Appointment of directors and the legal concept behind that will be discussed here. Have an eye on this to know the basic things about the how the process will be carried out.
Appointment of Directors:
Directors may be appointed in the following ways:
- By subscribers to the memorandum (First directors) section 254.
- By members in general meeting
- By board of directors
- By central government
- By third parties, if the articles provide
- By small shareholders, if the articles provide.
Appointment of First Directors:
The first director means the director of the company who assumes office from the date of incorporation of the company. The first directors of a company may be named in its articles of association. In case no directors are so named in the articles, the articles may authorize the subscribers to the memorandum to appoint the first directors.
As per section 254, which provides that any absence of a provision in the AOA, the individual subscribers mentioned in the memorandum will be considered as the director until the new directors appoint in accordance with the section 255.
If the articles provide for any share qualification, only such of the subscribers as possess the necessary share qualification shall be deemed to be directors. This provision is applicable only to a public company and not to a private company unless the articles make it applicable.
If the subscribers who are all in the memorandum are bodies corporate, then none can be deemed to be the directors, and obviously, the company will not have any directors until the first director who will be appointed under the section 255, with the absence of provisions in the AOA. The articles may contain the first director name during the registration time until the new directors appoint at the first AGM.
How to appoint the directors?
A person who is intended to become a director must obtain DIN (Director Identification Number). The prospective director must declare to the company that he holds a DIN, if not he will be disqualified to be a director. The appointed director needs to notify his consent to the company and as well to the registrar within 30 days from his appointment.
What will happen if the person doesn’t notify his consent to the registrar?
If the person who appoints as a director in a particular company need to notify his consent to the registrar within the specified date. If not, it will be taken as an offense and punishable in a way that he will be imprisoned for a period of six months or need to pay the fine amount which may extend up to fifty thousand rupees. If the non-compliance continues, for each day he will be fined the amount of Rs.500.
Terms to be followed for the appointment of directors:
Generally, a director will be appointed in the Annual General Meeting (AGM) he can hold the post till next AGM. In the articles of the company, it has been clearly mentioned about the appointment of directors and the permanent directors. In public companies or a subsidiary of a public company, only one-third of the persons will be permanent directors, rest will retire by rotation.
An independent director can act as a director for the consecutive five years. In this case, if the director wants to stay in his position, special resolution can be passed by the board in order to extend his time period. After the two consecutive terms, there should be a gap of three years. In those 3 years, there shouldn’t be any association with that company. After those 3 years, he can be reappointed as a director.
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