A director is an individual who has the responsibility of directing, managing, and controlling the affairs of the company. The objective of the appointment of the director is to determine and implement the policies, once the Company Registration is complete. They need to manage the business and other affairs, by the provisions of The Company Act, 2013.
The appointment of the Director is an essential part of the growth and management of the Company. This board of directors is entrusted to perform the duties and functions of a company.
Appointment of Director is covered under Section 152 of Companies Act 2013, along with Rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014.
|Types of Company||Directors|
|Public Company or a Private Limited Company Registration is done as a subsidiary or associate of a Public Company.|
|A Private Limited Company is not a subsidiary or associate of a Public Company.|
Note: The Companies Act also permits the AoA to provide for the appointment of two-thirds of the Directors following the principle of proportional representation, if adopted in the particular company registration.
Nominee Directors can be appointed by the Central Government or a third party, in the case of oppression or mismanagement.
Number of Directors
One Person Company (OPC): Minimum 1, Maximum 15
Private Limited Company: Minimum 2, Maximum 15
Public Limited Company: Minimum 3, Maximum 15
Appointment of Director over 15 is allowed after passing a special resolution (with 75% or more members consenting) in general meeting.
Further, there has to be at least one appointment of director who has resided within the country for at least 182 days in the previous calendar year.
Qualifications for Directors
The Companies Act 2013, does not prescribe any qualifications for Directors of any company. However, as per various provisions mentioning the appointment of a director, the following conditions must be applied:
- A director must be an individual, as per Section 149(1),
- The person should be of sound mind,
- He must hold share qualification if the AoA provides for it.
- A director should be a solvent person,
- He must not have a history of any conviction under any court for any offense.
A company may prescribe qualifications for appointment of director, in its AoA.
Documents required for Appointment of Director
- Apply for DIN: A person must have Director Identification Number, i.e. DIN, as per Section 154, to become a Director. This can be obtained online by filing DIR -3 on MCA.
- Apply for DSC: To apply for DIN, you need to register Digital Signatures (DSC) in India. The appointment of the director can be done only with their digital signature and so the first step is to create DSC.
- Step 1: Apply for DSC on the MCA portal.
- Step 2: Fill form DIR-3 KYC, (the application for DIN), affix DSC on it, and file it on the MCA portal, with the fees, as applicable.
- Step 3: Once the DIN has been allotted, prepare documents for the appointment of the director of the company and file these and below documents in the Format of Form DIR- 12.
- DIR-2 (Consent to act as a Director of the Company), under Rule-8.
- DIR-8 (Declaration by the Director about his interest in the appointment and that he is not disqualified u/s 164 of the Companies Act, 2013).
- Disclosure of Interest, as per Section 184(1) and Rule 9(1) of Companies (Meetings of Board and its Powers) Rules, 2014. This is to be filed in Form MBP-1. The date on this form must not be dated from the date of his/her appointment as Director. Even if there is nothing to be disclosed, this Form MBP-1 is mandatory, u/s 184(1).
- Filing of Form DIR-12: with the Registrar of Companies (ROC) along with the above-listed documents within a period of 30 days from the date of his/her appointment. It would include his remuneration.
- A resolution passed by the Company for his/her appointment
- Letter of Appointment from the company, after the resolution, has passed.
Categories of Director
An important change regarding the appointment of Director u/s 149 of the Companies Act, 2013. According to which, every Company must have at least 1 Resident Director, a person who has resided in India for not less than 182 days in the previous calendar year.
A company that meets the below criteria must appoint women as director, as per section 149. It states that, in the case of Company Registration done under certain classes, the women’s strength in the board should not be less than 1/3. Whether these companies have been listed as Public Limited or Private Limited Companies.
- The company is a listed company and its securities are listed on the stock exchange,
- paid-up capital of Rs. 100 cr. or more, or
- turnover of Rs. 300 cr. or more.
Though there is no specific definition of an Independent Director as per the Companies Act of 1956. We can explain an Independent Director as a non-executive director who helps the company in improving corporate credibility and governance standards. And must not have a relationship with the company that may affect the independence of his/her judgment.
The tenure of hiring an Independent director is, generally, limited to 5 consecutive years, however, they can be re-appointed by passing a special resolution.
It is mandatory to appoint at the least 2 independent directors, for those Public companies:
- that have a Paid-up Capital of Rs. 10 Crores or more,
- having a Turnover of Rs. 100 Crores or more,
- with total outstanding loans, deposits, and debenture of Rs. 50 Crores or more.
Small Shareholders Directors
The Listed company, could have a director elected by small shareholders. It needs a notice of a minimum of 1000 small shareholders or 10% of the total number of shareholders, whichever is lower.
A company can appoint a person as an additional director, till the next Annual General Meeting. If for some reason, the next AGM isn’t held, then his term would end on the date on which such AGM should have been held.
In case a director has to leave the country for a period of more than 3 months. The Board can appoint a person to take his place for the duration.
Only a specific class of shareholders, banks or NBFCs, etc are allowed to appoint Nominee Directors. Or one may be appointed by third parties through contracts, or by the Central Government when there has been some case of oppression or mismanagement.
Restrictions on the number of Directorships
The Companies Act prevents a Director from holding the directorship, in more than 15 companies, at the same time. To arrive at this number of 15, companies below are to be excluded:
- A “purely” private company, i.e one which is not a subsidiary or sister concern of a Public Company,
- A Not for Profit Organization, or one that prohibits the payment of any dividends, and
- If he is only appointed as an Alternate Director.
Failure of the Director to comply with these regulations will result in a penalty of Rs. 50,000/- per company, for each company that he is a Director of, over the 15 companies.
For more information related to compliances for different company structures, under various Companies Acts, visit our website Companyregistrationonline.