As per section 260 and section 284 of the Companies Act, 1956, the Articles of Association of a company are the source of authority from where the Board of Directors draws the right to add new directors to the Board or remove existing ones. The Articles of Incorporation must provide for the addition of Directors. The person appointed must be eligible as per the relevant clauses in the Articles of Association and must give his consent to be a director in written form which the company must register with itself.
Why Add and Change Directors
Get new talent on board
The business world is extremely competitive and that is why it is so important for companies to stay on top of their game at all times. As businesses grow and evolve, they undergo several upheavals with regard to strategies, policies, and objectives. Therefore, sometimes companies need to get new talent on board to help formulate new strategies and business plans. Furthermore, as new alliances form between corporations, new talent is required to bridge gaps and ensure the smooth functioning of the organisation. As companies expand and venture into new areas, team leaders and experts can move from their managerial position into the role of a director to help the company stay on track.
No dilution of ownership
Directors are primarily responsible for the day-to-day operations of a company. Adding or appointing an additional director helps the shareholders assign more operational responsibilities without losing any strategic control. As a Director does not subscribe or own any share capital, the ownership and the voting rights that come along with it, remain with the shareholders, preventing any dilution.
The inefficiency of existing directors
The existing directors may or may not be able to serve the company faithfully, in certain cases. In such circumstances, maybe even due to retirement, family problems, other personal reasons or physical ailments, the company adds new directors to make sure their productivity is unaffected. Hence, from time to time, companies need to process the termination and addition of new directors, so as to ensure their continued growth and success.
To meet the statutory limit
In certain cases, due to sudden death or plans of retirement from existing Directors, companies fall short of the minimum required directors as prescribed by the Companies Act. Therefore, such Private and Public companies need to appoint new directors within 6 months to continue functioning as a legally valid entity.
- Identification proof (PAN card)- Self-attested
- Proof of residence (electricity bill, rental agreement, Aadhar Card, Voter ID, Passport, Driving License)
- Passport size photograph
- Digital Signature Certificate of the proposed Director
(PAN card: Mandatory for an Indian Applicant Passport: Mandatory for a foreign Applicant)
- According to Section 161(1) of the Companies Act, 2013, check if the Articles (AOA) of the company supports adding an additional director. If there are no such provisions in Articles of the company then modify the Articles of the company in a way to add an additional company director.
- Secondly, apply for the DSC (Digital Signature Certificate)
- Apply for DIN (Director Identification Number)
- If the person who is supposed to become the new Director does not have DIN, the same must be notified to the company. In such a case, the Company must pass a Board Resolution and then apply for a DIN for the proposed person. This Resolution must be filed along with Form DIR 3.
- Once obtained, the DIN serves as a lifetime identification number of the Director.
- Collect the basic documents and information required for the process
- Recording of Form DIR-2, Form DIR-12 and Form DIR-8 at ROC has to be done.
- The proposed Director must give his or her consent to act as the Director via Form DIR-2. This is one of the most important documents needed to add a new director, and hence, must be obtained before proposing anyone to be the Director.
- Take Consent/Approval of the individual who is to be selected as a Director of the organization in the recommended design.
- If the company wants to appoint him as a director then regularize the person as a director in General Meeting by Shareholder Resolution.
After the process
- Call the Board Meeting.
- The Director must be appointed in a General Meeting and so the Company must issue a notice for holding an Extra-Ordinary General Meeting. Care must be taken to ensure that this notice is issued in accordance with the laws stated in the Companies Act, 2013 and abides by the rules mentioned in the Secretarial Standards issued by the Institute of Company Secretaries of India.
- Pass resolution for the appointment of an additional director.
- Issue the Letter of Appointment.
- Once the appointment letter has been issued, and the payment terms have been negotiated, the Company must file Form DIR-12 to the Registrar of Companies within 30 days from the date of appointment.
- Next, the company must make necessary entries in the Register of Directors and Managerial Personals as required.
- Furthermore, the Company must apply for the necessary changes in the Director’s details with regards to GSTN and other Certificates, as and when required.
Thereby, you will have the new company director’s name on the MCA website.
Procedure for Adding a Director
3 Working Days: The newly-appointed director must apply for a Director Identification Number by filing E-Form DIN-1 with the Ministry of Corporate Affairs, Government of India.
4 Working Days: A resolution needs to be passed by the board, approving the appointment of a director. Once this is done, we will file Form DIR-12 with the Registrar of Companies.
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FAQs on Adding a Director
Can a Director resign himself or herself from the company?
Yes, any director can voluntarily resign from the company if they wish to do so. In such a case, they must first serve a notice of resignation to the Company stating their reason for resigning and also mentioning the date of resignation.
Furthermore, they must also file a form to intimate the MCA regarding their impending resignation from the company. This e-form must be filed within 30 days of the resignation. Furthermore, if the vacancy results in a shortage of the minimum required Directors, the Company must appoint a new Director within 6 months to continue functioning.
Is there any eligibility criteria for adding a new Director?
Yes, there is and it is as follows
- The proposed individual must be a major.
- He or she must qualify as per the laws mentioned under the Companies Act, 2013.
- The Members of the Board must consent to the appointment of the proposed individual.
- It must be noted that the Companies Act does not mention any educational qualification in order to be eligible to become a Director.
Should I apply for another DIN, if I already have one?
No, a DIN or Director Identification Number is permanently allotted and can hence, be used for a lifetime. Therefore, once it is allotted, the same number may be used for multiple appointments and resignations.
Can a Company appoint another Corporate Body as its working Director?
As per the Companies Act, 2013, only individuals can serve as Directors of Public and Private Limited companies. Therefore, a corporate body cannot be appointed as a Director of any company in India. Therefore, if any LLP or Private Limited Company wants to serve as a Director, they must send a representative and then appoint that person as a Director.
Can a Company add a Foreigner or NRI as a Director?
Yes, an NRI or Foreign National may be added as a Director in a Private Limited Company. In order to do so, they must have a valid Passport and a DIN. In case they do not have a DIN, they must apply for the same via the Company they wish to become a Director of. However, as per the Companies Act, 2013, at least one Director on the Board must be an Indian Resident and the rest may be foreigners or NRIs.