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Board of Directors

When Stakeholders own the ship, the directors appointed by them run the ship. The board of directors stands in a fiduciary relationship with shareholders and is expected to protect their interests.  A system should be developed to ensure selection of right individuals as directors.  If you are a first-time entrepreneur or a serial one, this blog will guide you deciding Company board.

 

Proven to be effective practices while deciding on Board of Directors:

 

Separation of the position of the Chairman and the CEO:

The Chairman leads the board, while the CEO leads the executive team. Therefore, governance is likely to be affected adversely if an individual holds both the positions. At an early stage, an individual can handle both roles, after the company grows, the structure could be changed.

 

Presence of non-executive directors:

Particularly independent directors who do not have any significant pecuniary interest in the company improves the performance of the board. It is expected that independent directors will bring varied relevant experience and will evaluate the executive management more objectively as they will not be subservient to the CEO like executive directors.

 

Board Structure:

In India, the Corporate Governance Code11 requires that:

  • Total non-executive directors should be at least 50% of the board size;
  • The number of independent directors should be at least 50% of the board size if the chairman is an executive director;
  • Total independent directors should be at least 33% of the board size if the chairman is a non-executive director.

 

Size of the board of the company:

It is suggested that ideally, the size of the board should be between 10 and 15 members. The Indian Companies Act stipulates that the size of the board should not exceed 15 members.

 


Functioning through committees:

It is a global trend that a board functions through committees like the audit committee, remuneration committee, shareholders grievance committee and nomination committee. Majority of members in each of these committees are independent directors. The reason behind such a division of members into committees is to avoid any discrepancies in disposing of responsibilities.

 

In conclusion, any company while deciding on the size of the board of directors, should give due consideration to the best practices to lead a well-organized company. At Wazzeer, we insist our clients exercise the three main rights available within company law, those are:

  1. Shareholders’ right to appointment and or remove directors;
  2. Shareholders’ right to subject directors to exercise their discretion in the interests of the shareholders as a class;
  3. Shareholder’s right to structuring the incentives of the members of the board so as to induce them to promote the interests of the shareholders as a class.

 

Right mentorship is hard to find but is an added value in paving the path to achieving the organizational goals. Wazzeer Professional Network has always ensured to offer a reliable consultation before project kick-off reason being that is a client right. We at Wazzeer work day and night to offer what is right for our clients, a feel of confidence.  To kick-start your startup journey with us-> “Get your Wazzeer”

 


For further readings on the same line:

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Board of Directors, Director Addition
Building a Company is at hands of the super team (we call it the Board of Directors) that your company forms, Director is the most important person required for the successful running of Company. Director is not only liable for success but also personally liable in case of any breach either of law or trust done by the company. This Board of Directors may require timely shuffle, as the business grows, Company may require new Directors to manage and coordinate their day to day affairs.

Who is a Director?

There is no exhaustive definition of the term ?director? as per The Companies Act, 2013. Section 2 (34) of the Act prescribed that ?director? means a director appointed to the Board of a company. A director is a person appointed to perform the duties and functions of the director of a company in accordance with the provisions of the Companies Act, 2013.

What are the different categories of Directors under Companies Act, 2013?

Companies Act 2013 provides for following types of Director how to add a director to your company   What is the required number of directors in a company?

Section 149(1) of the Companies Act, 2013 requires that every company shall have a minimum number of 3 directors in the case of a public company, two directors in the case of a private company, and one director in the case of a One Person Company. A company can appoint maximum 15 fifteen directors. A company may appoint more than fifteen directors after passing a special resolution in general meeting.

What are the documents required to become a director?
  • DIN (Director Identification Number);
  • Income-tax PAN;
  • Personal Information
  • Details of Nationality;
  • Occupation;
  • Full Address with PIN Code (present and permanent)
  • Educational and professional qualifications;
  • Any legal proceedings initiated or pending against such person;
  • List of limited liability partnerships in which he is or was a designated partner along with Name of the LLP, Nature of Industry; and Duration- with dates;
  • List of companies in which he is or was director along with Name of the company; Nature of industry; Nature of directorship? Executive / Non-executive / Independent / Nominee Director; and Duration ? with dates.
What’s the procedure to appoint a new director?

