Every director wants to feel secure in their position, but there is a chance that things may not go well. Can directors be forced to leave their company? Let's find out!
Removal Of Directors: A Guide To Forced Exit Of Directors: The main responsibility of a director of a company is to manage it in a way that maximises advantages to its shareholders while also ensuring that it conforms with all relevant laws and regulations. No matter the size of the business, directors are usually both the owners and managers, giving rise to the phrase “owner-managed businesses.”
Every private company must have at least two directors, and every public corporation must have at least three directors at all times. Consider three scenarios that could occur during the removal of a director.
Therefore, if a director is underperforming or if he or she disagrees with the strategies that the majority of the company’s management has embraced, it is a severe matter of concern for the company. In such a situation, the company may not have any other choice but to ask to have a director removed.
One of the most important rights that the Companies Act of 2013 gives them is the power to remove the company’s directors if they are not acting in accordance with the company’s constitution and are just using their authority for their own interest.In this article, we have discussed the step-by-step guide to removal of director as per the Companies Act, 2013.
Documents Needed For Removal Of Director
- Photo: A passport-sized picture of the appointed Director.
- PAN Card: The PAN card of your to-be Director
- Aadhar Card/Voter ID/Passport/Driving License as proof of residency
- Digital Signature Certificate: DSC for both the current Director and the Director who will be dismissed or removed.
- Passport/Election card/Driving License/Aadhar card as identity proof.
- The Director’s mobile phone number along with personal and business email addresses.
- Resignation notice submitted to the employer.
- Proof of dispatch
- Form acknowledgment, if any.
What Are The Ways To Remove A Director From A Company?
Here are the following ways which can lead to the removal of director from a company:
1. When The Director Gives A Resignation
Follow the steps given below:
- Conducting a board meeting with a clear seven-day notice.
- The board members will discuss the resignation during the meeting.
- Then they have to adopt a resolution to that effect in a certain format.
- The resigning director must then complete Form DIR-11 in his individual capacity.
- The registration letter, board resolution, and Form DIR-12 must be submitted by the firm to the Registrar of Companies (RoC).
- The director’s name will be deleted from the company’s master data on the Ministry of Corporate Affairs (MCA) website once all forms have been completed and the necessary procedures for removing the director have been followed.
2. Director Remains Absent From 3 Consecutive Board Meetings
- A director is deemed to have resigned from their position in accordance with Section 167 if they fail to appear at any or all of the board meetings during the course of a year, whether or not they requested a leave of absence.
- It is necessary to file a Form (DIR-12).
- The name of the concerned director will be deleted from the Ministry of Corporate Affairs database after the necessary procedures have been completed.
3. Removal of Director By Shareholders
- A notification is sent to all shareholders for a board meeting, which must be held within seven days after the issuance date.
- Subject to the shareholders’ approval on the day of the meeting, a resolution is passed to call a general meeting and then to remove the director at that meeting.
- The second meeting of shareholders is called with a 21-day notice to vote on the earlier resolution, and the director who is being removed by the shareholders can speak regarding their dismissal.
- The shareholders must submit Form DIR-12 along with an ordinary resolution and the board resolution’s attachments.
- The name of the concerned director is removed from the Ministry of Corporate Affairs (MCA) database and website once all the processes are done away with.
Procedure for Removal of Director
The process is described below:
- Inform the concerned director that he will be removed; call a board meeting; and adopt a board resolution calling for the removal of the director.
- 14 days before the general meeting, notify all members by sending out an invitation.
- Organize a general meeting and give the director the chance to speak and be heard. Let the ordinary resolution be adopted if it is fair and right.
- Prepare the necessary documentation for such removal and notify the relevant departments.
- The removal of an independent director requires the approval of two-thirds of the members or a special resolution.
Conclusion
To avoid a penal situation, one must follow the above-mentioned procedure. The company management must have specific grounds for wanting to fire directors, but the director must be given the opportunity to be heard before being fired. A business can deal with an unsuitable or dissident director by following the formal procedure outlined in the Companies Act. However, following this procedure can be a lot of work for some businesses. Our expert legal advisors at Vakilsearch can help you with all the paperwork and also ensure that every procedure is followed correctly to avoid any complications later on.
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