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Appointment and Qualification of a Company Director

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Directors relate to the part of the group called the Board of Directors, which is responsible for directing, managing, and leading a business’s actions. Directors are regarded as the trustees of the company’s property and money, and they serve as agents in deals that they have entered into on behalf of the business.

Directors are supposed to perform their duties and tasks as rationally dedicated people with competence, expertise, and experience. They are the person who performs the work of a director and of that himself. They play multiple roles in the company, such as agents, employees, officers, and guardians.

Minimum and Maximum Number of Directors in a Company

The Companies Act 2013 sets the minimum and maximum number of directors in a company. The minimum number of directors is as outlined below:

The highest number of directors a company can have is 15 directors. However, a company can select more directors by passing a special motion in its general meeting.

Qualifications of Directors:

 The Companies Act, 2013 has not yet set any educational or career standards of directors. Also, the legislation does not place standards for directors. Therefore, unless a company article provides a provision for that, the director does not have to be a shareholder unless he wants to be one freely. But articles typically provide for a small part of becoming eligible.

Terms of Appointment for Company Directors

Only a natural person can become a director in a company. Thus, an artificial person, such as a company, business, firm, organisation or group, cannot be chosen as a director. The terms of appointment of directors are the following:

  • The person must be above 21 years old.
  • The person should have a sound mind.
  • The person should not be an undischarged bankrupt.
  • The person should not have asked to be judged as a bankrupt.
  • The person should not have been found by a judge of a crime and ordered to jail for more than six months, and a period of five years should have passed from the completion of the term.
  • There should not be any order in force made by a court or panel rejecting the person for the director position.
  • The person should have paid any calls regarding any company shares owned by him/her within six months from the last day set for the payment of the call.
  • The person should not have been convicted of the crime dealing with related party deals under section 188 at any time during the previous five years.
  • The person must have a Director Identification Number (DIN).
  • The man or woman must now not be selected as a director in more than 19 groups or nine organisations in the case of public companies because the maximum quantity of companies wherein a person can act as a director is 20 agencies or ten companies in the case of public businesses.
  • A person cannot be chosen as a director if he/she is a director in the following companies:
  1. A business that has not submitted financial statements or annual returns for three financial years continuously.
  2. A business that has failed to return the deposits, pay interest on deposits, failed to collect any debentures on the due date, pay interest on debentures, or pay the dividend announced for more than one year.

The Appointment Process:

Here is a full explanation of how to add or appoint a director in a company:

  • Going over the Articles of Association

The first and most important step in selecting a director is to look at the company’s AOA. The AOA needs to have clear language allowing members to be added or appointed. If the present AOA doesn’t have this language, it should be changed to include one allowing new directors to be added.

  • Putting together a general meeting to choose directors

A vote must be carried out at a general meeting for the organisation to publicly name a director. This might take place at an Annual General Meeting. But if the business wishes to choose a director in the middle of the year, it can do so in an Extraordinary General Meeting.

To prepare for an EGM, the company must hold a board meeting to pass a move for having the EGM. Subsequently, a move to name the new director was passed during this meeting.

  • Asking for Director Identification Number & Digital Signature Certificate

Once the organisation has passed a vote to elect a director in a general meeting, the person picked for directorship ought to submit applications for a Digital Signature Certificate (DSC) and a Director Identification Number, considering they do not already hold these.

After obtaining the DIN, the possible director must present the company with their DIN and a note stating that they are not banned from serving as a director under the Companies Act 2013.

  • Obtaining Consent from the Prospective Director – FOrm DIR-2

Following gaining the Director Identification Number (DIN), the person suggested for leadership must express their agreement to serve in this job. This is done by filing Form DIR-2, an official permission to act as a director. It’s important to note that an individual cannot be chosen as a business director without clearly giving their permission to take on the duties of the director’s office.

  • Issuing a Letter of Appointment to the Director

Once the necessary processes are finished, the company should give an official Letter of Appointment to the newly named director. This letter should outline the terms and conditions of their hiring, including aspects such as their job, duties, and any pay or salary that will be paid to the director.

  • Filing Forms DIR-2 and DIR-12 with the ROC

Once the move for the appointment of a director is passed and the person has filed Form DIR-2 (approval to act as a director), the company can legally name them as a director. Right after the appointment, the company must file both Form DIR-2 and Form DIR-12 (which specify the particulars of the director’s appointment) with the Registrar of Companies. These forms must be submitted within 30 days of the director’s pick to ensure compliance and proper registration of the new director.

  • Making Essential Entries in the Register of Directors

The company must put the necessary details in the Register of Directors and Key Managerial Personnel.

  • Filing Amendment Applications with GST and Tax Authorities

After selecting a new director, the company must make the appropriate forms to update the director’s information with different regulatory bodies. This includes making updates to the GST Network and other related certificates, as appropriate, to indicate the change in leadership. This step ensures compliance with tax and legal standards.

Documents Required to Appoint a Director:

  • The PAN card of the director
  • Identification documentation includes a driver’s licence, Aadhaar card, and Voter ID.
  • Evidence of place of residence, such as bills for electricity and rental agreement.
  • Passport size photograph
  • Digital Signature Certificate (DSC)

Specific Appointment Processes:

  • Executive Directors: Selected based on skills and accepted by owners.
  • Non-Executive Directors: Nominated, decided on, and officially accepted.
  • Independent Directors must meet specific standards and have term limits.
  • Nominee Directors: Appointed by financial institutions or investors as per the company’s Articles of Association. They must have the power to protect both business and client interests.
  • Additional Director: Appointed to handle unplanned work, subject to specific conditions like being named in the Articles of Association and working until the next Annual General Meeting.

Disqualifications and Removal of Director:

The rules for becoming a director are explained in Section 274. There are particular circumstances where someone cannot become a director:

  • If a person is not mentally well, a court acknowledges this.
  • A director has been declared financially unstable.
  • A director doesn’t pay for the required shares within six months of becoming a director.
  • If a director is sentenced to at least six months in prison for misbehaviour, this sentence doesn’t exceed five years from the end of their sentence.
  • A director is proven involved in fraudulent activities under Section 203.
  • Suppose a person cannot repay debts that are more than what they own or if a company has taken legal action against the director.

Conclusion

The blog thoroughly covers the appointment and qualification of directors under the Companies Act 2013, stressing the value of proper director selection. Key points include the necessity of directors, the appointment process, qualifications, disqualifications, and the lack of required educational standards. Proper board selection ensures effective corporate control, matching skills with business goals. This careful selection process protects openness, accountability, and competent leadership within organisations, which is vital for sustainable growth and ethical decision-making.

Sachin Jaiswal

Sachin Jaiswal B.A.(Hons)! Sachin Jaiswal has been writing material on his own for more than five years. He got his B.A.(Hons) in English from the well-known University of Delhi. His success in this job is due to the fact that he loves writing and making material that is interesting. He has worked with a lot of different clients in many different fields, always giving them high-quality content that their target audience will enjoy. Through his education and work experience, he is able to produce high-quality content that meets his clients' needs.