What is a Director?
A Director is an individual who is appointed or elected to be a part of the Board of Directors of a company. A Director plays a crucial role in the governance, decision-making, and overall management of the company. The Companies Act, 2013 in India provides the legal framework for the appointment, powers, and responsibilities of Directors in a company. In accordance with the Companies Act of 2013, each company must have a minimum of two directors for private companies, three for public companies, and one for one-person businesses. An individual who is a Foreign National or NRI can also be appointed as a director in an Indian Company if he satisfies the conditions and criteria established by the authority.
Role of a Director in the Company
The role of a Director in a company includes the following:
- Fiduciary Duty: Directors have a fiduciary duty to act in the best interests of the company. They are expected to exercise their powers and perform their duties with due care, skill, and diligence, in good faith, and in the best interests of the company and its stakeholders.
- Corporate Governance: Directors are responsible for ensuring proper corporate governance practices within the company. They provide oversight and strategic guidance to the management, set policies, and monitor the company's performance and compliance with legal and regulatory requirements.
- Decision-making: Directors participate in Board meetings where they collectively make important decisions regarding the company's operations, finance, investments, acquisitions, and overall direction. They contribute their expertise and experience to shape the company's strategy and policies.
- Policy Formulation: Directors are involved in formulating and approving company policies, including financial policies, risk management policies, and corporate social responsibility policies. They ensure that these policies align with the company's objectives and comply with applicable laws and regulations.
- Appointment and Supervision of Management: Directors are responsible for appointing key executives, such as the CEO or managing Director, and overseeing their performance. They monitor the management team's actions, review financial statements, and ensure the implementation of proper internal controls and risk management systems.
- Compliance and Disclosure: Directors play a vital role in ensuring compliance with legal, regulatory, and statutory requirements. They ensure that the company meets its obligations related to financial reporting, disclosure of material information, and filing of annual returns with the Registrar of Companies (ROC).
- Stakeholder Management: Directors have a duty to consider the interests of various stakeholders, including shareholders, employees, customers, suppliers, and the community. They maintain effective communication with stakeholders, address their concerns, and act in a responsible and ethical manner.
- Board Committees: Directors may serve on various Board committees, such as audit committees, remuneration committees, or nomination and governance committees. These committees play a critical role in ensuring specific aspects of governance, oversight, and decision-making within the company.
Who is eligible to become a Director in the Company?
According to the Companies Act, 2013 in India, certain eligibility criteria must be met to become a Director of a company. These criteria include:
- Minimum age: The person seeking to become a Director must be at least 18 years old. There is no upper age limit for becoming a Director. A person cannot be appointed as a Director if they are a minor (i.e. below 18 years of age)
- Director Identification Number (DIN): The individual must have a valid Director Identification Number (DIN) issued by the Ministry of Corporate Affairs (MCA). DIN is a unique identification number required for appointment as a Director in a company.
- Consent and declaration: The person must give their consent to act as a Director of the company and provide a declaration stating that they are not disqualified to become a Director under the Companies Act, 2013.
- Disqualifications: The Act specifies certain disqualifications that would prevent an individual from being appointed or continuing as a Director. These disqualifications include being declared of unsound mind, being an undischarged insolvent, being convicted of certain offenses, etc. It is important to review the specific disqualifications mentioned in Section 164 of the Companies Act, 2013.
- Not being disqualified by other laws: The individual should not be disqualified from being appointed as a Director under any other law, such as the Securities and Exchange Board of India (SEBI) regulations or any other regulatory provisions.
It is important to note that the eligibility criteria may also be subject to additional requirements or restrictions specified in the company's Articles of Association (AOA) or bylaws. Additionally, there may be specific criteria or qualifications required for Directors in certain types of companies, such as public companies, listed companies, or government companies.
Process for Appointment of a Director in the Company?
Before appointing a Director it is necessary to analyze the Articles of Association (AOA) to determine whether the appointment of a director can be made only by holding a meeting of the shareholders or whether the Articles of Association hold the option for the Board to appoint a Director who can be confirmed in the next General Meeting. The appointment of a Director in a company under the Companies Act, 2013 in India involves following a specific process. Here are the steps involved in appointing a Director:
- Eligibility and Consent: Ensure that the individual being considered for the Directorship meets the eligibility criteria mentioned in the Companies Act, 2013. They must be at least 18 years old, possess a valid Director Identification Number (DIN), and not be disqualified from being appointed as a Director. The person should provide their consent to act as a Director in the company in form DIR-2. In addition to this, the Director should also provide disclores in form MBP-1 and DIR-8.
- Director Identification Number (DIN): Verify if the proposed Director has a valid DIN. If they don't have one, they must apply for a DIN through the MCA portal (www.mca.gov.in) by submitting the required documents and form DIR -3.
- File Form DIR-3: Prepare and file Form DIR-3 for obtaining DIN of the Director with the Registrar of Companies (ROC). Form DIR-3 includes the necessary details of the Director, such as their name, address, DIN, consent, and declaration.
- Board Resolution: The appointment of a Director is initiated by passing a Board resolution. Convene a Board meeting and propose a resolution for the appointment of the Director. The resolution should specify the proposed Director's name, relevant details, and the effective date of appointment.
- Shareholder's Resolution: The Directors must call a Shareholders meeting in a situation where the proposed Director can only be appointed by the Shareholders. The appointment can be made at the Annual General Meeting or an Extra-Ordinary General Meeting. All pertinent information for the procedure should be included in the notice for such a meeting, including the agenda for the appointment of the Director along with the consent letters and other necessary documents.
- Intimation to Registrar: Intimate the ROC about the appointment of the Director by filing the necessary forms. Form DIR-12 is commonly used for intimating the ROC about changes in Directorship. This should be done within 30 days of the Director's appointment.
- Intimation to Stock Exchanges (if applicable): If the company is listed on a stock exchange, notify the stock exchange(s) where the company's shares are listed about the appointment of the Director within the prescribed time frame.
- Update Registers and Records: Update the Company's registers and records to reflect the appointment of the Director. This includes maintaining a Register of Directors, Register of Directors' Shareholdings, and other relevant registers as required by the Companies Act, 2013.
It's important to note that the specific forms, timelines, and requirements may vary depending on the circumstances and the type of company involved. It is advisable to consult with a legal professional or company secretary to ensure compliance with all the necessary procedures and requirements while appointing a Director under the Companies Act, 2013.