The Procedure for Appointment and Resignation of Directors
Dashmeet Kaur | Updated: Nov 02, 2019 | Category: Compliance
Section 168 of Companies Act, 2013 provides a clear picture of the appointment and resignation of directors which wasn’t covered previously in the Companies Act, 1956. Since a company do not have a physical existence, it gets recognised as an artificial person to whom only a natural person can bring into life. Therefore a person who takes in charge of regulating the company’s operations, he is known as the director. Different directors are responsible for handling various aspects of the company. So, this blog will give a comprehensive analysis of numerous types of directors, along with their appointing and resigning process.
Types of Director
The directors of a company differ in terms of the role they play, such as managing director who runs the overall functions of the company, executive directors who look after the day to day processes, and independent directors who ensure good governance of the company. Thereby, one company can have multiple directors; however, the appointment of directors also depends on the type of company like:
- As per Section 149(1) of the Companies Act, 2013 every public company shall have a minimum number of 3 directors, whereas the minimum number of directors in a private company are 2 and only one director in case of the One Person Company.
- The maximum number of directors in a public company is 15. Besides, a company can also appoint more than 15 directors after getting a permit from special resolution in the general meeting. The process of appointment of more directors does not require the approval of the Central Government.
- A director can administer the maximum number of directorships up to 20, inclusive of any alternate directorship of a person.
- In the case of any private company or public company, the either holding or subsidiary company shall restrain to10 directorships in the public company.
- All the listed companies must appoint at least one woman director in the Board of Directors within a year from the commencement of the second Proviso to Section 149(1) of Companies Act.
- Likewise, every public company having a turnover of Rs. 300 Crore or a paid-up share capital of Rs. 100 crores under the latest audited financial statements, shall appoint at least one woman director within a year from the commencement of the second Proviso to Section 149(1) of Companies Act.
Note: “If any person holds the responsibility of director in more than 10 or 20 companies before the commencement of Companies Act, then he shall have to choose the companies where he wishes to continue or resign as the director within one year from such commencement. After that, he shall inform about his decision to the chosen companies as well as the concerned Registrar.
Common Reasons behind Resignation of Directors
There can be many reasons for resigning the position of director and choosing another option. Let’s perceive some possible reasons behind the resignations of directors:
Conflict with the Board- When many directors work together, a difference of opinion ought to happen. It results in hampering the overall performance of the company; in such a situation, the directors may choose to resign.
Better Career Opportunity- Everyone seeks for a better career opportunity to enlarge their domain, and choose that option which drives their inner aspirant. Similarly, the directors may resign if they get better opportunities or some venture wherein he got appointed as a director by AOA.
Distortion in the Company Affairs- When a director gets acquainted with the illegal practices of the company, he may find himself getting dragged into it that becomes his reason for resignation. To protect himself from personal liability coming out of such activities, he decides to resign.
Expulsion due to disobedience- Any non-adherence, contravention or defaults on the director’s end can lead him into trouble. In that kind of scenario, the Board may want him to leave the office. Sometimes the removal of director may shape as the face of resignation in which the company give the director a benefit to resign instead of throwing him out directly.
Withdrawal of nomination- It is only applicable to the Nominee directors who mostly get appointed by the NBFC’s investors on the BOD. Once the transaction amid the company and entity is complete, the Nominee director can resign, or he may also resign after the withdrawal of nomination.
Appointment and Resignations of Directors at the same time
Imagine a situation in which all the directors of a company resign at the same time, sounds horrifying right? In such a case, two scenarios of appointment and resignation of Director are applicable, which are as follows:
- Resignation of Director
- Procedure for the Resignation of director – (Normal Case)
Section 168 of the Companies Act, 2013, defines the method for the resignation of the directors as below-
As per the Section, a notice has to be served by the director of the company notifying about his reason for departure. Also, the director has to fill a Form DIR- 11 under his digital signature.
Resignation of the Director under Section 168
Section 168 has issued the following guidelines for the resignation of directors:
- A director may resign from his office by providing written notice to the company. After receiving such notice, the Board shall take note of the same, and the company shall intimate the Registrar in such a manner, time, and form as prescribed. Provided that-
- The company shall place the fact of such resignation in a report of directors immediately after the general meeting of the company.
- The director shall also forward a copy of his resignation along with a precise reason for his resignation to the Registrar within 30 days of resignation the prescribed manner.
- The resignation of a director shall take its effect from the date on which the company received his notice or from the specified date mentioned by the director in the notice, whichever comes later: Provided- that the director who has resigned shall be liable for the offences which happened during his tenure even after the resignation.
- When all the directors of a company resign at the same time, then the promoter or the Central Government shall appoint the required number of directors during which old directors have to hold company until the new ones get appointed by the company in general meeting.
Also, Read: What is the Procedure for Removal of Director Disqualification under Section 164?.
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