Companies, unlike other businesses, are not run by their owners. It is so because shareholders, who can make up a considerable portion of a firm, are its owners. Such a vast group of people won't even be able to agree on a basic choice, much less manage the business operations profitably. As a result, shareholders elect a board of directors to manage the company's operations on their behalf.
These directors designate senior management, scrutinize management choices, and direct management in the direction that the company's shareholders desire.
Therefore, the company's directors are the most significant individuals after the shareholders. On their behalf, they exercise the authority and obligations of the shareholders.
Selecting a company director will require a careful and thoughtful procedure. Therefore, a reasonably explicit structure for appointing a director to a business has been established under the companies act. Let's examine the steps that go into the appointment of a company director.
Who is a Director?
A "director" is an individual appointed to the board of a company stated in Section 2(34) of the Companies Act 2013.
Necessary Requirements for Appointment of Company Director
- The person chosen to be a company director must have an active DIN. [Paragraph 152(3)]
- If a person is ineligible to serve as a company director under Section 164, they are not eligible to be appointed to that position (1).
- No person who is or has ever served as a director of a business.
- Having not submitted financial statements or annual returns for three consecutive financial years in a row,
- Has not failed to repay deposits it has accepted, pay interest on those deposits, redeem any debentures on the due date and pay the interest due thereon, or pay any dividend expressed, is eligible to be reappointed as a company director for five years from the date the company fails to do so, under section 164(2)(a)
A person who is eligible for being appointed as a director at any general meeting but who is not a retiring director under section 152 will be appointed as a company director after meeting the requirements listed below [Section 160(1)]:
- A notice in writing under his hand indicating his candidacy as a director at the company's registered office or Some members plan to recommend him as a director at least fourteen days before the meeting.
- The intention of those members to propose him as a candidate for being the director of that office, as the case may be, along with the deposit of 1 lakh rupees or such higher amount as may be specified, which shall be reimbursed to such person or the member, if the person proposed is elected as a director or receives more than 25% of all valid votes cast either on a show of hands or on a poll on such resolution.
- However, suppose an Independent Director, a Director recommended by the Nomination & Remuneration Committee, or a Director recommended by the Board of Directors of the Company is appointed by a company that is not required to have a Nomination and Remuneration Committee. In that case, the deposit requirement will not be applicable.
Procedure for Appointment of Company Director
The process for the appointment of a company's director is as follows:
Getting the Nominee's Consent-
The nomination must, first and foremost, have the nominee's consent. They must certify that they have no objections to the nomination and are in favour of serving as a director for the company.
Then, they must give basic personal information, like name, address, nationality, occupation, and DIN. Additionally, they must certify that they are qualified to serve as company directors and have not previously been barred from the position by a competent body.
The person must supply the membership number if they are a professional member of any professional organization, like the Institute of Chartered Accountants of India or the Indian Medical Association. The nominee must obtain Form DIR-2 from this page, complete it with the information mentioned above, and upload it again. The Ministry of Corporate Affairs' online site allows for completing these tasks.
Calling for a Board Meeting -
Following the DIR-2 form's processing and recording by the Ministry of corporate affairs, a call for a meeting of the current board of directors has been made. The candidate's nomination as a director is submitted to a vote at the board meeting and recorded. A resolution must then be approved after the voting to ratify the board's choice. The board must also adopt a resolution to convene an EGM, or emergency general meeting, of all members or shareholders to approve the board's decision. As soon as the board meeting is over, it is required to distribute the notice for the EGM to all members to vote for the resolution.
Holding the EGM -
The issue of the appointment of a director of a company in India is brought up to the members in attendance at the EGM. The members can express any worries or ask any questions they may have about the appointment here. The resolution adopted by the board members must next be approved by the members or rejected by them in a vote. Shareholders can personally vote for the resolution by attending the meeting, casting their ballot by mail, or designating a proxy to cast their vote on their behalf.
Issuing Letter of Appointment -
For all intents and purposes, the nominee's appointment is complete once the members or shareholders have approved the board resolution. The last-minute formalities are still pending. The nominee receives a letter of appointment outlining their directorship, functions, responsibilities, and compensation for the duration of their directorship.
Submitting DIR-12 -
"A return providing the particulars of appointment of a director or key managerial employees and changes therein" is how this form is described. Within 30 days of issuing the letter of appointment, you must submit this form to the Ministry of corporate affairs.
Along with some basic information on the newly appointed director, the important managerial figure, and the company, the form also asks for certified copies of the board resolution and the EGM resolution, which must be uploaded as soft copies. Once this form has been processed and recorded, the process for the appointment of a director of a company in India gets completed.
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