Understanding the checklist for appointing an Executive Director will help you to make sure you select someone right for your organisation. Read this blog for a better idea.
Compliance Checklist for Appointment of Executive Director:
Executive Directors are senior managers or professionals who head or lead a board of Directors in an organisation. They are responsible for a business organisation’s operation, finance and strategic planning. Non-Executive Directors (NED), on the other hand, have the duty to help select and appoint executives for the business.
Delving Deeper Into The Role of An Executive Director
Executive Directors are responsible for the organisation’s overall direction, while non-executive directors are typically more concerned with day-to-day operations.
Executive directors must also be able to articulate their vision for the company. Executive directors must possess strong leadership skills and be able to manage people who report to them.
Executive Directors have a wide variety of responsibilities, including:
- Managing the organisation’s goals, strategies and policies
- Overseeing employee relations, including hiring, firing and development
- Overseeing human resources departments, benefits programs and labour relations
- Managing budgets, accounts payable, accounting systems and tax filings
- Developing long-range plans for expansion or growth.
Compliance Checklist for Appointing An Executive Director
While everyone dreams about running their own non-profit organisation or helping their favourite business plan succeed, many don’t know where to begin when creating an Executive Director position that will support their efforts toward achieving these goals.
That’s why, below, you’ll find a detailed checklist for appointment of executive Director. This list analyses several relevant provisions of the Companies Act to provide you with everything you need to know about appointing an Executive or whole-time Director.
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Director Identification Number
An individual who intends to be appointed as whole-time Director must fill out and submit an application to be allotted a Director Identification Number. It comes under section 153 of the Companies Act and is necessary for them to apply for the position.
The process of applying for a Director Identification Number is complex, and it involves filling out an application form, attaching all relevant documents and paying an application fee. The applicant should then wait for their identification number to be issued by the Registrar of Companies (ROC).
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Mode of Appointment
Since there is no particular provision for a specific mode of appointment of a whole-time Director, they are generally appointed directly by the Board of Directors. In this regard, the Board may appoint them as part of their term of office. The company may also appoint them on a deputation basis to perform any other duties assigned to him or them by the Board of Directors.
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Approval from the Board
Concerning the appointment of such a Director by the Board, the notice convening the meeting should include the necessary terms and conditions that come with the appointment, the remuneration given, and other factors that concern the Director.
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Appointment Letter
While the Companies Act does not define the exact role or powers invested in the ED (Executive Director), the terms of appointment should state the individual’s functions, roles, powers, and responsibilities. However, it should also be kept in mind that the Managing Director retains substantial management powers, not the ED.
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Appointment of ED or Whole-time Director
Under the Companies Act, a company (both private and public) can appoint an ED and whole-time Director simultaneously. Whether they choose to do so is up to them.
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Tenure
Whether public or private organisation, the tenure of an ED should be a maximum of 5 years, if an individual is being reappointed, it should not be officially put on paper more than a year before his term expires. A reappointment generally requires full consent of the Board of Directors and the shareholders.
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Age Criteria
Companies are generally not permitted to appoint (or reappoint) a person who is over the age of 70 or under the age of 21. A person over 70 can however be appointed through a special resolution of the Board of Directors.
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Other Criteria and Qualifications
The candidate has to pass a certain number of State-allotted qualifications, such as:
- They must not be undischarged or abjudged insolvent
- They must not have suspended payment to their creditors at any time, or have made a composition with such
- They must not have been convicted at any time.
Compliance with these is generally attained with a declaration from the person.
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Consent
The proposed Executive Director candidate must have their consent to hold the office.
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Compliance of Part I to Schedule V of the Companies Act
For public companies only, a person can only be appointed ED of a company if:
- They have not been imprisoned at any point in time or has paid a fee exceeding Rs. 1000
- They have not been detained under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act
- They are past the age of 21 and not over the age of 70
- They are a resident of India.
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Shareholder’s Approval
For public companies, the appointment’s terms and conditions must first be approved by the Board of Directors and then by the shareholders at the next general meeting.
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Central Government’s Approval
If there is a notable variance from the terms specified in Part I to Schedule V of the Companies Act, the Central Government’s approval must also be obtained.
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Number of Directorships
A person cannot hold office as a Director in more than 20 companies. This includes alternate directorship. This has to be confirmed by the company appointing the individual as its Executive Director.
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Filing of E-Forms and Returns
A company must file the e-form DIR-12 for the appointment of such a director. Public companies also have to file the e-form MR-1 within 60 days of the appointment.
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Entry in the Register of Directors & KMP and their Shareholding
To appoint an ED, a company has to make the required entries in the appropriate particulars in the Register of Directors and Key Managerial Personnel and their Shareholding.
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Disclosure of Concern or Interest
The appointed Director has to disclose his interest or concern in the company (or companies). This should include his shareholding in Form MBP-1. This disclosure has to be made in the first Board meeting where the individual participates as the Executive Director.
Conclusion
While taking into account the abovementioned points will help appoint an Executive Director for a Non-Profit Company; it is also important to chalk out the responsibilities of both sides. It ensures that the candidate understands what is expected from him. No stone should be left unturned before appointing a person, as one cannot expect failure from new hires.
If you want to make sure that there is no problem with Appointment of Director, it’s best to have good legal counsel to ensure you’re crossing your t’s and dotting your i’s.
The best place to find such counsel is Vakilsearch, India’s largest database of talented professionals. With attorneys, business people, and a host of other professionals readily available, we can help you ensure that your company’s search for a new Executive Director goes as smoothly as possible.
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