Appointment of Director

How to appoint a

Director ???

Who is a Director?

As per Section 2(34) of the Companies Act, 2013 "director" means a director appointed to the Board of a company.

The Board of Directors is entrusted with the management and direction of the company to carry out the objects as contained in its Memorandum and on the basis of provisions in the Act and in its AOA.

No company can function without a valid constituted Board.

The Directors in a company are collectively called the “Board of Directors” or the “Board.”

Strength of Board

Minimum Strength: a) One Person Company : 1 b) Private Company : 2 c) Public Company : 3 Maximum Strength: 15 directors (May be

increased by passing a special resolution.) Atleast one of the director shall be a person

ordinarily resident in India (He stayed in India for atleast an aggregate of 182 days in previous calendar year.)

Appointment of Directors Appointment of Director Elected by Small

Shareholders - Section 151 By the articles as regard first directors - Section

152 Appointment of Director other than retiring

Director -Section 160 Appointment of Additional Director -Section 161 (1) Appointment of Alternate Director- Section

161 (2) Appointment of Directors by Nomination - Section

161(3) Appointment of Directors in causal vacancy -

Section 161 (4)

Appointment of Director Elected by Small Shareholders - Section 151

Section 151 says that A listed company may have one director elected by such *small shareholders in such manner and with such terms and conditions as may be prescribed.

*“Small shareholders” means a shareholder holding shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed.

Ensure that the proposed Director is having DIN and is not disqualified U/S 164.

The consent of the Director shall be taken before the appointment in DIR-2

Procedure to appoint Small Shareholder Director (Rule 7 of The Companies (Appointment and Qualification of Directors) Rules, 2014

Who can propose a small shareholder DirectorA listed company, may upon the notice of not less than 1000 small shareholders or 1/10 of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders. Notice of appointment of small shareholders’ directorSuch shareholders intending to propose a person as candidate for director shall leave a notice of their intention with the company atleast 14 days before the meeting under their signature specifying the name, address, shares held and folio number of the proposed person and details of the small shareholders.If the person proposed does not hold any shares in the company, the details of shares held and folio number need not be given. Convene Board Meeting after giving notice to all the directors and

discuss about the appointment of Director.

Format of Notice for appointment of Small Shareholder’s Director

Board Resolution for appointing small shareholder director

“RESOLVED THAT the Company has (Number of small shareholders) small shareholders holding shares of nominal value as per the list placed before the board and initialed by the Chairman of the meeting for the purpose of identification; 

FURTHER RESOLVED THAT pursuant to proviso to Section 151 of the Companies Act, 2013, the company may have at least one shareholder elected by such small shareholders where the number of such small shareholder is 1000 or more. 

FURTHER RESOLVED THAT the number of small shareholders as per the aforesaid list is (Number of small shareholders) 

FURTHER RESOLVED THAT subject to the approval of shareholders in general meeting (Name of the small shareholder director) be and are hereby appointed as small shareholder director of the company in the manner as prescribed in Companies (Appointment and Qualification of Directors) Rules, 2014.”   

Procedure (Contd.) Hold and convene a General Meeting and pass the following resolution:

“RESOLVED THAT pursuant to the provisions of section 151 of the Companies Act, 2013, and Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014, and subject to the approval of small shareholders Mr.                      , be and is hereby appointed as  a small shareholder director on the Board of Directors of the Company for a period of three years w.e.f. ………, whose  period of appointment shall not be liable to  retire by rotation,  in the manner as prescribed in  the Act.”

Explanatory StatementSection 151 of the Companies Act, 2013 read with Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014, provides that a listed company, may upon notice of not less than one thousand small shareholders or one-tenth of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders.As per the said provisions, The Company has received on ……………., a notice from ………… small shareholders, being not less than one-tenth of the total number of small shareholders, proposing the name of Mr.             , for being appointed as a small shareholders Director to represent on the Board of Directors of the company.Mr.                      has provided his consent to his appointment and a declaration that he meets the criteria of independence as provided in section 149 (6).A copy of the notice received in this behalf is sent herewith.The tenure of office of Mr.                   if elected, will be for a period of 3 years w.e.f. ……….. , whose period of appointment shall not be liable to retire by rotation,As the Company is a listed company, the proposed business for election of Mr.                   as a small shareholder  shall be transacted only by means of voting through a postal ballot.  The necessary instructions for facilitating exercise of voting right through postal ballot are sent herewith along with notice.None of the other directors is interested or concerned in the resolution. 

Procedure(Contd.) File the E-form DIR-12 for appointment of Director within 30 days

of passing the resolution with the attachments. Attachments: Letter of Appointment DIR-2 Copy of Resolution The resolution has to be passed through postal ballot process and

inform the stock exchange where the company is listed as and when necessary.

Now have a look on the form to have a idea of preparation of forms. Download the form from mca.gov.in>>MCA Services>>Company

Forms Download>>DIR-12.

Enter the CIN of the listed

company and pre-fill.

Enter the number of

Directors for whom the form is being filed..

Enter the DIN of the director and

pre-fill.

Enter the designation and

category as small

shareholder’s director.

Attach the Letter of Appointment, DIR-2 and Copy of resolution if

required.

Enter the details of declaration.

Enter the details of the practicing professional and

press check form>>Annex

DSC>>Prescrutiny>>Upload on

MCA.

Points to be considered A director appointed by the small shareholders shall be considered as an

independent director subject to he is eligible under section 149(6). The director shall not be liable to retire by rotation. The director’s tenure as small shareholders’ director shall not exceed a

period of three consecutive years and on the expiry of the tenure, the director shall not be eligible for reappointment.

No person shall hold the office of small shareholders’ director in more than two companies at the same time, provided that the second company shall not be in a business which is competing with the business of the first company.

Such director shall not be appointed as whole-time director or managing director. However, he will be treated as director for all other purposes.

Small shareholders’ director shall not, for a period of three years from the date on which he ceases to hold office as a small shareholders’ director in a company, be appointed in or be associated with such company in any other capacity, either directly or indirectly.

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