Appointment of Director to Your Company
Appointment of Director to Your Company
In a Private Limited Company, directors are vital for daily management and making important decisions. They are responsible for handling the money invested by shareholders. Sometimes, a company might need to add more directors to meet the business’s growing needs or the shareholders’ requests. Following the Companies Act 2013 is essential when appointing directors to your company. This article explains the procedure for appointing a Director to Your Company.
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Who Is a Director?
Shareholders appoint a company director to supervise the company’s activities, as guided by the Memorandum of Association (MOA) and Articles of Association (AOA). Since a company is a legal entity and cannot act independently, it functions through natural persons, which, in this case, are the directors. The Board of Directors, composed of these individuals, is responsible for the company’s management.
The need for appointing directors can arise based on the shareholders’ requirements.
- In a Private Limited Company, directors hold significant importance. They are tasked with making everyday decisions and overseeing the company’s administration.
- Shareholders rely on these key individuals, the directors, to manage their investments effectively.
Types of Directors of a Company
A company’s directors are categorized into various types based on their roles and responsibilities. The most common types include:
- Executive Directors: These directors are actively involved in the company’s daily management. They often hold specific executive roles, such as Chief Executive Officer (CEO), Chief Financial Officer (CFO), or Chief Operating Officer (COO).
- Non-Executive Directors: Unlike executive directors, they do not participate in the company’s day-to-day management. They provide independent oversight to the company’s board and its management.
- Independent Directors: They are a subset of non-executive directors with no financial or other vested interests in the company apart from their role as directors. Independent Directors’ primary responsibility is to safeguard the interests of the company’s shareholders.
Appointment of Director to Private Limited Company
A Private Company must have a minimum of two directors and can have up to fifteen. If needed, the company can exceed this limit by appointing additional directors through a special resolution, which demands support from over 75% of the voting shareholders. Occasionally, a company might need to expand its board of directors to meet business needs or shareholder demands. However, all such appointments must align with the regulations outlined in the Companies Act 2013 to ensure legal validity.
Relevant Provisions of the Companies Act, 2013
The Companies Act of 2013 includes several provisions relevant to the appointment, addition, and change of directors in a company. Key sections include:
- Section 149: Details the composition of the Board of Directors, including mandatory requirements like having a certain number of directors, a female director, and a resident director.
- Section 152: Specifies the process for appointing directors, typically done at the company’s general meeting, and mandates using the Director Identification Number (DIN).
- Section 161: Provides guidelines for appointing additional, alternate, and nominee directors by the Board.
- Section 164: Lists the disqualifications for becoming a director.
Reasons for Adding or Changing Directors in a Company
There are several key reasons why a company might choose to add or change its directors:
- Introducing New Talent to the Board: As a company grows, it often becomes necessary to bring new talent to the board of directors. This helps the company address new challenges and requirements that come with expansion.
- Preventing Ownership Dilution: Directors handle the day-to-day management and operations. By appointing additional directors, shareholders can delegate more operational responsibilities without relinquishing strategic control.
- Addressing Inefficiency of Current Directors: If existing directors are underperforming due to personal issues like health problems, retirement, or family concerns, a company may opt to appoint new directors to maintain efficiency.
- Complying with Statutory Requirements: According to the Companies Act 2013, companies must maintain a specific number of directors. Suppose the number falls below the minimum due to events like death or retirement. In that case, new directors must be appointed promptly to comply with the legal requirements (e.g., a minimum of two directors for a private limited company).
Eligibility To Be A Director In a Company
To be eligible for appointment as a director in a company, an individual must meet specific criteria:
- The individual must be at least 18 years old, as minors are not permitted to hold the director position.
- The person should not be disqualified under the provisions of the Company Act 2013.
- There must be mutual consent: the Board of Directors, the shareholders, and the individual being considered for the directorship must agree to the appointment.
Necessary Documents for Appointment of Director
To appoint a director, the following documents are required:
- PAN Card: The Permanent Account Number card of the director.
- Identification Proof: Valid documents like Voter ID, Driving License, Aadhaar Card, etc.
- Proof of Residence: Documents showing the director’s residential address, such as utility bills, rental agreements, etc.
- Passport Size Photograph: A recent passport-sized photograph of the director.
- Digital Signature Certificate (DSC): This is needed to sign documents electronically.
Procedure for Appointing/Add a Director to a Company
The detailed process for appointing or adding a director to a company is outlined below:
Reviewing the Articles of Association (AOA)
The initial step in appointing a director is to examine the company’s AOA. The AOA must include a specific clause permitting the appointment or addition of directors. If the current AOA lacks such a provision, it should be amended to include a clause allowing new directors to be added.
Conducting a General Meeting for Director Appointment
The company must formally appoint a director by passing a resolution in a general meeting. This can occur during an Annual General Meeting (AGM). However, if there’s a need to appoint a director mid-year, the company can do so in an Extraordinary General Meeting (EGM).
To arrange an EGM, the company must conduct a board meeting to pass a resolution for holding the EGM. Subsequently, a resolution to appoint a new director is passed in this meeting. Following the appointment, the company must file the resolution in Form MGT-14 with the Registrar of Companies within 30 days of passing the resolution.
Applying for Director Identification Number (DIN) & Digital Signature Certificate (DSC)
Once the company has passed a resolution to appoint a director in a general meeting (either AGM or EGM), the individual selected for directorship must apply for a Digital Signature Certificate (DSC) and a Director Identification Number (DIN), assuming they do not already possess these.
After obtaining the DIN, the prospective director must provide the company with their DIN along with a declaration affirming that they are not disqualified from being a director under the Companies Act, 2013.
Obtaining Consent from the Prospective Director – FOrm DIR-2
Following acquiring the Director Identification Number (DIN), the individual proposed for directorship must express their consent to serve in this role. This is done by submitting Form DIR-2, a formal consent to act as a director. It’s important to note that an individual cannot be appointed as a company director without explicitly giving their consent to assume the responsibilities of the director’s office.
Issuing a Letter of Appointment to the Director
Once the necessary procedures are completed, the company should issue a formal Letter of Appointment to the newly appointed director. This letter should detail the terms and conditions of their appointment, including aspects such as their role, responsibilities, and any remuneration or salary that will be paid to the director.
Filing Forms DIR-2 and DIR-12 with the ROC
Once the resolution for the appointment of a director is passed and the individual has submitted Form DIR-2 (consent to act as a director), the company can officially appoint them as a director. Following the appointment, the company must file both Form DIR-2 and Form DIR-12 (which details the particulars of the director’s appointment) with the Registrar of Companies (ROC). These forms must be filed within 30 days of the director’s appointment to ensure compliance and proper registration of the new director.
Making Necessary Entries in the Register of Directors
The company must enter the necessary information in the Register of Directors and Key Managerial Personnel.
Filing Amendment Applications with GST and Tax Authorities
After appointing a new director, the company must file the necessary applications to update the director’s details with various regulatory authorities. This includes making amendments to the GST Network (GSTN) and other relevant certificates, as applicable, to reflect the change in directorship. This step ensures compliance with tax and regulatory requirements.
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