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A director is a person who is elected by the shareholders of the company to manage the company operations as per the rules of the Articles of Association and Memorandum of Association. The person who wants to be a company’s director should have a DSC (Digital Signature Certificate) and a DIN (Director Identification Number).
For a company, several categories of directors are identified that highlight their roles and various responsibilities. The following are the most common types of directors:
There are a few important reasons for adding or changing its directors in a company-
Complying with Statutory Requirements: The Companies Act 2013 instruct companies to maintain a particular number of directors. In case, the required number of directors is lower than the minimum due to retirement or death. Then, new directors should be appointed as soon as possible to comply with the legal requirements of the company.
An individual is considered eligible for a director of a company if he meets the following required criteria –
Here is the step-by-step process for adding or appointing a new director to a company –
The first step in appointing a new director is to review the Articles of Association (AOA) of the company. It should include a specific clause that allows the appointment/addition of directors in the company. If this provision is not present in the current AOA, then it should be changed to insert a clause that permits new directors for the company.
The company should conduct an annual general meeting and pass a resolution for appointing a director. In case, there is a need to appoint a director in the half year, the company can decide on a director’s appointment by passing a resolution during an Extraordinary General Meeting (EGM). After the appointment, the company should file the resolution in the MGT-14 form with the ROC within 30 days of passing the resolution.
When the company passes a resolution for appointing a director in an annual general meeting or extraordinary general meeting, then the selected individual should apply for a DIN (Director Identification Number) and DSC (Director Signature Certificate).
When the DIN is obtained, the presumed director should provide their DIN including a declaration to the company. This declaration states that they are qualified to be a director following the Companies
Act, 2013.
Once the DIN is received, the proposed individual for the director position should submit a DIR-2 form. This form is an official consent that expresses the interest of the proposed individual to serve in this role. Without submitting consent through a DIR-2 form, an individual cannot be appointed as a company director or take charge of the responsibilities of the director’s office.
The company provides a formal Appointment Letter to the newly appointed director upon completing the necessary steps. This letter includes the terms and conditions of the appointment, responsibilities, different roles, and salary of the director.
After passing the resolution for the director’s appointment and the submission of Form DIR-2 by an individual, the company officially appoints that individual as a company director. The company is required to file Form DIR-2 and Form DIR-12 with the ROC within 30 days of the appointment. These forms contain the details of specific points related to the director’s appointment.
The company should enter the important information in the Register of Directors.
When a new director is appointed, the company should file the essential applications to update the details of the new director with different regulatory management. This step is necessary as it ensures compliance with regulatory and tax requirements of the company.
A director is responsible for providing strategic leadership, making key decisions, and overseeing the overall management of the organization.
Directors are usually appointed by the shareholders of a company at an annual general meeting or through a board resolution.
While there are no specific qualifications required to become a director, individuals should possess relevant experience, skills, and knowledge related to the industry and business operations.
In theory, anyone can become a director as long as they meet the legal requirements and have the necessary skills and experience. However, companies often look for candidates with proven track records and expertise.