Directors - Appointment, Removal & Position ð
Appointment of Directors ð
Methods of Appointment:
1. By Shareholders (at General Meeting)
- Most directors are elected by shareholders through voting.
- Ordinary Resolution (simple majority).
- Term: Usually 5 years (can be renewed).
2. By Board of Directors
- Additional Director: Appointed by Board (till next AGM).
- Alternate Director: To act in absence of original director.
- Nominee Director: Appointed by financial institutions/banks (who gave loans).
3. By Promoters (First Directors)
- Named in Articles of Association.
- Automatically become directors when company is formed.
4. By Central Government
- In case of mismanagement or public interest.
Removal of Directors ðŦ
1. By Shareholders (Section 169)
- By Ordinary Resolution at General Meeting.
- Special Notice of 14 days required.
- Director must get opportunity to be heard.
Exception: Cannot remove directors appointed by Tribunal/Government this way.
2. By Board (Limited Cases)
- Disqualification: If director becomes disqualified (insolvency, conviction).
- Non-attendance: Absent from all Board meetings for 12 months (with Board's permission, he can be removed).
3. By Tribunal
- For fraud, misfeasance, or persistent default.
Special Notice means:
- Shareholder who wants to remove director must inform company at least 14 days before the meeting.
- Company must then inform the director.
- Director can defend himself at the meeting.
Purpose: Fair hearing. No surprise removals!
Resignation by Director âïļ
- Director can resign any time by giving notice in writing to company.
- Must inform Registrar of Companies (ROC) within 30 days.
Legal Position of Directors âïļ
Question: Are directors employees? Partners? Agents? Trustees?
Answer: Directors have a unique position. They are:
- NOT Employees: No service contract (unless Managing Director).
- NOT Partners: Company is a separate legal entity.
- Agents of Company: Represent company in dealings with outsiders.
- Trustees of Company's Money/Property: Must use for company benefit only (fiduciary duty).
In Simple Terms: Directors are agents for company's business and trustees for company's assets.
Types of Directors ð
| Type | Description |
|---|---|
| Executive Directors | Involved in day-to-day management (MD, CEO). |
| Non-Executive Directors | Not involved in daily operations. |
| Independent Directors | No financial interest. Provide unbiased guidance. |
| Nominee Directors | Appointed by banks/institutions (who gave loans). |
| Alternate Directors | Substitute for original director (when absent). |
| Additional Directors | Appointed by Board (till next AGM). |
| Woman Director | At least 1 required in listed/large companies. |
Quiz Time! ðŊ
Test Your Knowledge
Question 1 of 5
1. Directors are usually elected by:
ðĄ Final Wisdom: "Directors are guardians of shareholders' wealth. They can be elected, and they can be removed if they fail to deliver!" ðĄïļ
Next up: Duties & Liabilities of Directors - What must they do (and not do)? âïļ