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Director Add/Remove

A change in directorship (addition or removal) is a common event in a company's lifecycle. The process is governed by the Companies Act, 2013, and the Companies (Appointment and Qualification of Directors) Rules, 2014. It involves specific Board resolutions, shareholder approvals (in some cases), and mandatory filings with the Registrar of Companies (RoC) through the Ministry of Corporate Affairs (MCA) portal.

Here's a detailed breakdown of the process for adding or removing a director:

Common Pre-requisites for all Director Changes

  • Valid DIN: Any incoming director must have a valid Director Identification Number (DIN). If they don't have one, they need to apply for it first.

  • Digital Signature Certificate (DSC): Both the company (through an authorized director/Company Secretary) and the incoming/outgoing director (for declarations) will need a valid DSC for e-filing.

  • Compliance: The company should generally be compliant with its annual filings (AOC-4 and MGT-7/7A) before making director changes to avoid issues.

  • Company's Articles of Association (AOA): Always refer to the company's AOA for specific provisions regarding the appointment and removal of directors, as the AOA may contain additional requirements or restrictions, provided they are not in contravention of the Companies Act, 2013.

I. Process for Adding a Director (Appointment)

Directors can be appointed in several ways: by the Board, by shareholders, or by a Tribunal. The most common methods are by the Board (as an Additional Director or to fill a casual vacancy) or by shareholders (Ordinary Resolution).

A. Appointment of an Ordinary Director (by Shareholders at AGM/EGM)

This is the standard procedure for appointing a director.

  1. Obtain Consent & Declarations from Proposed Director:

    • DIR-2 (Consent to Act as Director): Obtain a written consent from the proposed director to act as a director of the company.

    • DIR-8 (Declaration of Non-Disqualification): Obtain a declaration from the proposed director that they are not disqualified to act as a director under the Companies Act, 2013.

  2. Hold Board Meeting:

    • Issue Notice: Issue a notice for a Board Meeting at least 7 days in advance.

    • Pass Board Resolution: The Board will:

      • Consider the candidature of the proposed director.

      • Approve the appointment of the proposed director, subject to shareholder approval (if required by AOA or for regular appointment).

      • Approve the calling of an Extra-ordinary General Meeting (EGM) or include the agenda in the upcoming Annual General Meeting (AGM) notice for shareholder approval.

  3. Hold General Meeting (AGM/EGM) & Pass Ordinary Resolution:

    • Issue Notice: Issue a notice for the General Meeting at least 21 clear days in advance to all shareholders.

    • Pass Ordinary Resolution: Shareholders will pass an Ordinary Resolution (requiring more than 50% votes in favor) for the appointment of the new director.

  4. File Form DIR-12 with RoC:

    • Purpose: To inform the RoC about the appointment of the new director.

    • Form: DIR-12

    • Due Date: Within 30 days from the date of the Board Meeting (if the appointment is approved by the Board and subsequently ratified by shareholders) OR 30 days from the date of the General Meeting (if the appointment is made by shareholders directly).

    • Attachments:

      • Copy of Board Resolution.

      • Copy of Ordinary Resolution passed in General Meeting.

      • Consent to act as Director (Form DIR-2).

      • Declaration of non-disqualification (Form DIR-8).

      • Proof of residential address of the new director.

      • Identity proof of the new director (PAN, Passport, Aadhaar).

      • Any other optional attachments (e.g., appointment letter).

    • Filing: File the e-Form DIR-12 on the MCA portal, signed by an authorized director/Company Secretary and certified by a practicing professional (CA/CS/CMA).

  5. Update Records: Once DIR-12 is processed and approved by RoC, update the company's statutory registers (Register of Directors, Register of Key Managerial Personnel), letterheads, website, and other official records with the new director's details.

B. Appointment of an Additional Director (by Board Resolution only)

The Board can appoint an Additional Director if permitted by the company's AOA. Such a director holds office only up to the date of the next Annual General Meeting (AGM). Their appointment needs to be regularized by shareholders in the subsequent AGM, failing which they cease to be a director.

  1. Obtain Consent & Declarations: Same as Step 1 in Section A (Form DIR-2 and DIR-8).

  2. Hold Board Meeting:

    • Issue Notice: Issue a notice for a Board Meeting at least 7 days in advance.

    • Pass Board Resolution: Pass a Board Resolution specifically for the appointment of an Additional Director.

  3. File Form DIR-12 with RoC:

    • Purpose: To inform the RoC about the appointment of the Additional Director.

    • Form: DIR-12

    • Due Date: Within 30 days from the date of the Board Meeting.

    • Attachments:

      • Copy of Board Resolution for appointment of Additional Director.

      • Consent to act as Director (Form DIR-2).

      • Declaration of non-disqualification (Form DIR-8).

      • Proof of residential address and identity of the new director.

    • Filing: File the e-Form DIR-12 on the MCA portal.

  4. Regularization at next AGM: At the next AGM, an Ordinary Resolution must be passed by shareholders to regularize the Additional Director as a regular director. If not regularized, they cease to hold office. If regularized, another DIR-12 might be required depending on whether the DIN status changes (e.g., from additional to regular).

