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APPOINTMENT AND RESIGNATION OF DIRECTOR

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APPOINTMENT AND RESIGNATION OF DIRECTOR

A business loan is basically when a bank or other financial institution lends money to a business. The main idea here is that the business gets the financial help it needs to grow or manage its operations without having to dip into their savings or revenue completely. Businesses can use these loans for different reasons, like buying new equipment, expanding their offering, or even just having some extra cash to cover everyday expenses. Typically, when you take out a business loan, you'll agree to a repayment plan where you'll pay back the lender over time with some interest on top. It's kind of like getting a personal loan, but instead of using it for personal stuff, it's all about helping your business thrive and reach its potential!

Reason of changes in the number of directors in a Company

A company may decide to add or replace its directors for a number of important reasons:
i) Adding New Talent to the Board: As a business expands, it frequently becomes essential to add new directors to the board. This aids the business in meeting the demands and new problems that arise with growth.
ii) Avoiding Ownership Dilution: Directors are in charge of daily operations and management. Shareholders can assign more operational duties without giving up strategic control by adding more directors.
iii) Resolving Current Directors' Inefficiency: In order to preserve efficiency, a corporation may decide to appoint new directors if current directors are performing poorly because of personal considerations including retirement, health concerns, or family matters.
iv) Meeting Statutory Requirements: The Companies Act of 2013 mandates that businesses keep a certain number of directors. Assume that circumstances like retirement or death cause the number to drop below the minimum. Then, in order to meet the legal requirements (such as a private limited company having a minimum of two directors), new directors must be hired as soon as possible.

Appointment of director

Appointment of director According to the Memorandum of Association (MOA) and Articles of Association (AOA), a director is a person chosen by the company's shareholders to oversee its operations. A Director Identification Number (DIN) and Digital Signature Certificate (DSC) are required for anyone who wants to serve as a director.

Anyone over 21 is eligible to serve as a director of a company. A company's AOA ought to include clauses pertaining to the appointment of directors. The process that a business must adhere to in order to appoint a new director is outlined in the Companies Act of 2013. There should always be at least two directors in a private company. Nevertheless, the business is limited to a maximum of fifteen directors.

Process of appointment of director

i) For information on director appointment provisions, check AOA
Prior to selecting a director, the first step is to review the company's AOA. A provision for adding or nominating a director should be included in the AOA. The AOA should be amended to include a clause permitting the inclusion of additional directors if it does not currently have one.
ii)Call a general meeting.
A resolution must be passed at a general meeting for the company to choose a director. During an Annual General Meeting (AGM), the firm may adopt a resolution designating a director. The firm may designate a director by passing a resolution at an Extraordinary General Meeting (EGM) if it chooses to do so in the middle of the year. In this situation, a firm needs to have a board meeting in order to approve a resolution calling for an Extraordinary General Meeting (EGM). A resolution must be passed by the corporation in order to nominate a new director. Within 30 days of passing the resolution, the business must submit Form MGT-14, the resolution for the director's appointment, to the Registrar of Companies (ROC).
iii)The proposed director's consent
The individual who wants to be added as a corporate director must sign Form DIR-2 indicating that they agree to act as a director after receiving the DIN. A director cannot be nominated unless the individual consents to the position being held by the company.
(iv)Filing form with The Registrar of Companies (ROC) .
The corporation can appoint the individual as a director if the resolution for director appointment has been passed and the director has provided the DIR-2. Following the director's appointment, the business must submit the DIR-2 and DIR-12 (Director Appointment Particulars). Within 30 days of the appointment, the business needs to submit Forms DIR-2 and DIR-12 to the ROC.
According to the SEBI (LODR) Regulations, 2015, listed public companies must also post information about the appointment on their website within two working days and disclose to the Stock Exchange the proceedings of the general meeting concerning the appointment of directors within 24 hours of the meeting's conclusion.

