A private corporation is a separate legal entity from its shareholders. It is a corporate form that minimizes the liability of its shareholders and provides for quick ownership transfer. A private limited company must nominate directors in order to function. Directors are in charge of the business’s general management and direction, and they have a legal responsibility to work in the company’s and its shareholders’ best interest. Making strategic choices on behalf of the firm is one of the primary tasks of directors. They are in charge of determining the overall direction of the firm and making critical financial, operational and growth decisions. In this write, we will discuss Director Appointment for a Company.
Meaning of Director
Director is defined in section 2(34) of the Companies Act, 2013. A director, as defined under the Companies Act of 2013, is an individual who is appointed to the board of the company and is responsible for the overall management and direction of the firm. Directors are chosen by the companies’ shareholders and are responsible for making strategic choices and managing the company.
The companies’ critical agents in conducting their activities are the directors or the board of directors. The companies act states when the company acts as both principal and agent and where the Board of Directors acts on its behalf.
Types of Directors
- Executive Directors: Individuals who serve as executive directors are part of the company’s management team. They are nominated to the board to give insight and advice on the operations and strategy of the organization.
- Non Executive Directors: Non Executive Directors are the people who are not members of the company’s management team but are nominated to the board to give a different viewpoint and to assist guarantee that shareholder’s interests are represented.
- Independent Directors: Individual who is not linked with a company or its management team serves as Independent Directors. They are frequently nominated to the board to give independent perspective and advice and help ensure the shareholder’s interests are reflected.
- Nominee Directors: A nominee director is someone appointed to the board of directors of a company by a third party, such as a venture capitalist, private equity firm, or other institutional investor. Typically, the nominated director is appointed as a representation of a third party, and their purpose is to preserve the interests of the entity that selected them, rather than the interests of the business or its shareholders. In some cases, government agencies or banks may designate nominee directors. They are frequently hired to guarantee that the firm’s management team is operating in the best interests of the appointing party, especially if the appointing party has a large share in the company. Nominee directors may have voting rights, decision-making authority, and the capacity to influence the company’s direction, but they are not actively involved in the company’s day-to-day management.
- Alternate Directors: A person appointed to a company’s board of directors as a replacement for a regular director who is unable to attend a board meeting is known as an alternate director. Regular directors select alternate directors, who have the same rights, responsibilities, and obligations as regular directors when functioning as alternate directors. Alternate directors are hired to guarantee that the board is fully staffed and that decisions may be made even if one or more regular directors are unable to attend a meeting. An alternative director can attend board meetings and vote in place of the regular director they are replacing, but they do not have the same level of decision-making power. Alternate directors are often chosen for a certain length of time, and their function is to preserve the board’s continuity and stability, rather than to give an independent viewpoint or to represent the interests of a specific group of shareholders.
- Additional Directors: Additional directors, also known as co-opted directors, are those added to a company’s board of directors by the current board members rather than the shareholders. They are often hired to bring to the board certain skills, knowledge, or experience that are not already represented. Additional directors are not chosen by shareholders and lack the same authority and decision-making capacity as regular directors. They are appointed for a certain period of time, and their duty is to give direction and advise to the board on specific issues rather than to assume ultimate responsibility for the company’s administration and strategy. Additional directors are selected to give specialized perspectives and knowledge; however, they are not required to attend all board meetings and do not have voting rights. They are appointed by the board as needed, and their employment is typically for a set amount of time.
Duties and Roles of the Director
- It is the Director’s duty to maintain the company’s assets and not to misapply them. The Director does not have any legal ownership of the company assets; they only have effective control.
- It is the duty of the Director to maintain confidentiality.
- A director has the duty to oversee that no one enters into any disagreements and does not permit conflict of interest.
- The company director has to make sure that he attends all board meetings.
- It is the duty of the Director to promote the company and act in good faith of the company.
- The Director must always act in the company’s and its shareholders’ best interests.
- It is the role of the Director to supervise daily operations taking place in the company.
- It is the duty of the Director to avoid making any profits or gaining any unfair advantages.
Director Appointment in Private Limited Company – Requirements
Following are some requirements for the Director Appointment in a Private Limited Company:
- There can be a minimum of two directors and a maximum of fifteen directors in a private limited company.
- To be appointed as the Director of the company, it is necessary for the person to be on the board of directors.
- An individual must be a resident of India to be eligible for the appointment as Director.
- The individual must be of at least 18 years or above in age to be appointed as Director.
- The individual must be of sound mind.
- The individual must not have any criminal record.
- The individual must be found eligible according to the clauses of the Articles of Association.
- The consent of the members of the board should be there.
- The Director is elected at the annual general meeting.
Documents That Are Necessary For The Director Appointment In A Private Limited Company Are:
- A copy of Pan Card (self-attested)
- From DIR-2
- The copy of the resolution passed by the shareholders to appoint that person as a director.
- Copy of identity proof and address proof
- Articles of Associations of the business
- Bank records of the Director
- Notice of the shareholder meeting
- Digital signature certificate
- Director identification number
Director Identification Number for Director Appointment
A Director Identification Number (DIN) is a unique identification number provided by the Ministry of Corporate Affairs (MCA) in India to people who are appointed as directors of companies. The Director Identification Number (DIN) ‘s objective is to keep accurate and up-to-date records of directors and their appointment in the Ministry of Corporate Affairs (MCA) registered business.
The Director Identification Number (DIN) is an 8-digit number generated by MCA to an individual upon successful application and is valid for the individual’s lifetime. The Director Identification Number (DIN) must be included in all forms and documents submitted to the MCA in connection with a director’s appointment or resignation.
To obtain a Director Identification Number (DIN), the individual has to fill out Form DIR-3, send the required papers and pay the prescribed fees to the Ministry of Corporate Affairs (MCA0. Then Ministry of Corporate Affairs (MCA) gives the Director Identification Number (DIN) to the individual once the application is processed and authorized.
Form DIR-12 – Director Appointment
The DIR-12 Form must be filed with the Registrar of Companies (ROC) in India for the Director Appointment or change of a company’s directors. This Form is to use to send the information on the new Director to the Registrar of Companies (ROC) and to update the company’s records with the Registrar. The following is the information required in the Form:
Name, address, and Director Identification Number (DIN), the company’s information such as the company’s name, Corporate Identity Number (CIN) and the registered office address. The date on which the appointment is to be done is also given along with the Director’s status, and other information is given.
The Form, along with the requisite fee and supporting papers, must be filed with the ROC within 30 days of the appointment or replacement of a director. This paperwork must be signed by the new Director and the company’s authorized signatory. DIR-12 is an STP (Straight Through Processing) form; hence it gets approved as soon as the payment is made and marked as “Paid” by MCA.
Form DIR-2 – Director Appointment
The nominated Director must consent to their appointment as a director on the form DIR-2. The prospective Director is appointed as a director once the company receives the DIR-2 Form from the individual respectively. After the Director is appointed, the company should send the Director an appointment letter. Following the issuance of the appointment letter, the company must file papers with ROC regarding the appointment within 30 days.
The board of directors is the firm’s heart and soul, and its performance is essential for the company’s success. Directors play an important role in the company. The appointment of a director in a private limited company is an important choice that should be approached with consideration. During the appointment procedure, the company’s article of association and the company’s act must be followed. The nomination of the directors entails legal and financial duties, and the Director can be held accountable for any wrongdoing or failure to act. As a result, it is critical to pick the right candidate for the role of Director, who are competent and capable of carrying out their duties.