  5. Update Records: Same as Step 5 in Section A.

II. Process for Removing a Director (Cessation)

A director can cease to be a director due to resignation, removal, disqualification, death, or expiry of their term.

A. Removal due to Resignation

  1. Director's Resignation Letter: The director intending to resign must submit a written resignation letter to the company. The letter should clearly state the effective date of resignation.

  2. Hold Board Meeting:

    • Issue Notice: Issue a notice for a Board Meeting.

    • Pass Board Resolution: The Board will:

      • Acknowledge and accept the resignation of the director.

      • Note the effective date of resignation.

      • Authorize a Director or Company Secretary to file the necessary forms with the RoC.

  3. Director Files Form DIR-11 (Optional but Recommended):

    • Purpose: The resigning director can independently file this form to notify the RoC about their resignation. It's a protection for the director in case the company delays or fails to file.

    • Form: DIR-11

    • Due Date: Within 30 days from the date of resignation.

    • Attachments: Copy of resignation letter, proof of dispatch (if sent by post) or acknowledgement of receipt by the company.

    • Filing: The director files this e-Form DIR-11 on the MCA portal using their DSC.

  4. Company Files Form DIR-12 with RoC:

    • Purpose: To inform the RoC about the cessation of the director.

    • Form: DIR-12

    • Due Date: Within 30 days from the date of resignation.

    • Attachments:

      • Copy of Board Resolution accepting resignation.

      • Copy of resignation letter received from the director.

      • Proof of cessation (e.g., acceptance letter from company).

    • Filing: File the e-Form DIR-12 on the MCA portal, signed by an authorized director/Company Secretary and certified by a practicing professional.

  5. Update Records: Once DIR-12 is processed and approved, update the company's statutory registers, letterheads, website, and other official records by removing the director's details.

B. Removal by the Company (Ordinary Resolution)

A company can remove a director before the expiry of their term by passing an Ordinary Resolution, subject to certain conditions and exceptions (e.g., directors appointed by the Tribunal or nominee directors).

  1. Special Notice by Shareholder(s): A shareholder (or shareholders holding at least 1% of total voting power or shares worth INR 5 Lakhs) must give a "special notice" to the company of their intention to move a resolution for the removal of a director. This notice must be given at least 14 days before the EGM (but not earlier than 3 months from the EGM).

  2. Board Meeting:

    • Issue Notice: The Board convenes a meeting to consider the special notice received.

    • Issue Notice for EGM: The Board sends a copy of the special notice to the concerned director. It then issues a notice for an EGM to shareholders, including the resolution for removal.

    • Director's Representation: The director sought to be removed has a right to be heard at the meeting and can make a written representation (which the company must circulate to shareholders, or read out at the meeting if too late for circulation).

  3. Hold General Meeting (EGM) & Pass Ordinary Resolution:

    • Issue Notice: Issue a notice for the EGM at least 21 clear days in advance.

    • Pass Ordinary Resolution: Shareholders will pass an Ordinary Resolution for the removal of the director.

  4. File Form DIR-12 with RoC:

    • Purpose: To inform the RoC about the cessation of the director.

    • Form: DIR-12

    • Due Date: Within 30 days from the date of the General Meeting.

    • Attachments:

      • Copy of Ordinary Resolution for removal.

      • Copy of the special notice received from shareholder(s).

      • Minutes of the EGM.

      • Any other supporting documents.

    • Filing: File the e-Form DIR-12 on the MCA portal.

  5. Update Records: Same as Section A.

III. General Procedure for Filing Forms with MCA

  1. Download e-Forms: Download the relevant e-Form (DIR-12, DIR-11) from the MCA portal (www.mca.gov.in).

  2. Fill Details: Accurately fill all details in the e-Form.

  3. Attach Documents: Attach all required supporting documents in PDF format.

  4. Digital Signatures: The forms must be digitally signed by:

    • Director/Company Secretary: An authorized director or company secretary of the company.

    • Practicing Professional: A practicing Chartered Accountant (CA), Company Secretary (CS), or Cost Accountant (CMA) who will certify the form.

    • Outgoing Director: The resigning director needs to sign DIR-11 with their DSC.

  5. Pre-Scrutiny & Upload: Use the "Check Form" or "Pre-scrutiny" option to validate the form. Upload the validated e-Form to the MCA portal.

  6. Fee Payment: Pay the prescribed government fees online.

  7. SRN Generation: An SRN (Service Request Number) will be generated upon successful submission.

  8. Processing: The RoC will process the form. Upon approval, the status of the director will be updated in the MCA records.

Consequences of Non-Compliance

  • Penalties: Late filing of Form DIR-12 or DIR-11 attracts significant late fees (INR 100 per day for each day of delay, with no upper limit).

  • Legal Validity: The appointment or cessation may not be legally recognized by the RoC if forms are not filed correctly or on time.

  • Disqualification: If a director is removed due to disqualification, it has further implications.

  • Company Operations: Delays in updating director details can impact the company's ability to conduct business, open bank accounts, or enter into contracts.

Given the complexities and strict timelines, it is highly recommended to seek professional assistance from a Company Secretary or a corporate law expert for all director addition or removal processes.

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