Introduction
Section 149(1) of the Companies Act, 2013 requires every company to have a Board of Directors, consisting of individuals as under:
- For Private Limited companies - Minimum of 2 Directors
- For Public limited companies - Minimum of 3 directors and
- For One Person company - One Director
The maximum number of Directors allowed on the Board is 15 but the company by passing a special resolution at General Meeting may increase the maximum number and appoint more than 15 Directors on its Board.
It is important to note that only individuals can be appointed as Directors in the company. That means the firm, LLP, company or any other legal person cannot be appointed as director.
The Articles of Association (“AOA”) of the Company grant power to the Board of Directors to regulate operations and functioning of the company and take necessary decisions according to the provisions of the AOA. The appointment of Directors on the Board of the company is one of the powers conferred by AOA on its Board of Directors.
Regulatory Provisions
Section 161(1) of the Companies Act, 2013
“The articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.”
Analysis:
- The Board of Directors can appoint additional Directors if such power is conferred on them by the Articles of Association of the company.
- If authorised by AOA, the Board can appoint any person as an additional director other than the person who failed to get appointed as Director in the General Meeting.
- The Additional Director so appointed shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.
Note: If Articles of Association do not authorise the appointment of an additional director, then the company shall first alter its AOA to include the clause permitting its Board of Directors for appointment of additional directors.
Procedure for appointment of Additional Director
1. Check AOA of the Company
Refer to Articles of Association of the company, if AOA does not authorise the appointment of an additional director, then AOA needs to be altered first.
2. He/ she is not failed to get appointed in General Meeting
The individual proposed to be appointed has not failed to get appointed as Director in the General Meeting.
3. Obtain Form DIR-8
Ensure that the person to be appointed is not disqualified as per the provisions of Section 164 of the Companies Act, 2013. Obtain a signed copy of Form DIR-8 from the proposed to be appointed.
4. Check maximum number of Directorship
Ensure that the maximum number of directorship is not beyond the permitted limits as specified under Section 165 of the Companies Act, 2013.
5. DIN and Digital Signature Certificate
It is mandatory for a person to obtain a Director Identification Number (DIN) before his appointment. If a person proposed to be appointed, does not have DIN then he/she shall first apply for DIN.[ detailed procedure for obtaining DIN]
Digital Signature Certificate is a prerequisite for obtaining a DIN number as the applicant has to digitally sign the DIN application.
6. Written consent from the Director
Before the person is appointed as Additional Director, the company shall obtain written consent in Form DIR-2 along with valid identity proof and address proof.
7. Meeting of Nomination and Remuneration Committee
Where a company is required to constitute a Nomination and Remuneration Committee under Section 178 of the Companies Act, 2013, then the Board of Directors shall obtain a recommendation from the said Committee.
8. Convene a Meeting of Board of Directors (Section 173 and Secretarial Standard-1)
- Issue a Notice of Board Meeting along with agenda, notes to agenda and draft resolution, at least 7 days before (or such other time period as stipulated in the Articles of Association of the Company) the date of Board Meeting to every Director at their address registered with the company. Shorter notice of Board Meeting can be issued in case of urgency.
- Hold a Board Meeting and pass a requisite resolution for the appointment of additional director, to take note of disclosure of interest received from director, authorise any director or company secretary, appointed if any, to do necessary acts, deeds and things to give effect to the resolution and file Form DIR-12 with the Registrar of Companies.
- Prepare and circulate the draft Board Meeting Minutes within 15 days of the conclusion of the meeting by Hand/Speed Post/Registered Post/Courier/Email to all the Directors for their comments.
9. File Form DIR-12 with the Registrar of Companies
Once the Board Resolution is passed for the appointment, file Form DIR-12((Particulars of appointment of directors and the key managerial personnel and the changes among them) within 30 of appointment along with the certified copy of Board Resolution, DIR-2 (consent letter and proofs), Declaration of Interest in other entities in Form MBP-1, Declaration that he is not disqualified in Form DIR-8 and Appointment letter.
In case of companies other than OPC and small companies, the Form DIR-12 shall be certified by the company secretary/chartered accountant/cost accountant.
10. Entries in the Register of Directors
Make entities in the Register of Directors and Key managerial Personnels and Register of Contracts and Arrangements post appointment of Additional Director.
11. File necessary applications informing such appointments to various authorities such as GST, EPF, Factories Act, Shop and Establishment Act, ESI, any other Labour Laws and Industry-specific laws.
Designation of Additional Director
The Additional Director holds the same position as the Director and is bound to look after the company’s state of affairs. He is responsible for acts, deeds and things done and is liable for penalties in case of default as Director of the company. The Additional Director holds the same duties and liabilities as a normal director.
What is the maximum time to regularise the appointment of additional director?
The provision text of Section 161(1) of the Companies Act, 2013 states that the additional Director shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.
So, the Act provides the maximum time limit upto which he should get regularised i.e. in the next AGM held after his appointment. But if the prospect of his appointment is predefined i.e. WTD/MD then he will be appointed such the next EGM held immediately after his appointment.
What if an additional Director is not regularised?
If an additional director is not regularised as director in the ensuing general meeting or annual general meeting, then he vacates the office automatically.
Even though the annual general meeting is not held, his term of additional director will expire on the last date on which the annual general meeting should have been held.
Can additional directors be regularised in Extraordinary General Meeting (EGM)?
The Act provides a maximum period for regularisation of the appointment of an Additional Director (AD) i.e. upto the date of the next AGM or the last date on which AGM should have been held, whichever is earlier.
The ultimate authority to appoint a director lies with the Members of the company. (Section 152) Also, unless the Articles of Association of the company empower the Board, the Board of Directors cannot appoint additional directors.
It is very important to note that, an Additional Director is a Director of the company and holds equal responsibilities and duties as are vested in Directors. Also, it is mandatory to note the purpose/future prospect of his appointment in the company.
Though the Board of Directors appoints additional directors, members of the company decide whether to continue him as Director or not in the General Meeting.
Now, if the prospect to appoint him is as WTD/ MD, then the same will be presented in EGM held immediately after he was appointed AD, and members’ approval will be sought for appointing him as MD/WTD.
Extraordinary General Meetings are normally called for whenever urgent matters require members’ approval. Regularisation of Additional Director becomes urgent if his prospect of appointment is pre-defined/ is decided by Members.
Therefore, in conclusion, the Additional Director can be regularised in EGM provided that a request to appoint him as Director or WTD or MD is received and approved by the company members.
Documents required for regularisation of additional director
For regularisation of Additional Director as Director following documents are required:
- Consent letter to act as Director in Form DIR-2 along with the copy of identity proof and address proof
- Declaration that he is not disqualified as required under Section 164(2) of the Companies Act, 2013
- Disclosure of Interest in Form MBP-1
- Certified true copy of the Ordinary Resolution passed at the Annual General Meeting regularising his appointment as Director.
Can an additional Director be appointed as Managing Director?
Yes, an additional Director can be appointed as Managing Director, provided the shareholders approve the appointment at a general meeting.
Difference between Director and Additional Director
There is no such difference between Additional Director and Director. Additional Director is appointed by the Board of Directors whereas the Director is appointed in a general meeting.
Is it mandatory to hold a Board Meeting for the appointment of an Additional Director?
No, it is not mandatory to hold a board meeting, an additional Director can be appointed by passing a circular resolution as well.
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