The appointment of Directors in a company isn't just an essential regulatory prerequisite, but it is a procedural necessity that must be satisfied by each organization. Under the Companies Act, just an individual can be delegated as a Director; a corporate, affiliation, firm, or other body with legitimate counterfeit character can't be selected as a Director. The duties of directors are to act truly and practice sensible consideration and expertise while playing out their obligations.
How to Appoint a Director?
The procedure for appointment of directors in a company, which is either public or a privately owned business auxiliary of a public organization, usually requires 66% of the all-out quantities of Directors to be named by the investors. The staying 33% is designated as per the way recommended in Articles bombing, which, the investors must name the staying 33% of the Directors. The Articles of a public organization or a privately owned business auxiliary of a public organization may accommodate the apparent multitude of Directors' retirement at each AGM.
In a privately owned business, which is anything but an auxiliary of a public organization, the Articles can endorse all the Directors' way of arrangement. If the Articles are quiet, the Directors must be delegated by the investors.
Likewise, the Companies Act allows the Articles to accommodate the arrangement of 66% of the Directors as per the standard of relative portrayal if so embraced by the organization being referred to. Nominee Directors can be selected by an outsider or by the Central Government in the event of mistreatment or blunder.
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The picture above shows a meeting of board members for the appointment of directors in a company. The person on the head of the table is the appointed director of the company.
Appointment of Managing Directors
A Managing Director must be an individual and selected for a maximum term of five years one after another. An individual who is now a Managing Director or Manager of a public organization or a privately owned business auxiliary of a public organization can have an appointment of managing directors or Manager of just a single other organization with the earlier consistent endorsement of the board of such organization. In any case, no such limitations are material to a Manager or a Managing Director of unadulterated privately owned businesses.
Suppose there should be an occurrence of a public organization or a privately owned business that is an auxiliary of a public organization. In that case, if the arrangement isn't as per Parts I and II of Schedule XIII Companies Act, such an arrangement must be affirmed by the Central Government.
Conditions for Appointment of Directors
Under Schedule XIII, the Companies Act also endorses certain different conditions that are to be satisfied for the arrangement of a Managing or a Whole-time Director or Manager if there should be an occurrence of a public organization and a privately owned business that is an auxiliary of a public organization. Likewise, no individual will be qualified for the arrangement as a Manager, a Managing Director, or a Whole-time Director on the off chance that the person neglects to fulfil the accompanying conditions:
1. The individual in question ought not to have been condemned to detainment for any period, or a fine forced under any of the accompanying rules.
2. The person in question ought not to have been confined or sentenced for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
3. The person ought to be more than 25 years old, yet be less than seventy (70) years. Be that as it may, this age limit isn't relevant if the arrangement is affirmed by an exceptional goal passed by the organization by and large gathering or the Central Government's endorsement is obtained.
4. The individual ought to be administrative in at least one organisation and draws compensation from at least one organisation subject to the roof determined in Section III of Schedule XIII.
5. The person ought to be an occupant of India. Inhabitant incorporates an individual who has been remaining in India for a persistent time of at the very least twelve a year promptly going before the date of their arrangement as an administrative individual and who has come to remain in India for taking up work in India or for carrying on business or job in India. Nonetheless, this condition isn't relevant for organizations in the Special Economic Zone, as advised by the Department of Commerce.
FAQs on Appointment of Directors: Legal Procedures and Qualifications
1. What are the legal qualifications required for an individual to be appointed as a director of a company in India?
The Companies Act, 2013, does not explicitly prescribe any academic or professional qualifications for a director. However, it mandates the following legal requirements:
- The individual must be a natural person; a company or firm cannot be a director.
- The individual must have a valid Director Identification Number (DIN) issued by the Central Government.
- The individual must not be disqualified under the provisions of the Companies Act, 2013.
- The company's Articles of Association (AOA) may specify certain qualifications, such as requiring directors to hold a minimum number of shares (known as qualification shares).
2. What is the procedure for appointing the first directors of a new company?
The first directors of a company are typically appointed in one of three ways as per the Companies Act, 2013:
- Named in the Articles of Association (AOA): The names of the first directors can be directly mentioned in the AOA during the company's incorporation process.
- Appointed by Subscribers: The AOA can grant the power to the subscribers of the Memorandum of Association (MOA) to appoint the first directors.
- Deemed Directors: If the AOA is silent on the appointment, the individual subscribers to the MOA are automatically considered the first directors of the company until directors are duly appointed at the first general meeting.
3. How are subsequent directors appointed after the initial board is formed?
After the first directors, subsequent directors are typically appointed by the shareholders of the company. The standard procedure involves passing an ordinary resolution at an Annual General Meeting (AGM). As per the principle of retirement by rotation, a certain fraction of the directors must retire at every AGM, and the shareholders then vote to re-appoint them or elect new individuals in their place.
4. What is a Director Identification Number (DIN) and why is it essential for appointment?
A Director Identification Number (DIN) is a unique 8-digit identification number that the Central Government assigns to any individual intending to be a director or any existing director of a company. As per Section 152(3) of the Companies Act, 2013, it is mandatory for an individual to have a valid DIN to be appointed as a director. This number helps track the record and particulars of all directors in a centralized database, ensuring transparency and accountability.
5. What are the key grounds that can disqualify a person from being appointed as a director?
Under Section 164 of the Companies Act, 2013, a person is disqualified from being a director if they:
- Are of unsound mind as declared by a competent court.
- Are an undischarged insolvent.
- Have applied to be adjudicated as an insolvent and their application is pending.
- Have been convicted of any offence involving moral turpitude or otherwise and sentenced to imprisonment for not less than six months.
- Have failed to pay any calls on shares held by them for six months or more.
- An order disqualifying them for appointment as a director has been passed by a court or Tribunal.
6. Can the Board of Directors appoint a new director without shareholder approval?
Yes, the Board of Directors can appoint a director in specific situations without prior shareholder approval. This most commonly occurs when filling a 'casual vacancy' that arises due to the death, resignation, or disqualification of a director before their term expires. However, such an appointment is valid only until the date up to which the original director would have held office. The appointment must be subsequently approved by the shareholders at the next general meeting.
7. How does the appointment of an Independent Director differ from that of a regular director?
The appointment of an Independent Director is more stringent because their role is to provide unbiased, expert opinions on the Board. Key differences include:
- Stricter Criteria: They must meet specific conditions of independence, ensuring they have no financial or other material relationship with the company, its promoters, or its senior management.
- Selection Process: They are selected from a data bank of eligible individuals and their appointment requires a more detailed justification by the Board.
- Shareholder Approval: Their appointment generally requires approval from the shareholders at a general meeting, often with higher voting thresholds depending on company rules.
8. What is the core difference between an Executive Director and a Non-Executive Director?
The primary difference lies in their involvement with the company's day-to-day operations.
- An Executive Director, such as a Managing Director or a Whole-Time Director, is an employee of the company responsible for its daily management and operations.
- A Non-Executive Director is not involved in the daily management. They attend Board meetings to provide independent oversight, strategic guidance, and challenge the executive team's decisions, thereby improving corporate governance.
