What is the overall procedure for an Additional Director appointment? Read this article to understand more about the same
Overview
An Additional Director on a company board is not a member of the Board, but is appointed by a member of the public or by shareholders. This person does not have to be an employee of the company and can be any individual with expertise in his or her field of responsibility. Additional directors are often corporate executives and experts in the field in which they serve. They may also be well-known figures in their communities or professions, such as lawyers, accountants, bankers and non-executive members of government boards. They are expected to bring a fresh perspective to their duties as Independent Directors and play an active role in decision-making. Appointment Of Additional Director Under Companies Act
What Is the Role of an Additional or Independent Director?
The role of an Independent Director is to provide advice and counsel to management, which helps them make decisions that are in the best interests of shareholders. In addition, it can help prevent conflict of interest situations that could affect how a company operates or its decision-making process.
An Appointment of Additional Director has no financial or personal ties with any member of the board or management team. This means they will not be biased towards one side over another as long as all board members are equally represented by their voting power on decisions made by the Board itself or management. In addition to providing much-needed oversight from outside the company’s walls, independent directors also help ensure that there isn’t any backroom dealing between management members and other shareholders (such as through stock purchases).
Appointment Procedure
In compliance with the Companies Act, 2013, the appointment of an additional director follows a structured procedure. Here are the key steps involved:
Identify the Need
The initial step is to recognise the necessity for additional expertise or guidance on the board. Whether it’s specialised knowledge or strategic insight, identifying the need is pivotal.
Board Resolution
The board of directors convenes to pass a resolution formalising the appointment of an additional director. The resolution outlines crucial details such as the purpose of the appointment, the tenure, and the remuneration allocated to the additional director.
Consent and Eligibility
Before finalising the appointment, the identified candidate for the additional director position must provide explicit consent. Furthermore, they need to meet the eligibility criteria stipulated in the Companies Act, 2013, ensuring that they possess the qualifications required for a director.
Intimation to Registrar of Companies
Following the appointment, the company is obliged to submit a return to the Registrar of Companies within 30 days. This return encompasses comprehensive details like the director’s name, address, the appointment date, and the rationale behind the appointment.
Criteria for Appointment of Additional Directors
Under the Securities and Exchange Board of India (SEBI) Regulations, 1992, the Board of directors of a company can be expanded by way of addition to the existing number of directors. The maximum number of directors which can be appointed is nine. The following criteria must be satisfied for the appointment of additional Director:
The Number of Directors Must Not Exceed Nine
The increase in the number of directors is required for any reason or purpose including to comply with any law, regulation, or order.
Not an Employee of the Company
The additional director appointment is not an employee or servant of the company.
Not an Employee of Other Companies With an Interest in Another Company
The additional director appointment must not be an employee or servant of any other company with any direct or indirect interest in the affairs of such company.
Articles of the Company Should Allow It
The Company’s Articles should authorize the Board to additional director appointment in the first place. If they do not, the Articles have to be changed appropriately.
Satisfaction of Sections 164 and 165 of the Companies Act
The individual proposed as an Appointment of Additional Director(AD) must not be disqualified under the disqualifications mentioned in Section 164 and Section 165 of the Companies Act. This is a strict necessity that has to be complied with.
No Previous Failure to Get Appointed as a Director
The individual must not be somebody who failed to get appointed as a director in a general meeting. This is stated by Section 161(1) of the 2013 Companies Act.
Possessing a Director Identification Number
A director removal, like a Non-Executive Director or Executive Director, must possess a DIN number (Director Identification Number). If they do not possess one already, they must appeal to the Central Government and fill out a form to be allotted one.
Filing a Form DIR-8
Before the individual can be additional director appointment , they must have provided their DIN to the Board of Directors through Form DIR-8. They must also provide a declaration stating they are not disqualified from becoming a Director (under the Companies Act, 2013).
Filing a Form MBP.1
The proposed candidate has to submit a declaration through Form MBP.1 where he declares his interest in other entities. This form has to be presented within 30 days of the initial appointment or at the first Board Meeting where the individual acts as an Additional Director after getting Appointment of Additional Director.
Giving Written Consent in Form Dir-2
The proposed candidate has to provide his consent to hold the office of Director through a Form DIR-2 and provide the following documents as well:
- A valid ID proof
- A valid Address Proof
Government identification documents (such as PAN card or Adhaar card) suffice as identification and address proof in most cases. Driver’s licenses are also accepted in most cases.
