Director is an individual appointed to manage and oversee a company’s operations, ensuring it meets its goals and complies with legal requirements. Directors are responsible for making strategic decisions, protecting shareholder interests, and guiding the company’s long-term growth. They act as fiduciaries, managing the company’s assets and resources responsibly. Directors can be executive (involved in daily operations) or non-executive (focused on oversight), depending on their role within the company. Their duties are governed by laws such as the Companies Act, 2013.
Appointment of Director:
Companies Act, 2013 provides a comprehensive framework for the appointment of directors in Indian companies. Directors are crucial in managing and overseeing a company’s activities, ensuring compliance with the law, and protecting the interests of shareholders. The appointment process is governed by specific rules under the Act to ensure transparency and accountability.
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Minimum and Maximum Number of Directors
Every company must have a minimum number of directors:
- Private Company: At least two directors.
- Public Company: At least three directors.
- One Person Company (OPC): At least one director.
The maximum number of directors a company can appoint is 15, but this can be increased by passing a special resolution in a general meeting.
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Eligibility for Appointment
To be appointed as a director, an individual must:
- Be at least 18 years old.
- Not be disqualified under any of the provisions of the Companies Act, such as being of unsound mind, an undischarged insolvent, or convicted of an offense involving moral turpitude.
- Obtain a Director Identification Number (DIN) before being appointed.
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Ordinary and Special Resolutions
Directors can be appointed through the following methods:
- Ordinary Resolution: Appointment of directors is generally done through an ordinary resolution passed in the company’s general meeting.
- Special Resolution: If the number of directors exceeds the statutory limit of 15, a special resolution must be passed.
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Appointment by the Board
In some cases, the board of directors can appoint:
- Additional Directors under Section 161(1) if authorized by the Articles of Association. Their tenure ends at the next AGM.
- Alternate Directors to act temporarily in place of a director who is absent for more than three months from India.
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Appointment by Shareholders
At the company’s Annual General Meeting (AGM), directors are appointed or re-appointed by the shareholders. The rotation policy requires at least one-third of the board to retire by rotation every year.
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Appointment of Independent Directors
Under Section 149, public companies with a paid-up share capital of ₹10 crore or more, turnover of ₹100 crore or more, or outstanding loans/debentures/deposits of ₹50 crore or more must appoint independent directors. Independent directors should not have any material relationship with the company that could affect their judgment.
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Appointment of Woman Directors
Under Section 149(1), certain categories of companies are required to appoint at least one woman director. This applies to:
- Listed companies.
- Public companies with a paid-up share capital of ₹100 crore or more or turnover of ₹300 crore or more.
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Director Identification Number (DIN) Requirement
Before being appointed as a director, every individual must obtain a DIN, which is a unique identification number issued by the Ministry of Corporate Affairs (MCA). Without a valid DIN, a person cannot be legally appointed as a director.
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Consent to Act as Director
Under Section 152(5) of the Companies Act, every person appointed as a director must give their written consent to act as a director in Form DIR-2 before their appointment. The consent must be filed with the Registrar of Companies (ROC) in Form DIR-12 within 30 days of the appointment.
Removal of Director:
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Grounds for Removal
Directors can be removed on various grounds:
- Non-performance: Failure to fulfill their duties and responsibilities.
- Misconduct: Engaging in fraudulent or unethical behavior.
- Breach of fiduciary duty: Acting in a manner that is not in the best interests of the company or its shareholders.
- Incapacity: Being of unsound mind or undischarged insolvent.
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Removal by the Central Government
Under certain circumstances, the Central Government can also remove a director. This usually occurs when the director is found guilty of fraud, misfeasance, or other violations of law.
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Effect of Removal
Once a director is removed, they cease to be a director of the company immediately upon the passing of the resolution. However, the removal does not affect any contractual rights or liabilities the director may have with the company.
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Filing with the Registrar
After the removal of a director, the company must file a notice with the Registrar of Companies (ROC) in Form DIR-12 within 30 days of the removal.
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Consequences of Removal
Director who is removed may seek legal recourse if the removal is deemed unlawful or if the procedures outlined in the Companies Act were not followed.
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