrar of Companies of the company’s jurisdiction about resignation and provide a notice period of the same. Notice of resignation will be sent to the Registrar through applicable MCA forms. Note that the procedures for notice of resignation and post resignation are available with a registered Chartered accountant.
- Registrar will inspect books, conduct a meeting with board of directors and either approve of or disapprove the resignation.
- Only after approval by Registrar the director will be able to successfully resign from the company. If the director resigns from the company without any approval by Registrar such a resignation will be considered unlawful and unethical as well. The resignation will be held void and sham if made without approval by Registrar.
Can a NRI / Foreigner Become a Director?
A foreigner or Non Resident Indian (NRI) can be appointed as executive or a non-executive/independent director in a Private Limited Company provided that there shall be at least one Director who is resident of India
Is DSC compulsory to become director?
Basis pre requirement to add a Director is Digital Signature. Once Digital signature is done, legal filing can be done to MCA for issuing Director Identification Number for Proposed director.