Being a director of a company is not an easy task. Lots of responsibilities and duties are associated with this role. A company may have several directors and shareholders. In this article, we will try Appointment and Qualification of a Director.

Board of directors are considered as the spine of a registered company. Directors and managers play an equal part in running a company successfully.

Board of Directors:

In a company, there should be a board of directors. Different number of directors can be there in a company. But the number should not exceed 15 in any case. A public company has at least 3 directors whereas a private company or partnership farm has two directors. An entrepreneurial farm has only one director who runs the business and looks out for the betterment and wellbeing of his employees.

If you need more than 15 directors in your company, you need to pass a resolution. For such resolutions bear a clause where you need to have at least one woman director in your company.

Every director should attend the business meeting once a year. Also, they must attend a meeting just after getting promoted as the director of the company. He needs to take some crucial decisions along with his counterparts in the board of directors. Some of those crucial decisions might include;

• Decision regarding the financial statement of the company
• Whether to diversify the business
• Whether to borrow more money from the financial institutions.
• Whether to go for a merger or amalgamation.
• Whether to invest the funds of the company.

Apart from these few, they need to oversee a lot of other things happening around him. He is not alone while taking the decision in case it’s a company with a board of directors. For an entrepreneur, making decisions is very crucial as he is the only head behind all the nods. It can do good to the company and bad as well. So, being a director is not an easy task at any given point.

The directors are considered as liable for any kind of damages, loss, and for the smallest cost borne by the company. It is considered that all of his decisions will go in favor of the company. If his decisions breach the company provisions, the director will be liable for this.

Appointment of a Director

• An unusual vacancy: An unusual vacancy occurs at an office when a director leaves his chair before his term ends. There can be many reasons. He can get another job, he is tired of negotiating terms with clients or other board members, or simply due to his death. The process of selection for the new director is mentioned in the company articles. The other board members can find the articles related to this reason and start the processing. If they find any article missing regarding this selection process, they need to select one incumbent director for the period the outgoing director would have held his office.

• Central government’s intervention: The central Government intervenes in the process of selection of a director when a petition is filed at the National Company Law Tribunal. Anyone from the board of directors filed a petition saying there’s a mismanagement happening in the company. Now as per the Section 408 of the Companies Act 2013, the Central Government will intervene and select someone efficient for the post of director to the company.

• Appointment of additional directors: At any point of the year, the board of directors may feel the urge to appoint some additional directors for the benefit of the company. No matter how important it is, the board cannot appoint more directors than that mentioned in the articles of the company’s law book. If the number of directors in the company is way less than the minimum limit, the board should appoint some competent people as soon as possible. Also, the additional directors will hold the office till the next annual meeting of the company. For further details, the board of directors should consult the provisions mentioned at the Companies Act 2013.

Consent form: Upon selection as the director of the company, the person needs to sign a consent form. Form DIR-2 will be given to the director and he needs to sign it and submit it within 30 days of his selection as the company’s director.

Qualification of a Director

Not anyone can become the director of a company. It requires a lot of knowledge, experience, and additional qualities. Also, there are a lot of reasons why a person can never become a director of a company. Please read on.

• Required qualification of a Director: The company’s act states that every director should possess a certain number of shares of the company. The directors act as shareholders as well. So, he needs to possess a certain amount within two months of his selection as the director. These are known as qualification shares as per the company’s act. He must be given two months to acquire the shares and cannot be compelled to do so before that. Minimum value of the share will be 5000 rupees or the amount mentioned in the company’s act. The director must obtain the share within two months of his appointment, failed to do so, he might face some consequences;

1. The office is considered as vacant and he may lose all the powers.
2. He may need to pay a penalty for not possessing the amount of shares. He must not use the shares bought by someone else. He should own the shares to continue his tenure.

Disqualification of Director

The section 274 of the Companies Act 2013 states the minimum qualifications of a person to become the director of the company. Here are some clauses due to which an employee can never become the director of the company.

• If the person is mentally ill and this is certified by a medical practitioner and by the court.
• When the person is considered as an insolvent by the court.
• When a person cannot pay his debts even after selling all his assets.
• If a person, or an ex director was imprisoned for at least 6 months for immoral behavior at office. Also, at least five years have not passed from the date of occurrence of his imprisonment.
• If the director was disqualified or impeached for backing fraudulent persons at work.
• If the director has not paid money for his shares for at least six months.

Removal of Director

A director can be removed from his position in three ways. It can be done by the Company board, by the shareholders, or by the Central Government. Also, the director can resign at any given point and he will not be forced to finish his tenure in the office.

Conclusion

All directors of a company are shareholders, but all shareholders are not directors. Every director should possess a DIN or Director Identification Number. This number ensures that the director is also under scrutiny all the time. Any kind of malpractice is found and he will be thrown out of the office.