Company Directors: Appointment and Qualifications

• This chapter focuses on the regulations and procedures surrounding the appointment and qualifications of company directors as per the prevailing laws

Introduction

• As per Section 2(10) of the Companies Act, 2013, the Board of Directors (or Board) signifies the collective directorial body of a company
• Section 2(34) defines a director as an individual appointed to the Board of a company
• Directors are individuals chosen to oversee a company's business operations
• Directors manage the affairs of an artificial person (the Company) through the exercise of their function
• Directors may be elected from shareholders or appointed.

Legal Roles of Directors

• Directors are considered agents and trustees
• Agency law governs the director-company relationship when transacting on the company's behalf
• Directors act as trustees, safeguarding company assets like properties, money, and trade secrets
• Directors have a fiduciary duty to the company, not individual shareholders

Board of Directors

• The Board of Directors is the collective decision-making body, not individual directors
• Quorum requirements ensure collective decisions at Board meetings
• Decisions can sometimes be made without a meeting if collective decisions are permitted

Company Board Requirements

• Section 149 of the Companies Act, 2013 mandates Board of Directors
• A Board must consist of individual directors.
• No other entities like firms or bodies can act as director

Minimum Number of Directors

• A Public Company requires at least 3 directors
• A Private Company needs a minimum of 2 directors
• A One Person Company (OPC) must have at least 1 director

Maximum Number of Directors

• A company can appoint a maximum of 15 directors
• More than 15 directors are permissible if a special resolution is passed

Exemptions from Director Number Rules

• Government companies are exempt from the 15-director limit.
• Government companies are also exempt from needing to pass a resolution if appointing more than 15.
• Exemption requires the the Government company has filed its financial statements and annual returns
• A similar exemption applies to companies incorporated under Section 8 of the Companies Act, 2013
• To maintain similar exemption, the Section 8 company must file financial statements and annual returns

Woman Director Requirements

• Specific classes of companies must appoint at least one woman director as per Companies Rules, 2014
• Every listed company must have at least one woman director
• Public companies with paid up capital of ₹100 crore+ or turnover of ₹300 crore+ are required to appoint.
• Paid-up capital or turnover to determine obligations is considered as of the last date of the recent audited declarations

Compliance for New Companies

• Newly incorporated companies that need to appoint a woman director must comply within six months of incorporation

Filling Vacancies

• Intermittent vacancies of woman director filled at the earliest by the Board, but within the immediate next Board Meeting or 3 months max
• If there is no woman director, it must be filled at the earliest

Resident Director Requirement

• Every company must have one director who stays in India for at least 182 days during the financial year.
• For newly incorporated companies, this must be fulfilled at the end of the financial year of incorporation

Independent Director

• Specified public companies need independent directors on their board to improve corporate governance.
• They need to have an independent mindset, uninfluenced by other members

Interested Director

• An interested director discloses interests due to the fact it’s no longer independent

Executive and Non-Executive Directors

• The Board can include executive (managing operations) and non-executive directors (framing policies)
• Executive directors are liable if knowingly consented to the unlawful acts

Appointment of Directors (Section 152)

• Section 152 dictates matters regarding appointment of directors

Initial Director Appointments

• If a company's articles do not specify initial director appointments, then individual subscribers to the memorandum become the first directors until replacements are assigned
• In a One Person Company (OPC), the individual member is considered the first director until a director gets appointed
• Corporate bodies are not capable of becoming directors

Subsequent Director Election

• Every director shall be appointed by the company in general meeting
• The Companies Act expressly provides some other procedure for appointment of directors

Allotment of Director Identification Number (DIN)

• Appointees need Director Identification Number (DIN) under section 154, or another number under section 153

Providing DIN and Declaration

• Proposed appointee must furnish DIN and declare that they aren't disqualified under the Act

Written Consent

• Director appointees must give written consent (Form DIR-2) to hold office
• The company files director consent with Registrar within 30 days of appointment (Form DIR-12).
• Security clearance is needed if the individual is a government official
• Example: Global Services Private Limited shall file the consent of Mr. Naresh with the Registrar within 30 days of such appointment in Form DIR-12.