Section 152 lays down the following procedure:
  • Every director is appointed by the company in general meeting.
  • Director Identification Number is compulsory for the appointment of a director of a company. A person who is intended to become a director must apply to the Registrar for obtaining a Director Identification Number (DIN) in Form No DIR-3.
  • Every person proposed to be appointed as a director shall furnish his Director Identification Number and a declaration that he is not disqualified from becoming a director under the Act.
  • A person appointed as a director shall on or before the appointment give his consent to hold the office of director in physical form DIR-2e. Consent to act as a director of a company.
  • Company shall file Form DIR-12 (particulars of appointment of directors and KMP along with the form DIR-2 as an attachment within 30 days of the appointment of a director, along with required fees.
  • In case Registrar is not informed of his appointment within the specified period, he is punishable by imprisonment for a period of six months or may have to a pay fine which may extend to fifty thousand rupees and if the noncompliance continues he might have to pay an additional fine of rupees five hundred per day of non-compliance.
When is the director disqualified?

Section 164 debars any such person to be appointed as a Director who
  • has not got the DIN.
  • is of unsound mind and stands so declared by a competent court;
  • is an undischarged insolvent;
  • has applied to be adjudicated as an insolvent and his application is pending;
  • has been convicted by a court of any offense and sentenced to imprisonment for a period not less than six months and a period of five years has not elapsed from the date of expiry of the sentence.
  • If a person has been convicted of any offense and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company;
  • an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
  • he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
  • has been convicted of the offense dealing with related party transactions under section 188 at any time during the last preceding five years;
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Board of Directors, Director Removal
Director (Important Batsman in the company)

The first thing which investors look before making an investment is about the directors of the company as directors are custodians of the rights of shareholder and have a responsibility to protect the interest of the company. The director has dual roles to play, one is a fiduciary relationship and another as an agent of the company as he is charged with the conduct and management of the company. All the contracts entered by the director are binding upon the Company if they are authorized by Article of Association of Company or by internal rules of the company. A director at the time of his appointment has to submit a declaration specifically mentioning that he has not been prohibited by any law of the country from being appointed as Director. It is the duty of the director to work for the benefits of all shareholders and needs to fulfill his obligations with utmost good faith, skill, and diligence. Further, the director must not involve himself in any situation in which he has a direct or indirect conflict of the interest of the company. Because of the vital position of the Director in the company, for certain formalities under Companies Act 2013, the director is made personally liable and there are provisions for imprisonment of the director as well. Under Companies Act 2013, a Director can be removed from his post immediately upon happening of any of the following events:
  • he is declared a person of unsound mind by a competent court;
  • he is an undischarged insolvent;
  • he has applied to be adjudicated as an insolvent and his application is pending;
  • he has been convicted by a court of any offense, whether involving moral
  • turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence:
  • an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
  • he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
  • he has been convicted of the offense dealing with related party transactions under section 188 at any time during the last preceding five years.
In contravention of this section, if a person continues to function as director of Company even after knowing that he is disqualified for holding the office of the director than he shall be punished with imprisonment or fine up to Rs. 5,00,000/- or both.

What if the Director is willing to resign his position?

Director is at freedom to resign from the office, by giving a notice in writing to Company and the board showing his willingness to resign from the post. The resigning director is required to inform the Registrar of Companies within 30 days from the date of giving notice of his decision. In case all the directors give resignation than the Central government will appoint directors themselves till the new directors are not appointed by shareholders of the company in general meeting.

What has to be done to remove a Director?

According to the Companies Act 2013, any Director can be removed before his tenure by following the below-mentioned procedure:-
(1) By ordinary resolution, remove a director, in before the expiry of the period of his office after giving him a reasonable opportunity of being heard (only when the director is not appointed by the Tribunal)
(2) A special notice shall be required of any resolution, to remove a director under this section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed.
(3) On receipt of notice of a resolution to remove a director.
(4) Where a notice has been given of a resolution to remove a director under this section and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so. (a) In any notice of the resolution given to members of the company, state the fact of the representation having been made; and (b) Send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representation by the company), and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting.

Can an another person be appointed in place of the director removed?

A vacancy created by the removal of a director may be filled by the appointment of another director in his place at the meeting at which he is removed, provided special notice of the intended appointment has been given or can be appointed by the company in general meeting or by the Board A director so appointed shall hold office until the date up to which his predecessor would have held office if he had not been removed.If the vacancy is not filled at the general meeting in which director was removed, it may be filled as a casual vacancy in accordance with the provisions of this Act. Important: The director who was removed from office shall not be re-appointed as a director of the Board of Directors.

Informing the Registrar of Companies:

A company needs to intimate changes among Managing Director, Directors, Manager and Secretary of a company by filing eForm DIR-12 with Registrar of Companies (ROC) within 30 days from the date when such change takes place.

Wazzeerians understand the hard decision that the board takes in these situations, we have a dedicated team of Lawyers and CAs who can get this procedure done with simplicity and ease. We would be happy to hold your hand in your tough times too, let’s connect.
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