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Directors are the higher-ranking members of a corporation who manage its daily business operations to benefit its shareholders and the company. They make all significant decisions regarding that operation.
The appointment of a minimum of two directors is a fundamental need for a Private Limited Corporation. A private limited company’s board of directors may elect or nominate one or more individuals to serve as directors who carry out and decide the company’s policies.
Who can become a director?
The company’s director may be an Indian, a Non-Resident Indian, or a Foreign Resident. To become the director of a company in India, a person must first meet the requirements outlined in the relevant company’s Articles of Association and then the Companies Act 2013.
While the Articles of Association’s provisions differ from one business to another, the Companies Act’s standards are absolute. The Registrar of Companies must be contacted to request acceptance of the application for adding a Director.
Types of directors in a company
Here is the list of all types of director in a company.
- Managing Directors – Possesses a high degree of decision-making, management, and leadership skills.
- Executive Director – A full-time director with more commitment to the organization.
- Non-Executive Directors – Not part of the company’s daily operations but participate in the planning or formulating policies.
- Small Shareholder Directors – These members can appoint or dismiss the director in a listed corporation.
- Independent Directors – A knowledgeable and experienced director who, when necessary, provides the board with expert counsel but who has no personal connection to the business.
- Additional Directors – An individual who serves as a director until the following annual general meeting.
- Residential director – A director who spends at least 182 days inside India. There must be one residential director per organization.
- Women Directors – Companies with paid-up capital of Rs. 100 crore, securities listed on the stock exchange, or annual revenues exceeding Rs. 300 crores, must have a female director.
- Nominee Director – The central government appoints them, the shareholders, or other parties when intentional mismanagement or board members abuse their authority.
- Alternate Director – An alternate director is appointed when a director is temporarily gone for over three months or more than 90 days.
Reasons for appointment of director
Below are some reasons for appointment of director in a company.
1. Bring new talent to the team
When a company expands, alliances and plans are created, requiring every department’s input for efficient planning. A team specialist can also be hired in a managerial position as the company’s director with the launch of a new product line or department. Specialization and concentrated efforts result in benefits for the business.
2. The number of directors allowed by statute
The minimum number of directors required by law for each corporation is two for private companies and three for public ones. The number of directors may stay within the maximum at any point in the company’s existence. If the number falls below 2/3, the firm has six months to appoint a new board of directors.
3. Current directors’ inability to work
After a given amount of time, the current directors could no longer be able to represent the company owing to retirement or other personal issues. The company must ensure that its work is unaffected whether the director resigns or dies. It must handle both director resignations and, if necessary, the nomination of a new director.
4. Give operational duties without compromising ownership
For daily operations, directors are in charge. With the addition of a new director, the shareholders can delegate operational duties to directors while maintaining strategic control. Adding a new director retains shareholders’ ownership and voting rights because no share capital subscription is necessary.
Procedure for appointment of director
Here is the step by step procedure for appointment of director in a company.
1. Director Consent in Form DIR 2
Obtaining the prospective director’s approval is the first stage in appointing a Director in a firm. The proposed director’s consent to serve as a director in the company must be provided in Form DIR 2, along with other required documentation.
2. Get the DSC and DIN of the prospective director.
Getting the Digital Signature Certificate (DSC) and DIN of the intended Director of the Company would be the following stage. In terms of DSC, if he does not already have it, he must receive it from the Indian certifying agencies.
Regarding the Director’s Identity Number, the director must first advise the company that he needs the DIN. The company must then adopt a decision on the matter and submit Form DIR 3 to request the DIN of the nominated Director. The business must submit DIR 3 KYC along with the required KYC documentation. The director will only receive this DIN once during their lifetime.
3. Organize an EGM and board meeting.
The appointment of director will be done at the company’s annual general meeting. In this regard, notification of the company’s upcoming Extraordinary General Meeting will be sent to all of the company’s shareholders.
Following the distribution of the notice to all shareholders, the EGM must be called and held at the designated time and date. All relevant resolutions for appointing a director in the company must be passed.
4. Send a letter of appointment.
The appointment letter for the company’s director would be issued following the resolution’s passage. The terms and circumstances of appointment of director, including the amount of compensation due to him, must be outlined in the appointment letter.
5. File Form DIR-12 to ROC
After completing all required steps, the firm must submit Form DIR 12 to the Registrar of Companies within 30 days of the day the director was appointed, along with all the necessary documentation.
Depending on the sort of director appointed, there are different steps to add directors to the organization. The person being considered for the position of Company Director must be older than 18 years.
Documents required for appointment of director
Below are the documents required for the appointment of director in a company.
- Self-attested copy of PAN
- Self-attested copies of identification and address documentation (Aadhar card, passport, or Election card)
- Form DIR-2, including the director’s consent
- A copy of the shareholders’ resolution
- Shareholders’ meeting notice
- PAN card, which is mandatory for an Indian Applicant
- A passport is required of all foreign applicants.
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