Appointment and resignation of directors
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Overview of Appointment and Resignation of Directors
Directors are the guiding force of a company. They play a crucial role in managing and controlling the company's operations. The rotation of directors occurs either through the appointment of a new director or the resignation of an existing one. The aim of these changes is to ensure that the board consists of the right mix of professionals for the company's growth. The approval for a director's resignation is granted by the Board of Directors (BoD), whereas the appointment of a new director requires the shareholders' consent. These changes do not take immediate effect; they must be officially communicated to the Ministry of Corporate Affairs (MCA).
Benefits of Appointing or Resigning a Director
1. Brings
in new expertise and talent to the board
2. No
requirement for ownership to be a director
3. Facilitates
smooth operations by replacing incompetent directors
4. Helps
the company comply with regulatory requirements
Eligibility Criteria for a Director
A director must meet
the following requirements:
1. Natural
Person: Only an individual can become a director.
2. Age
Limit: No specific age is set, but the individual must be legally
capable of entering into a contract. For a Managing Director, Whole-time
Director, or Independent Director, the minimum age is 21 years, and the maximum
is 70 years.
3. Nationality:
At least one director in the company must be an Indian resident.
4. Director
Identification Number (DIN): A DIN is mandatory to prevent fraud and
ensure accountability.
5. Maximum
Directorships: An individual can serve as a director in up to 20
companies, with a limit of 10 public companies.
6. Disqualifications:
Individuals with an unsound mind, bankruptcy claims, significant criminal
convictions (more than seven years of imprisonment), or pending overdue returns
are ineligible to be directors.
Types of Directors
1. Managing
Director: Responsible for overall operations.
2. Executive
Director: Oversees daily business activities.
3. Non-Executive
Director: Participates in policy decisions but not daily operations.
4. Nominee
Director: Represents investors or financial institutions.
5. Independent
Director: Ensures corporate governance and compliance.
Registration Procedure for Appointment of a Director
1. Appointment
at Incorporation:
o
The first directors are appointed at the time of
company registration with MCA.
o
If no directors are specified, initial
subscribers to the Memorandum of Association (MoA) automatically become
directors.
o
Up to three DINs can be allocated during company
incorporation.
2. Appointment
Post-Incorporation:
o
The company's Articles of Association (AOA) must
allow for director appointments.
o
Required documents include:
·
Passport-size photograph
·
PAN card (self-attested)
·
Address proof (Aadhaar, Voter ID, Passport,
Driving License)
·
Digital Signature Certificate (DSC)
·
Identity proof
·
Personal and official email ID and mobile number
o
A board meeting is held to approve the
appointment.
o
The company files Form DIR-12 with the Registrar
of Companies (ROC) within 30 days of appointment.
o
The director’s details are updated in the MCA
database.
Resignation of a Director
Under Section 168 of the Companies Act, 2013:
1. A
director submits a written resignation notice to the company.
2. The
company records the resignation and notifies the ROC by filing Form DIR-12
within 30 days.
3. The
resigning director must submit Form DIR-11 to ROC with the resignation reason.
4. The
resignation takes effect from the date the company receives the notice or the
date specified by the director.
5. If
all directors resign simultaneously, the promoter or the Central Government
appoints temporary directors.
Common Reasons for Director Resignation
1. Disputes
within the board
2. Better
career opportunities
3. Unethical
practices within the company
4. Legal
actions or non-compliance issues
5. Completion
of tenure for nominee directors
Procedure for Resignation
1. The
board passes a resolution to accept the resignation.
2. The
company files Form DIR-12 with the ROC within 30 days.
3. The
resigning director submits Form DIR-11 with the necessary documents:
o
Resignation notice
o
Proof of dispatch
o
Acknowledgment receipt (if available)
Frequently Asked Questions:
As per section 168 of Companies act 2013, the administration does not have any right to reject the resignation presented by a director.
The effective date of withdrawal will be the date on which the director presents the same with the Board of directors.
If so, the promoter will take charge. If there is no promoter, the central government will provide for temporary directors to manage the Company, until fresh directors are appointed.
Yes.
They are:
1. The intended individual must be a major.
2. He or she needs to qualify as per the laws mentioned under the Companies Act, 2013.
3. The Members of the Board must agree to the appointment of the proposed person.
4. Companies Act does not consider any educational qualification to be trained to become a Director.
No, a DIN or 'Director Identification Number' is forever allotted and can hence, be used for a continuance.
No, As per the Companies Act, 2013, only individuals can serve as Directors of Public and Private Limited companies.
Yes, to do so, they must have a valid Passport and a DIN. In case they do not have a DIN, they must apply for the same via the Company they wish to become a Director of.
No.
1. Public Company: Minimum of three directors
2. Private Company: Minimum 2 directors
3. OPC: Minimum one director
4. Producer company: Minimum 5 directors
