Removing a director is a crucial process that impacts a company’s governance. This action may be necessary for various reasons, including performance issues or strategic changes. The procedure involves adhering to legal guidelines and corporate policies to ensure a smooth transition and maintain board effectiveness. Understanding the steps and implications helps in managing such changes professionally and efficiently.
About Participation in the Removal of the Director of a Company
Participation in the removal of a director involves several key aspects. Initially, a thorough review of the director’s performance and reasons for removal is essential. The board of directors typically discusses these concerns in a formal meeting, where they must follow the prescribed legal procedures. Shareholders play a crucial role in this process, as their approval is often required through a special resolution passed at a general meeting. Transparency and adherence to company policies and legal requirements are critical to ensure the removal process is fair and legally compliant. This approach helps maintain organizational integrity and ensures that all stakeholders are appropriately involved in the decision-making process.
Understanding the Reasons Behind Director Resignation
- Disputes with the Board
- Differences in opinion among directors can hinder the company’s performance. When conflicts arise, resignation might be considered to resolve these issues effectively.
- Misuse of Company Affairs
- A director involved in illegal or unethical practices may choose to resign to distance themselves from such activities and protect their reputation.
- Suspension Due to Infringement
- Non-compliance with regulations or company policies can lead to suspension. In such cases, resignation may follow to avoid further legal or professional repercussions.
- Recession of Nomination
- Nominee Directors, appointed by investors, may resign once their role or the related transaction is completed, or after their nomination is withdrawn, reflecting changes in governance or stakeholder relationships.
Eligibility Criteria for Becoming a Company Director
- Age Requirement: The individual must be at least 18 years old.
- Nationality: The person must be a natural person, which can include Indian citizens or foreign nationals, depending on the company’s regulations.
- DIN Requirement: A valid Director Identification Number (DIN) must be obtained before being appointed as a director.
- Directorship Limits: There are limits on the number of directorships one individual can hold across different companies, as specified by the Companies Act.
Ineligibility Criteria for Directorship
- Unsound Mind or Bankrupt: Individuals declared as unsound of mind or those undergoing bankruptcy proceedings are ineligible to serve as directors.
- Criminal Background: Those with a criminal record, particularly for serious offenses, cannot be appointed as directors.
- Pending Overdue Returns: Directors with pending overdue returns or filings are disqualified from holding a directorial position.
- Unsound Mind or Bankrupt: Individuals declared as unsound of mind or those undergoing bankruptcy proceedings are ineligible to serve as directors.
- Criminal Background: Those with a criminal record, particularly for serious offenses, cannot be appointed as directors.
- Pending Overdue Returns: Directors with pending overdue returns or filings are disqualified from holding a directorial position.
Recognition: Types of Directors
Directors play various roles in a company, each crucial to its operations and governance. For instance, the Managing Director oversees the company’s strategic direction and overall purpose, while Executive Directors handle day-to-day operations. Independent Directors ensure adherence to proper governance and impartial oversight.
According to the Companies Act, 2013, every public company must have at least three directors, while a private company requires a minimum of two, and a One Person Company needs just one director. The maximum number of directors for a public company is 15, though this can be increased with a special resolution passed at a general meeting, without needing Central Government approval.
A director can hold a maximum of 20 directorships, including alternate positions. However, for public companies or their holding and subsidiary companies, this is limited to 10 directorships. Additionally, all listed companies must appoint at least one woman director, and public companies with a turnover of Rs. 300 crore or paid-up capital of Rs. 100 crore must also comply with this requirement.
Directors who exceed these limits at the time of the Act’s commencement must choose which companies to remain with or resign from within one year, notifying both the companies and the Registrar of Companies.
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Documents Needed for Removal of Director
- Photograph: Passport size photo of the Director to be designated
- PAN Card: Self-attested PAN card of the Director to be designated
- Proof of Residency: Aadhar Card/Voter ID/Passport/ Driving License
- Digital Signature Certificate: DSC of the ongoing Director and Director to be eliminated/removed
- • Identity proof before-mentioned as Passport/Election card/Driving License/Aadhar card
- Mobile number and Personal & official email id of the Director
- It is mandatory to apostle all the documents apostilled if the Director is a non-resident of India.
- Notice of resignation filed with the company
- Proof of dispatch
- Acknowledgment of form, if received.
Manner of Removal of Directors
Suo-Moto by the Board:
Under Section 169 of the Companies Act, 2013, directors can be removed by shareholders through an ordinary resolution at a general meeting. This applies if the director was not appointed by the Central Government or Tribunal. A seven-day notice must be given to all directors, informing them of the board meeting to discuss the removal. After the resolution is passed, a general meeting will be held 21 days later to finalize the decision, based on majority votes. The director in question will have the opportunity to be heard before the resolution is adopted. Once the decision is made, Forms DIR-11 and DIR-12 must be filed, and the director’s name will be removed from the Ministry of Corporate Affairs (MCA) database.
Self-Submission by a Director:
A director wishing to resign must first pass a resolution to notify the company. According to Section 168(1) of the Companies Act, 2013, the company must then pass a resolution to accept the resignation and file Form DIR-11 within 30 days of the resignation date. The resignation notice, proof of dispatch, and acknowledgment of the form should also be submitted.
Absence from Board Meetings:
If a director fails to attend three consecutive board meetings within a year, their position is deemed vacant under Section 167 of the Companies Act, 2013. This period is calculated from the date of the first missed meeting. A Form DIR-12 should be filed to update the MCA records, and the director’s name will be removed from the database following the necessary formalities.