Resignation of director

A company's stockholders own the business, but its directors are in charge of its management and operations. Due to poor performance or other issues, shareholders may decide to remove a director, or a director may decide to step down. As a major corporate move, removing a director necessitates careful consideration and rigorous adherence to the legal framework established by the Companies Act 2013 or relevant local laws. The procedure must be carried out in a fair, open, and company-beneficial manner, regardless of whether it is started by a regular resolution, board resolution, or court order.

In accordance with the Companies Act of 2013, a private limited company must designate a minimum of two directors before it may begin operations. Except for directors appointed by the government, shareholders have the power to remove a director at the general meeting. A director could be fired for a number of reasons, such as:
i) Not meeting the requirements outlined in the Companies Act.
ii) Not showing up to board meetings for over a year.
iii) Conducting illegal transactions in violation of Section 184 of the Companies Act.
iv) Being barred from taking part because of a court or tribunal order.
v) Being found guilty of a crime and given a minimum six-month sentence by a court.
vi) Non-adherence to the rules and specifications outlined in the 2013 Companies Act.
vii) Making the voluntary decision to leave the board.

Process of resignation of director

A business must follow a number of actions in order to remove a director, which are listed below:
i) The voluntary resignation of the director
The notice of a director's resignation takes effect on the day the company receives it or, if the director specifies a later date in the notice, on that day. A resigning director is still responsible for whatever offenses they committed while in office. By sending a formal resignation letter to the company, a director can leave their role. The Board must formally acknowledge this resignation as soon as it is received. As required by Section 168 of the Companies Act, 2013, the company must tell the Registrar of Companies of the resignation and include this information in the directors' report that is given at the following General Meeting.
ii)Essential Conditions
Depending on which comes first, the day the company receives the notice of a director's resignation or a later date the director specifies in that notice is the effective date of the resignation. A director who resigns is also still accountable for any legal violations committed while they were in office.

The steps listed below must be taken
i)Call a Board of Directors Meeting: A board meeting must be scheduled in accordance with Section 173 and Secretarial Standard-1 (SS-1).
ii)Board Meeting Notification: The company must notify all directors of the next board meeting at their registered addresses no later than seven days prior to the meeting, following receipt of a resignation letter. In cases of urgency, a shorter notice period is acceptable.
iii)Meeting Document Preparation: A draft resolution, the agenda, and explanatory notes should all be included in the meeting notice.
iv)Call a Board Meeting: The board should get together to accept the director's letter of resignation.
v)Assigning ROC Filings: Assign the director, CFO, or company secretary to send the required paperwork and forms to the Registrar of Companies.
vi)Disclosure Requirements for Listed Companies: Under Regulations 30 and 46(3) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, public companies are required to promptly report resignations to the stock exchange, following certain timelines depending on the nature and source of the event or information.
vi)Form DIR-12 submission to the Registrar of Companies (ROC):
Form DIR-12, along with the following papers, must be submitted by the firm to the ROC within 30 days of receiving the director's notice of resignation.
a)An authenticated copy of the Board Resolution.
b) The director's resignation notice.
c) Documentation of the director's resignation from the board.
vii) Submission of Form DIR-11 by the Resigning Director:
Within 30 days of their resignation date, the departing director may submit a copy of their resignation to the Registrar of Companies (ROC) via Form DIR-11. Included in this submission should be:
a) The notice of resignation that was delivered to the business.
b) proof that the warning was sent out.
c) a confirmation from the business that the resignation was received.

A director's 12-month absence from board meetings

Even if a director does not explicitly request a leave of absence, they are deemed to have resigned from their post if they do not attend any board meetings for a period of twelve months. The process for such circumstances is outlined in the phases that follow:
Recognize that the applicable corporate governance regulations, such as Section 167, which deals with the automatic vacation of a director's office owing to non-attendance, have declared the director's position vacated.
Form DIR-12 Filing: Next, the business needs to submit Form DIR-12 to the Registrar of Companies (ROC). This form is used to notify people when a director resigns or is removed, especially when their absence from meetings results in the position being vacated.