Filing a Return in Form Dir-12
Within 30 days of the Appointment of Additional Director initial appointment, a return must be filed with the Registrar of Companies in an e-form DIR-12. You also have to pay the relevant fees in this situation.
The documents required for filing a form DIR-12 are:
- Details of interests in other commercial entities
- An extract of the Board of Director’s Resolution for Appointment
- Attested copy of an ID and Address Proof along with the written consent of the appointee director in Form DIR-2
- Letter of Appointment
- Any other required or applicable documents.
Providing Details Required for the Register of Directors
The additional appointee director also has to furnish the following details so they can be entered in the Register of Directors and KMPS:
- Their DIN number;
- Name and surname in full;
- Parents’ names and surnames in full, along with spouse’s name and surname if married;
- DoB (Date of Birth);
- Residential address;
- Nationality;
- Current occupation;
- Any Director or KMP positions currently held or held in the past in other companies;
- Details of securities, holdings, and interests in the company, subsidiaries, and associate companies.
Informing Other Companies Where He Holds Offices
After the actual appointment of the proposed individual as an additional director, he must also send a notice or otherwise inform other companies where they hold the office of Director in any capacity. This is required by Section 184(1) of the Companies Act 2013, and prevents a conflict of interest.
Conclusion
At the end of the day, Additional director appointment in corporate law can be hard to understand if you don’t have any legal expertise in corporate law. Instead of making this a DIY project, your best bet is looking up great legal counsel on Vakilsearch, India’s largest database of skilled professionals. Vakilsearch doesn’t just provide the legal counsel, chartered accountants, and other individuals you’ll need for the appointments. Instead, our vast collection of professionals means you can find a non-biased, analytical, and objective-oriented individual to act as an Appointment of Additional Director for your company. Wish to know more about how it will work? Get in touch with us today.
Frequently Asked Questions
What is the significance of appointing an additional director under the Companies Act?
Appointing an additional director is crucial for injecting specialised skills or expertise into the board swiftly. It allows companies to respond promptly to emerging needs, ensuring effective governance and strategic decision-making aligned with the Companies Act.
Who has the authority to appoint an additional director, and what is the process involved in the appointment?
The authority to appoint an additional director lies with the existing board of directors. The process involves passing a resolution specifying the appointment's purpose, terms, and remuneration, ensuring compliance with the Companies Act.
Is there a limit to the number of additional directors a company can appoint, and are there any eligibility criteria?
While there's no prescribed limit, the appointment must align with the company's articles of association. Eligibility criteria, as per the Companies Act, include the individual's consent, qualifications, and compliance with directorship norms.
What is the tenure or term of office for an additional director, and can it be extended or renewed?
The tenure is typically until the next annual general meeting. Extensions or renewals are subject to the company's articles of association and shareholder approval, providing flexibility under the Companies Act.
Are there specific qualifications or disqualifications for individuals being considered for appointment as additional directors?
Qualifications involve meeting the criteria outlined in the Companies Act, such as competency and eligibility. Disqualifications include legal restrictions like bankruptcy, ensuring the integrity of the board.
How does the appointment of an additional director differ from the appointment of a regular director in a company?
An additional director's appointment is provisional, catering to immediate needs. Contrastingly, a regular director undergoes a comprehensive appointment process, including shareholder approval and a longer-term commitment.
What role does the Board of Directors play in the appointment of an additional director, and is shareholder approval required?
The board plays a central role by passing a resolution for the appointment. Shareholder approval may be mandated by the company's articles or required for the director's continuation beyond their initial term.
Can an individual be appointed as an additional director without holding shares in the company?
Yes, shareholding is not a prerequisite for an additional director. Their appointment is based on expertise and qualifications, offering flexibility under the Companies Act.
What are the legal and regulatory requirements that must be complied with during the appointment of an additional director?
Compliance involves adhering to the Companies Act, ensuring proper resolution documentation, and filing the requisite forms with regulatory authorities within the stipulated time frame.
If an additional director wishes to continue serving beyond the initial appointment, what steps should be taken for their formalisation as a regular director?
For formalisation, the director's extension or conversion to regular status necessitates compliance with the Companies Act, including shareholder approval and any procedural requirements outlined in the articles of association.
