Company must have Board of Directors

As per Sec 149 of the Companies Act 2013, every company must constitute a board consisting of a group of individuals who are appointed by the shareholders as directors of the company.

Is constituting a board of directors applicable to all forms of Organisation?

No, only those organization that needs to comply with the Companies Act 2013 needs to form a Board of Directors.

Who needs to comply with the Companies Act 2013?

The following business structure needs to comply with the Companies Act 2013:

• Public Limited Company
• Private Limited Company
• One Person Company
• Section 8 Company

Minimum Number of Directors

The minimum number of directors required to form a Board of directors is:

• Three directors in the case of a public company,
• Two directors for a private limited company
• One for One-Person Company

Is there any limit on the maximum number of directors in the Board?

Yes, the maximum number of directors in the Board shall not exceed fifteen, if the company wants to appoint more than 15 directors, it can do so after passing a special resolution.

What's a special resolution?

A resolution passed by the shareholders of a company, where votes cast in favour of the resolution are atleast three times the number of votes against. For e.g.: If the total number of shareholders is 100, let's assume the following:

• Not all shareholders voted, but those who did are 40.
• To pass the special resolution, the votes in favor must be at least three times the votes against.

In the above case, if votes in favor is 30 & Votes against is 10. Since 30 (votes in favor) is three times 10 (votes against), the special resolution would pass.

Types of Directors in BOD

The Board mainly comprises of two directors - Executive Directors & Non-Executive Directors

A. Executive Directors: They are responsible for running the company, and managing different business operations. It includes 

1. Managing Directors
2. Whole-time Directors: The whole-time directors are full-time employees of the company, they must dedicate their complete working hours to the company and cannot engage in any other business or employment. CEO, CFO, CTO etc. are covered under this category. 

B. Non-Executive Directors: They are mainly appointed to provide independent oversight on the company's policies and corporate governance. This category includes Independent Directors, Nominee Directors, Professional Directors, and Representative Directors.

1. Independent Directors: They are appointed to have an independent mindset on the company policies and framework to boost the level of corporate governance. Companies law make it mandatory for a public limited company to have at least one-third of the total number of directors as independent directors on board.
2. Nominee Directors: Individuals nominated by any institution such as Banks or other institutions for the purpose of their representation in the board are called Nominee Directors. For instance, if a company obtains financial assistance from any bank or financial institution, such institutions may nominate any individual to be a part of the Board of Directors and protect their interest in the board decisions till the loan amount is completely repaid.
3. Professional Directors: They are appointed to the board of the company based on their professional capacity and expertise, qualification and experience. For example, appointing a senior lawyer serving as a director to advise on regulatory compliance and risk management.
4. Representative Directors: They are directors appointed to represent the interests of a particular stakeholder group, such as shareholders, creditors, government bodies, or minority stakeholders. Section 151 of the Act enables small shareholders pf a public limited company to appoint one director of their choice so that their voice is also listened effectively.

Process to Appoint or Add Directors

Section 152 of the Companies Act deals with both the appointment of the first director upon incorporation and the addition of directors subsequently. 

Appointment of First Directors

Usually, upon company incorporation, the article of association contains the first director's name. However, in the absence of such provisions in the article, an individual being the subscriber of the memorandum shall be deemed to be the first director of the company until the director is appointed subsequently.

Subsequent Appointment or Addition of Director

As per the act, an individual can appointed as the director of the company if:

• he has been chosen by the shareholders of the Company
• he has been allotted a Director Identification Number by the Registrar of Companies
• he has furnished a declaration that he is not disqualified to become a director under this Act
•  he has given written consent for the appointment

Process of Appointment

The appointment of director procedure is as follows:

Step 1: Obtain Director Identification Number

As per Sec 154, a person shall be appointed as a director of a company only when he has been allotted DIN. If he has not been allotted DIN, the proposed director is required to File Form DIR-3 for allotment of DIN.

Step 2: Consent & Declaration from Proposed Director:

A person appointed as director shall give his written consent to hold the office as a director. The company need to obtain form DIR-2 (Consent to act as a director) from the Director. If he has an investment or close relations with another company, he is required to disclose his interest in form MBP-1.
Also, The company will need to obtain form DIR-8 from the person appointed as director declaring that he is not disqualified for directorship under this Act

Step 3: Convey Board Meeting of Directors: 

The authorised person of the company shall issue a Notice of the Board Meeting to all the directors at least 7 days before the date of the Board Meeting along with the agenda & its notes (if any) of the meeting. The company must also Draft Resolution of the board meeting.

Step 4: Hold Board Meeting:

Step 5: Issue Notice of General Meeting

Notice of GM shall be given at least 21 days before the actual date of GM provided Shorter Notice.

Step 6: Hold General Meeting

The authorised person shall check the Quorum of the meeting and whether the auditor is present, if not, then Leave of absence is Granted or Not. Pass Ordinary Resolution for the appointment of director. Issue Letter of Appointment to the new director.

Step 7: Filing of form with ROC

The company must File Form DIR-12 within 30 days of the ordinary resolution

Step 8: Make Necessary Entries

Necessary entries have to be made in the register of the directors and KMP and the register of contracts or arrangements in which directors are interested in Form MBP-4

Checklist for filing Form DIR-12

In the case of the Appointment of Directors or Key Managerial Personnel or Changes among them, the company needs to file Form DIR-12 with the Ministry of Corporate Affairs, before filing the form the company need to check the following:

• The appointed person must have a Director Identification Number.
• The company has received consent from the director in Form DIR-2
• The appointed person has given a declaration regarding disqualification in Form DIR-8
• Obtain a list of other entities in which the proposed director has already been appointed in Form MBP-1
• Ensure that the director:
  • is not a director including any alternate directorship in more than 20 companies.
  • is not the director of more than 10 public companies including the Directorship in Holding & Subsidiary Companies
• Ensure that the number of directors does not exceeds the maximum number of directors as provided in the Article of Association (AOA) of the company
• Pass a resolution for the appointment and get the requisite majority
• Issue Letter of Appointment containing terms & conditions, remuneration and other