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Appointment of Directors under Companies Act, 2013

A Director may be defined as an individual who directs, controls or manages the affairs of the Company. A director is a person who is appointed to perform the duties and functions of a company in accordance with the provisions of the Company Act, 2013^[1]. They are collectively known as the Board of Directors. In this article we shall discuss the aspects related to appointment of directors.

Every Company shall have a Board of Directors consisting of Individuals as director.

They play a very important role in managing the business and other affairs of the Company. The appointment of Directors is very crucial for the growth and management of the Company. Every Company shall have a Board of Directors consisting of individuals as directors.

Appointment of Directors (Companies Act, 2013)

Generally, in a public company or a private company subsidiary of a public company, two-third of the total number of Directors are appointed by the shareholders and the remaining one-third’s appointment is made as per Articles and failing which, shareholders shall appoint the remaining one-third. In a private company, which is not a subsidiary of a public company, the Articles can prescribe the manner of appointment of any or all the Directors. In case the Articles are silent, the Directors must be appointed by the shareholders.

The Companies Act also permits the Articles to provide for the appointment of two-thirds of the Directors according to the principle of proportional representation, if so adopted by the company in question.

Nominee Directors can be appointed by a third party or by the Central Government in the case of oppression or mismanagement.

Minimum Number of Directors Required in Company

Minimum number of directors differs from company to company:

1. Minimum two directors, in case of Private Limited Company.
2. Minimum three directors, in case of Public Limited Company.
3. In the case of One Person Company, minimum one director.
4. Maximum 15 directors can be appointed by any Company. If Company wants to have more than 15 directors necessary approvals is required under the law.

Further, every Company should have one Resident Director (i.e. a person who has lived at least 182 days in India in the previous calendar year.)

Director’s appointment is covered under section 152 of Companies Act, 2013, along with Rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014.

Appointment of Directors: Qualifications for Directors

The Companies Act does not prescribe any qualifications for Directors of any company. An Indian company may, therefore, in its Articles, stipulate qualifications for Directors.

The Companies Act does, however, limit the specified share qualification of Directors which can be prescribed by a public company or a private company that is a subsidiary of a public company, to be five thousand rupees (Rs. 5,000/-).

Appointment of Directors: Documents for Appointment

Following documents are required for appointment of a person as Director:

• In India, The appointment of directors can be only done through the digital signature and so 1^st step is to create DSC.
• DIN is a mandatory requirement for becoming a director of a Company. A person must have DIN i.e. Director Identification Number which can be obtained online by filing DIR -3 on MCA.
• A letter in writing stating his consent as Director.
• A letter in writing to the effect that the person is not disqualified to be appointed as Director as specified under Law; Disclosure of Interest in Other Companies (shareholding pattern); if any, else a NIL disclosure is sufficient.
• Notice to call Board meeting with Explanatory Statement.
• Appointment letter to be issued by the Company to a director for its appointment.
• E-form DIR-12 with ROC along with above-mentioned documents such as consent / Approval letter, DIR- 2, and notice and certified copy of a resolution of Meeting. Form to be filed within 30 days.

New Categories of Director

Resident Director:

This is one of the most important changes made in the new regime, particularly in respect of the appointment of Directors under section 149 of the Companies Act, 2013. It states that every Company should have at least one resident Director i.e. a person who has stayed in India for not less than 182 days in the previous calendar year.

Woman Director:

Now the legislature has made mandatory for certain classes of the company to appoint women as director. As per section 149, prescribes for a certain class of the company their women’s strength in the board should not be less than 1/3. Such companies either listed company and any public company having-

1. Listed company;
2. Public company having paid-up capital of Rs. 100 cr. or more, or
3. Public company having turnover of Rs. 300 cr. or more.

Additional Director:

All public or private companies may appoint additional director. However, the articles should allow for it and such person shall not fail to be selected as director in general meeting. An additional director can be appointed in board meeting or by passing resolution by circulation.

Restrictions on the number of Directorships

The Companies Act prevents a Director from being a Director, at the same time, in more than fifteen (15) companies. For the purposes of establishing this maximum number of companies in which a person can be a Director, the following companies are excluded:

1. A “pure” private company;
2. An association not carrying on its business for profit, or one that prohibits the payment of any dividends; and
3. A company in which he or she is only appointed as an Alternate Director.

Failure of the Director to comply with these regulations will result in a fine of fifty thousand rupees (Rs. 50,000/-) for every company that he or she is a Director of, after the first fifteen (15) so determined.

Conclusion

It may be noted that as per the Companies Act of 2013, no person shall hold directorship in more than 20 companies and 10 in case of public company. In case you have any query related to appointment of directors, contact Enterslice.

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