Explanatory Statement

• When it comes to an independent director being appointed in the general meeting, an explanatory statement be annexed
• The statement must include the conditions specified in this Acts appointment

Exemptions of Providing DIN and Declaration and Written Consent

• Government companies where appointments are made by the Central or State Government are exempt from ‘Consent to act as a director’ [Section 152 (5)]
• The Central or State Government shall issue a notification
• Similar exemptions from Section 152(5) also apply to Section 8 companies

Director Retirement by Rotation

• Section 152 (6) deals with retirement of directors by rotation
• The requirement to allow shareholders to choose not to reelect

Rotational and Non-Rotational Directors

• Articles of the company must provide for retirement of all directors, no less than two-thirds of directors of a public company be persons whose period of office is liable to determination by retirement
• Unless expressed in the Act as appointed by the company in general meeting
• The remaining directors must default any regulations of the company whether also being appointed by the company in general meeting

Retirement from Office

• At the first AGM after appointing first directors and every subsequent AGM, one-third of directors retire by rotation

• If their number is neither three or multiple of three, the number nearest to one-third shall retire

• This provision applies to public companies/private subsidiaries of a public company

• If not subsidiaries, they can appoint other directors as permanent directors

• Unless the articles say otherwise, the articles must provide for a minimum of 2/3 be liable to retire by rotation

• Article of the company can also provide for the retirement of all directors

• Independent directors are not counted in the “total number of directors”

• No law counts them as being a director on the Board of a Company

Retirement at AGM

• Once those who are liable to retire by rotation have been established , 1/3 of them will make the cut
• If neither is three or a multiple of three, then the number is estimated to 1/3
• For example director number is 12, minus 2 independent and 1 nominee director (12-3) is 9 directors. 2/3 of the 9 to rotate is 6, and then to retire 1/3 of 6 would be 2 directors who would need to retire

Other Examples

• Another example involves 6 directors, with 4 retiring, and 1 being the nearest to 1/3
• Another example has 7 directors, with 5 retiring, and then 2 with 1/3
• Another example has 9 directors, subtracting 3 independent, totaling 6 rotated

Directors Liable to Retire

• Those with more the most time since the last appointment shall be retired
• The case may be, retirements will be based on lots as lotteries

Vacancy of Rotational Director

• The retiring director or some other body may fill the vacancy
• The company can re-appoint one vacancy

Appointment of Retiring Directors - Important Points

• They should no fall low
• It’s possible that the company resolves not to appoint anywhere

The AGM must still be held on date

• Rotational Directors not eligible for postponed dates if there is a conflict with future situations
• The vacate office if it is to be held after it is ought

Non-rotational Directors

• For 1/3 or less they don’t have to vacate
• They too may be eligible, if the article are available in that field

Deemed Re-appointment of Directors (Section 152(7))

• A few measures for appointing under the said section
• They need to be adjourned of meeting
• As well be appointed within the following meeting

Exceptions of Deemed Re-Appointment of Directors

• Shall not get appointed
• Meeting at the time had already went out due to not passing the resolution
• An expression as such to show they weren’t re-elected
• Is disqualified by the provisions of the Act

Final Points

• A Single resolution shall not make two appointments void
• Retiring director may not get to re-appointed

Restrictions on Non and Applicability

• Restriction may not align with how the company set conditions
• For all government institutions, conditions may not align with how to file annual returns

The section provides that

"Director Identification Number” (DIN) shall be identified by the central government

• The one who intends to act as the director shall make the application

You don’t really need to apply for DPIN

• As that’s in addition to the partnership
• 2008 is where it’s said you may apply to partnership

The requirements of DIN

• The Director Identification Number (DIN) which aligns with 154
• You can use the number under 153 and you’ll be in compliance

The filing of Allotment

• It is an every individual process for making the application

Filing For Allotment Form

• The Central governing system may prescribe anything that will be treated as identification
• May need to comply, may not
• Every application must file and intent to be appointed, as well must give to Central governing body (Electronically)

Allotment Reminders

• In case of proposed direction, list in order to make the SPICe
• SPICE - They wish to become directs - 2014

Electronics

• Central Government shall provide a portal for submission of these filings
• The required information on the website with relevant documents to showcase why that may be shown

Submission Forms

• The form must be signed and summitted electronically with some declaration, such declarations are that such members are in alignment
• If there is no last name, a last name must still be specified using a family name

Allotment

• According to section 154, the Central Government shall allot a Director Identification Number (DIN) to the applicant in the prescribed manner within one month from the receipt of application.