Removal of Directors by Shareholders

The company should take the following actions in order to remove a director through shareholder resolution, usually an Ordinary Resolution unless the company's articles or applicable legislation specify otherwise:
i)Board Meeting Notice: Start by setting up a board meeting and giving each director at least seven days' notice. The agenda item for the proposed director removal should be included in this notification.
ii) Resolution to Call an EGM: Adopt a resolution calling for an Extraordinary General Meeting (EGM) during the Board Meeting. Additionally, at the EGM, suggest a motion to remove the director, contingent on shareholder ratification.
iii)EGM Notice Is Issued: All shareholders should receive notices of the EGM, with a specific 21-day notice period that does not include the day of the meeting or the day the notice is received.
iv)Voting at EGM: Bring the resolution calling for the director's dismissal to the shareholders' attention for a vote at the EGM. The resolution is passed if the majority agrees with it.
v)Director's Right to Be Heard: The director shall address the meeting participants with their argument or justification prior to the resolution being approved.
Forms DIR-11 and DIR-12 Filing:
Following the resolution's passage, fill out and send Form DIR-11 (if completed by the departing director) and Form DIR-12 (if completed by the company) to the Registrar of Companies (ROC) together with the required attachments, which should include the resolutions passed.

  • FAQ
1. What are the legal requirements for appointing a director?

Jurisdiction-specific legal requirements differ, but typical criteria are as follows:
a) Directors must fulfil eligibility requirements, which include being at least 21 years old and not legally disqualified.
b) The business must adhere to the policies specified in its bylaws or articles of association.
c) It can be necessary for the business to submit the director's information to the appropriate corporate body (such as Companies House or the SEC).
d) In accordance with company legislation or the business's constitution, any required shareholder approvals must be acquired.

Although not always mandated by law, a formal interview or screening procedure is advised. This procedure guarantees that the chosen director is capable of contributing to the board and is aware of their fiduciary responsibilities. Additionally, it guarantees adherence to governance principles and helps prevent conflicts of interest.

Usually, the following details are needed:
i) The complete name, birthdate, nationality, and residence address of the director.
ii) A statement stating that they are not ineligible to serve as a director (for example, not insolvent or convicted of crimes pertaining to the company).
iii) Any directorships in other businesses that could compromise the independence of the director.
iv) Any conflicts of interest, especially when the director already has ties to rival companies or enterprises in the same sector.

Indeed, the following individuals are typically not permitted to hold director positions:
i) A minor is a person who is younger than eighteen.
ii) Those who are currently insolvent or bankrupt are known as un discharged bankrupts.
iii) People who have been found guilty of major crimes, especially those involving corporate crimes or dishonesty, are known as convicted persons.
iv) Disqualified individuals are those who have been prohibited from serving as directors by a court or regulatory body.

An appointment could be deemed void if the procedure is not conducted through legal conformity. Legal challenges may result from this, and the director's activities throughout their term might be deemed null and void. The business may need to re-appoint the director in accordance with the correct protocol.

Yes, in accordance with the company's articles or bylaws, a director may leave at any moment. It is customary for directors to provide the board formal notice of their resignation. A new director must then be appointed by the firm to cover the vacancy, either permanently or temporarily.

Usually, the resignation procedure entails:
i) The board of directors must receive a proper written notification of the director's resignation.
ii) Board Recognition: The board accepts the resignation and determines if any other steps (like replacing the director) are required.
iii) Notifying Authorities: The organization must notify the appropriate regulatory bodies of the resignation.
iv) Effective Date: Unless otherwise agreed, the resignation becomes effective on the date indicated in the notice.

Yes, unless the company's articles of association or bylaw agreements specify otherwise, a director may normally leave their position at any time. However, there might be clauses pertaining to notice periods or requirements for resignation if the departure is a part of a contract (for example, an executive director with a fixed-term contract).

In the event that a director leaves before their term is up, the business might have to hold a meeting to choose a replacement. The corporation will usually try to replace the vacancy as soon as possible to guarantee effective governance, although the resignation may have an impact on the board's quorum or decision-making process.

Yes, whether a director is leaving for personal, professional, or other reasons, it is customary for them to present a proper written resignation letter. This guarantees that the resignation is officially acknowledged by the board and documented.