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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 –
1. Review the Articles of Association
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.
2. Conduct a General Meeting
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.
3. Apply for DIN & DSC
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.
4. Obtain Consent from the Prospective Director
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.
5. Issue a Letter of Appointment to the Director
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.
6. File Forms DIR-2 and DIR-12 with the ROC
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.
7. Make Important Entries in the Register of Directors
The company should enter the important information in the Register of Directors.
8. Filing Amendment Applications with GST and Tax Authorities
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.
The appointment of a director involves:
Obtaining consent (DIR-2) from the proposed director
Filing Form DIR-12 with the ROC
Passing a board or shareholder resolution, depending on the type of appointment
Ensuring the director has a valid DIN (Director Identification Number)
Any individual above 18 years of age, who is mentally sound and not disqualified under Section 164 of the Companies Act, can be appointed as a director. Foreign nationals and NRIs are also eligible.
Form DIR-12 is the e-form filed with the Registrar of Companies (ROC) to inform about the appointment, resignation, or change in the particulars of a company director.
DIN (Director Identification Number) is a unique 8-digit number issued by the MCA. It can be obtained by filing Form DIR-3 along with ID and address proof, or it may be auto-generated while incorporating a new company.