The Board of directors is an important pillar of good corporate governance in a company. They are considered the representative of members or shareholders and shall manage the affairs of the company in the best interest of the members. The board of directors is not an employee of the company and thus, they are not paid a salary as compensation. Rather, they are paid seating fees or director fees. They are merely representatives of the shareholders in the company. Removing a director before the expiry of the term requires strong compliance and is not easy. Go through this blog to understand how to remove a director from the company.
Did You Know? A director cannot be removed from office unless a board resolution is passed with the approval of the members (Special Resolution) followed by an intimation to the ROC.
What do you mean by Director in a Company?
According to the Companies Act of 2013, A Director is a person appointed to a company's board. A group of people chosen by a company's shareholders or members to run its business is referred to as the board of directors. A company must only operate via the agency of natural individuals because it is an artificial legal person formed by law. It is only capable of acting via people, and the Directors are primarily responsible for this. Therefore, a group of people known as the Board of Directors is given the responsibility of managing the company.
Alternatively, one who supervises, controls, or manages and is chosen by the shareholders of a company to develop the firm's policies is called a director. a person appointed or elected in accordance with the law, authorized to manage and direct the affairs of a company can be another definition.
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Types of Directors in a Company
In the case of a private Company, a minimum of 2 directors, in the case of one person company a minimum of one, and in the case of a public company, a minimum of 2 shall be appointed as a director. There are different types of director associated with a company, read ahead to know more about the same.
Independent directors are non-executive members of the board of director who ensure sound corporate governance in the company to aim to protect the interest of other stakeholders like debenture holders, creditors, and the public interest at large.
The Independent Directors may serve for up to five years in a row. however, they may be reappointed by special resolution with the disclosure in the Board's report. At least two independent directors must be appointed in any public company at all times.
A managing director is someone who has significant firm management authority. The company's bylaws, a contract with the company, a resolution passed at the general meeting of the company, or the board of directors may provide him this authority.
If a firm meets any of the following requirements, regardless of whether it is private or publicly traded, it must nominate at least one woman director:
- The corporation is a publicly traded company, and its shares and securities is listed on any stock exchange in India.
- Such a company has paid-up capital of at least ₹100 crore and at least ₹300 crore in annual revenue.
The company's executive director is the working director who is employed full-time. They have a greater duty to the organization and manage its business activities. They must exercise diligence and caution at all times in their management.
A non-executive director is not actively engaged in the day-to-day operations of the company. They could take part in the formulation of plans or policies and push the executive directors to make choices that are best for the business.
A certain class of shareholders, banks or other lending institutions, third parties through contracts, or the Union Government in the event of poor management might all nominate a director who shall be independent in his conduct throughout his appointment.
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When does the director resign from his office?
When the director decides to resign from his office as the director of the company, the following procedures are required to be followed by both the company and the resigning director -
- Where the director resigns from his office, the company will be required to hold a board meeting, not later than 7 days after his registration. The Board meeting will be held with a clear notice of 7 days. the 7-day clear notice shall not include the date of dispatch and delivery where the notice is sent by post.
- Agenda of the meeting will include a discussion of the matters requiring the director to resign from office before the expiry of his term.
- To accept the resignation of the director, a board resolution is required to be passed in the board meeting.
- The outgoing director is required to file DIR 11, along with a Board resolution, resignation letter to the Registrar of Companies (ROC).
- Similarly, the company is required to file DIR 12 with the Registrar of Companies (ROC) along with the resignation letter and board resolution.
- As an immediate effect, the name of the director will be removed from the registrar of directors (ROD) after all the compliance has been made.
Removal of the Director by the Board
A Director can be removed from his office before the expiry of his term after passing an ordinary resolution in a board meeting. Provided that the director is not appointed by a central government or the tribunal -
- A Board meeting will be required to be called by giving 7 days' clear notice to all the directors including the outgoing director stating the agenda of the meeting in the notice.
- Board resolution is required to be passed attesting at least 50 % of the directors present in the meeting. However, Before the resolution is passed to remove the director from his office. An opportunity of being heard must be offered to the outgoing director.
- Thereafter a meeting of members will be called within 21 days of passing the resolution with a notice stipulating the reasons for removal, the name of the outgoing director, etc. The members will vote on the matter with more than 50% majority in favor of the resignation.
- Once, the resolution is passed in the meeting, the company will be required to file DIR with the ROC and the director will be required to fill DIR 11.
What Happens if the Director Misses Three Consecutive Board Meetings
As per sec 167 of The Companies Act, 2013, If a director has failed to attained a board meeting in the last 12 months, starting from the day when he was first absent in a board meeting, He will be deemed to be vacated from his office with immediate effect and a form DIR 12 will be required to be filed with Registrar of Companies (ROC) and will be removed from the Register of Director (ROD).
Reasons to Remove a Director from His Office
A director may be removed from his office before the expiry of his term on the following ground of misconducts -
- If he incurred any disqualification as specified under the Act.
- The Director has not attended any board meeting in the last 12 months
- They violate the provision of sec. 184 of the Companies Act, 2013.
- A court or tribunal of competent jurisdiction has passed an order to remove a Director from his office.
- If they are found guilty of proven misconduct which constitutes an offence under the provisions of The Companies Act, 2013 or any law for the time being in force.
Directors are the strongest pillar of good corporate governance in a company. They separate the business from its owners or shareholders to act independently for the various stakeholders of the company like government, lenders, creditors and the public at large in the case of a publicly listed company. A sound and alert Board of Directors always makes sure that the business is not mismanaged by the employees.
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