Appointment of Directors in Private Companies
The Company is an artificial person, having no physical existence of their own. As Companies cannot act on their own, need human resources to make crucial decisions in the management of the business. The person responsible for the management of the business is known as a director and collectively they are known as the Board of Directors.
Hence, the appointment of directors holds supreme importance. This key decision shapes the direction of a company and significantly impacts its success.
In this article, CA on Web will explore the process and legal aspects, and industry expert CA Sanket Agarwal will assist you in a seamless director appointment in a private company.
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Appointment of Directors: A Crucial Step in Business Management
According to Section 149(1) of the Act, every public company requires at least 3 directors, 2 directors in a private company, and 1 person in a one-person company. As per law, a maximum of 15 directors can be appointed. If a company wants to appoint more than 15 directors, a special resolution must be approved in the company’s general meeting.
Who Can Be Appointed as a Director?
Any person who is above 21 years of age can be appointed as a director, whereas an artificial person being a company, firm, association, or entity cannot be appointed as a director.
The eligibility criteria for director appointment are below:
The individual should be more than 21 years of age.
The individual should have a sound mind.
The individual should not be declared insolvent.
The individual should not be punished by a court and imprisoned for more than 6 months.
Documents Required to Appoint a Director
The PAN card of the director- Identity proof of the director, like a Voter ID Card, driver's license, Aadhaar card, etc
- Residence proof of the director, such as utility bills, rental agreement, etc
- Passport size photograph
- Digital Signature Certificate (DSC)
The Process of Appointing Directors
Check AOA for director appointment provision.
The first step is to verify the Articles Of Association of the company before appointing a director for a clause stating appointing or adding a director. Absence of such a clause in the AOA for adding a director, the Articles are modified with a clause allowing the adding of additional directors.
Conduct general meetings
Appointment of a director must be done after passing a resolution in an Annual general meeting (AGM). If a director is required to be appointed in the middle of the year, the appointment will be made by passing a resolution in an Extraordinary General Meeting (EGM) after conducting a board meeting. The resolution for the appointment of the director in Form MGT-14 should be filed with the ROC within 30 days of passing the resolution.
Apply for DIN
After the resolution of the appointment of the director is passed in a general meeting (AGM / EGM) the proposed director must apply for a Digital Signature Certificate and Directors Identification Number. ( If the Individual does not have his DSC and DIN)
After getting the DIN, the intended director should provide his/her DIN and a statement that he/she is not disqualified from being a director under the Companies Act, 2013 to the company.
Consent from the proposed director
After getting the DIN, the person intended to be added as a company director must give his/her consent to act as the director in Form DIR-2. Unless the intended director gives his/ her consent to the company to hold the office as the director, he/she cannot be appointed as a director.
File form DIR – 12 along with DIR – 2 with the Registrar of Companies (ROC)
As a resolution for director appointment is passed and the consent of the director in DIR-2 is received, the person can be appointed as a director. DIR-2 and DIR-12 (Particulars of appointment of the director) must be filed by the company with the ROC within 30 days of the appointment of the director.
How To Add A Director To Your Company?
| 1 | Step1: | To obtain a DSC of the proposed director, if they do not have one. |
| 2 | Step2: | To obtain a DIN in Form DIR-3 if the proposed director does not have an active DIN. |
| 3 | Step3: | A general meeting Should be conducted to pass a resolution to appoint the new director. |
| 4 | Step4: | Consent of the proposed director should be received by the company Form DIR-2 for their appointment as a director. Then the proposed person can be appointed as the director of the company and issued a letter of appointment. |
| 5 | Step5: | After the director is appointed, the company must file forms of directors appointment with the ROC within 30 days. |
Frequently Asked Questions
· Check AOA for director appointment provision.
· Conduct general meetings.
· Apply for DIN.
· Consent from the proposed director.
· Within 30 days of appointment, forms are to be filed with the Registrar of Companies (ROC)
The Companies Act 2013 (CA 2013) defined the duties of directors clearly in Section 166. India director's duties and responsibilities in accordance with the CA 2013 are as follows:
· To work within given powers and not abuse them.
· To exercise skill, diligence, and care.
· To practice independent judgment.
· To avoid conflicts of interest.
· Do not use the company’s property, money, or information for personal use.
· Must ensure all business affairs are conducted, and comply with the legal requirements.
· Get new talent on the company board
· Prevent dilution of ownership
· The inefficiency of existing directors
· Meeting the statutory limit
Conclusion
The appointment of directors in a private company is a key step towards the smooth running of the business of a company. Hence, the eligibility of individuals should be considered while appointing them as directors. Following the above-mentioned process CA on web can easily get your director's appointment done.