More On The Procedures

• Generation - On submission with fees, that means that one generates the number automatically
• Unless, that submission with the fees already had ties related to the family of the applicant
• Communication will have a month to showcase these requests

Fees And Compliance

• In certain cases an application with the fees may not be refunded with another application. A rejection is what may form there
• All DINs allotted before are to have been deemed
• There’ the end in rule valid for another application as well

Here are some reminders on more on DINs Process:

• Generates of systems and payment
• Central government process
• Approval or rejection

More Details:

• A defect of a incomplete will be emailed and need to be sent with the details
• If it’s not, then the government can label it as invalid as an electronic record

Obtaining DIN

• According to section 155 someone who has already been allotted can not and shall neither apply for, nor attain another at anytime

Here the Director should let the office know

• It helps in letting them align, this is 156 in accordance
• A company themselves may inform as well as the registar
• There’s one month

The failure penalty amounts to

• $25,000 as well every one after if continuing, with a maximum of $1,000

The Cancellation process and Deactivation process

• Rule 11 for the government may, upon review and satisfactory means be accepted and handled upon request
• If it’s duplciated
• Was had due to deception

The term wrongful means

• Lacks documents to be valid
• Does illegal activities and the like

All else

• Death
• Not seen as someone there to make decisions

As an applier

• They surrender what they own in their hand
• But before they don’t commit

This is all set out for government officials to review

• There must be at least 3 people at this time to review these forms
• The deactivated form in certain cases
• Under 2 people can be held accountable

Inform the Minister in the events of

• The central department
• There must be a 30 day wait
• There are details that I want to get into but the text for these parts are still not provided

Inform The Companies

• For particular of companies
• The personal who is also part is for people to share
• I should also check of to see of the list

These parts come out more so with how it’s said

• 2 seperate points must be provided under 2017

Others That The Company Does Need To Know

• 5 parts align - A person should tell
• 6 parts align - When it comes to the number it doesn’t exceed

Things the the business needs to carry on when it comes to the director leaving

• 25% should not be forffitted in any cases

Excemtions

• In terms
• The Government side the is to be listed in the notes to follow

There is an inspection

• This is under 1981
• 1981 is where they do have inspection

There are disqualification sections that make a director

• A number cannot and shall not apply
• There is for certain ways to determine

Those can be set in order for disqualification

• A section may be passed by the court or by what the trival may find

Section's In Relation

• There’s also for the disqualified party. The disqualifications still count in this case too

The Maximum To Hold In Position (165)

• Number of permissions may be available for one to handle with care

For Government

• Government’s should have the note that I told of in the last page of other section

There Can Be Some Issues

• One year transition

They May Want Their Old Life As Well

• What will this director leave behind
• They have now what they decide to hold and to see

There Is Punishment For The Contenders

• The court can handle the process on what the penalties may be in order with this action
• As certain codes state what may need to come of it

If the person is a company

• Must be all in order
• The may be that things don’t run right and what what should the course to be?

If there is remuneration what then?

• Stock options and what not

There will be the ones intilted to that one is not

• Make certain things are available

For all cases a board must see before saying anything

• If they see it is adequate, the course runs
• It is said the higher must be in order to the section

With Remuneration

• Subject To The 160
• What shall they due as well

They Must be under the by laws of the act

• To let it all run its course
• If there is something that does come out it must be in order for all the sections to see it was handled under what code they had

Terms to follow for appointments

• What comes with the director on what should be handled
• Certain actions may stop

When The Company Has No Choice

• Appointment is still good and may come

The List of What Relates

• Is there not being paid with what had came before

The End Goal, Punishment

• An examination must take order to be held with more than it has in the past