APPOINTMENT AND REMOVAL OF BOARD OF DIRECTORS

APPOINTMENT AND REMOVAL OF BOARD OF DIRECTORS

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WRITTEN BY: MS. KAJAL KUKREJA, LL.B, FINAL YEAR STUDENT AT NEW LAW COLLEGE, BHARATI VIDYAPEETH DEEMED UNIVERSITY & RESEARCH WRITER AT LAW AUDIENCE: EDITED BY MS. SONAL GUPTA, B.A.LL.B, 2ND YEAR STUDENT AT SYMBIOSIS LAW SCHOOL, HYDERABAD & ASSISTANT EDITOR AT LAW AUDIENCE.

I. INTRODUCTION:

This paper is aimed at explaining the concept of “Appointment and Removal of Board of Directors under Companies Act, 2013”. The shareholders of the company can remove a director by following a process which is prescribed by the law. As the articles of the company provide that the directors have to retire by the process of rotation and in which 1/3 of the directors should resign from the office at the general meeting of the company and they can only continue if re-appointed by the shareholders.

II. MEANING OF COMPANY:

Sec 2(20) of the Companies Act, 2013[1] defines the company as an association which is incorporated under this act or any other previous law of company.[2] It is established by law which has an individual entity and a common seal. It has a perpetual succession which means that the members may come and go but the company will exist forever.[3]

III. CHARACTERISTICS OF COMPANY:

There are various features of a company which are as follows:

  • Limited liability.
  • An individual separate entity.
  • Common seal.
  • Transfer of shares.
  • Perpetual Succession.
  • Separate management.
  • Capacity to sue and be sued.

IV. KINDS OF COMPANY:

Under the Companies Act, 2013 there are three basic types of company which are mentioned below:-

  • Private Company.
  • Public Company.
  • One-Person Company.

V. WHO CAN BE APPOINTED AS A DIRECTOR?

It is not only an urge of management but it is regarded as a procedure of law for which every company has to be fulfilled. According to the Companies Act, 2013 any individual can be appointed as a director. Any firm, association, corporate cannot be appointed as a Director under the act.

VI. TYPES OF DIRECTORS:

These are the types of directors under the act:

a) ORDINARY: These directors are also considered as the simple director who attends the board meeting. They also engage in the matters which are put before the head. These are neither whole time and nor managing directors.

b) MANAGING[4]: As per Sec.2 (54) of the act it means a director who is appointed by the articles of the company or by an agreement with the company or a resolution passed in the meeting by the Board of Directors.

c) WHOLE-TIME: He is a director who engages in full-time employment of a company.

d) ALTERNATE: The meeting of the Board can be held at any time so if when a director is not present in a state for more than 3 months and in such a case ‘alternate director’ is appointed. He can be appointed if it is sanctioned by the articles or passing of a resolution in the meeting. He will work till that time the original director returned.

e) PROFESSIONAL: Any director who has the qualifications of a profession and do not have any monetary interest in the company.

VII. QUALIFICATIONS OF DIRECTOR:

In the act as such,  there is no provision for the qualification of directors but the following qualifications can be described:-

  • He must be of sound mind.
  • He should have qualification if there is a requirement in articles of association.
  • He must be an individual.
  • He must not be an insolvent person.
  • He must not be convicted for any offence by the court.

VIII. APPOINTMENT OF DIRECTORS:

Basically, the total of 2/3 of directors is appointed by the shareholders in a private or public company. The remaining 1/3 are appointed by the suggestion which is mentioned in the Articles of the company. In private company, the procedure is described in the Article of Association to appoint the directors but in case the articles are hushed, then it will be appointed by the shareholders of the company.

There are some duties which have to be followed by the directors such as they should be honest, proper skills and care. These have to be followed while they are working on behalf of the company. The nominee directors will be appointed by the authorities of the third party or the Government so that they can handle the misconduct and mismanagement.

IX. APPOINTMENT & REMUNERATION OF MANAGING DIRECTORS:

Any individual person can be appointed as a Managing Director. The maximum term is 5 years at a time. The remuneration will be paid according to the provisions of the Companies Act in the case of private or a public company. It may be considered by the Articles or by passing a Special Resolution at a general meeting of the company.

X. CONDITIONS FOR APPOINTING DIRECTORS:

When appointing any director these following conditions are applicable:-

  • He should not sentence to imprisonment for any tenure.
  • He should not have been convicted for the activity of smuggling.
  • He should not have completed the age of 25 years but less than 70 years. However, it will not be applicable if the appointment is permitted by a Special Resolution in the general meeting.[5]
  • He should be a resident of India. He should be staying in India for not less than a period of 12 months. 

XI. DIRECTOR IDENTIFICATION NUMBERS:

It is mandatory for every company in India to acquire DIN’s. Earlier, DINs are necessary to authenticate the electronic filings which are made by the company.

XII. RETIREMENT OF DIRECTORS:

In any of the company, 1/3 of the directors should have to retire at every annual general meeting. However, every director who is getting retired is entitled to re-appointment. If the vacancy is not filled and in the meeting, there is no notice of such vacancy then he is entitled to have been re-appointed until the next meeting of the election.[6]

XIII. REMOVAL OF DIRECTORS:

A Director can be eliminated by an ordinary resolution in the general meeting after a special notice has been given but before the expiry of tenure of his office.[7] However, it will not be applicable to those directors which are appointed by the Central Government. 

XIV. CONCLUSION:

Through this article, the author wants to conclude that it is necessary to fill the position of a director under the Companies Act, 2013. It is essential to have a director in every company. According to the Sec. 149(1) of the Companies Act, 2013[8] which says that in case of a public company it should have a minimum number of 3 directors and in case of a private company[9] it should have 2 directors. In the case of One Person Company, it should have 1 director. The company can appoint a maximum of 15 directors.

[1] “company” means a company incorporated under this Act or under any previous company law.

[2] CompaniesActRepresentation.pdf, , https://cii.in/WebCMS/Upload/CompaniesActRepresentation.pdf.

[3] (1) What does the term “perpetual succession” mean in relation to a company? – Quora, , https://www.quora.com/What-does-the-term-%E2%80%9Cperpetual-succession%E2%80%9D-mean-in-relation-to-a-company.

[4] Free BCom Notes: Types of Directors, Qualifications and Disqualifications of Directors, Free BCom Notes, https://freebcomnotes.blogspot.com/2017/03/types-of-directors-qualifications-and.html.

[5] Appointment Of Directors – Process, Qualifications & Disqualifications – Corporate/Commercial Law – India, http://www.mondaq.com/india/x/151848/Directors+Officers+Executives+Shareholders/Appointment+Of+Directors+Process+Qualifications+Disqualifications.

[6] Id.

[7] Id.

[8] Company to have Board of Directors:

(1) Every company shall have a Board of Directors consisting of individuals as

directors and shall have—

(a) a minimum number of three directors in the case of a public company, two

directors in the case of a private company, and one director in the case of a One Person

Company; and

(b) a maximum of fifteen directors:

Provided that a company may appoint more than fifteen directors after passing a

special resolution:

Provided further that such class or classes of companies as may be prescribed, shall

have at least one woman director.

[9] All Directors Resigned; What to Do? B.Samrish & Co.Company Secretaries (2016), https://www.bsamrishindia.com/all-directors-resigned-what-to-do/.

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