Directors Requirement as per Companies Act, 2013
Introduction: Whenever any company is formed, it requires directors to manage its affairs and along with these they are required to comply with requirement of minimum directors which has been specified under Companies Act, 2013. Also, it is important to know whether there is any limit on other side i.e. maximum number of directors that are required to be appointed. In this article we will cover all the provisions relating to minimum number of directors that are required to be appointed and maximum directors that can be on board along with other provisions relating to director.
Number of Directors
Whether there is any minimum number which has been specified for appointment of directors?
Under Companies Act, 2013 it has been specified for any company which is formed as public company shall minimum have 3 directors. Any company which is formed as private company shall minimum have 2 directors on board, and in case of one-person company there shall be one director on board.
What if company wants to appoint more directors?
If company wants to appoint more directors than required than it can appoint; provided it shall be allowed by its article of association. Further company can appoint directors by passing ordinary resolution, but if number of directors are more than 15 than in that case company will be required to pass special resolution.
Situation 1: Company wants to appoint 10 directors on board of company, Article of Association permits to appoint 12 directors. What are the resolutions that company will be required to pass?
In this case all the directors can be appoint by company by passing separate ordinary resolution for each director; i.e. company will be required to pass 10 ordinary resolutions.
Situation 2:Company wants to appoint 7 directors on board of company, Article of Association permits to appoint 5 directors. What are the resolutions that company will be required to pass?
In this case all the directors can be appoint by company by passing separate ordinary resolution for each director but after appointment of 5 directors’ company will be required to amend its article of association by passing special resolution; i.e. company will be required to pass 7 ordinary resolutions and 1 special resolution to amend its article of associations.
Situation 3: Company wants to appoint 20 directors on board of company, Article of Association permits to appoint 12 directors. What are the resolutions that company will be required to pass?
In this case first company can appoint 12 directors by passing separate ordinary resolution for each director after that company will be required to amend its article of association by passing special resolution and then 3 directors can again be appointed by passing separate ordinary resolution for each of three. For remaining 5 directors’ company will be required to pass separate special resolution for each of five.
Situation 4: Company wants to appoint 20 directors on board of company, Article of Association permits to appoint 25 directors. What are the resolutions that company will be required to pass?
In this case company can appoint 15 directors by passing separate ordinary resolution for each of fifteen, after that for company will be required to pass separate special resolution for each of the remaining five.
Whether there is any exemption to government company or forcompany which is registered under section 8 (Non-profit organizations) of Companies Act, 2013?
It has been provided that in case if government company or for company which is registered under section 8 (Non-profit organizations) then in that case the provision that it can appoint maximum 15 directors and after that for appointment of director, special resolution will be required; this will not be applicable to above companies.
This exemption will only be available in case if company has not committed a default in filing its financial statements under section 137 or Annual return under section 92 of companies act, 2013; with the registrar.
Situation 1: One the company registered under section 8 of companies act, 2013; has 16 directors on board of company. Company wants to appoint more 2 directors on board and for this purpose on of the promoter of company is of the view this can be done by the company only by way of passing special resolution. Whether the contention of promoter is valid?
In this case contention of promoter is not valid; as specific exemption has been given to companies which are government company or for company which is registered under section 8 (Non-profit organizations). Therefore, company can appoint additional directors even by passing separate ordinary resolutions for each of them.
What if company failed to furnished annual return as required under section 92 of companies act, 2013?
In that case contention of promoter is valid company will be required to pass separate special resolution for appoint of directors as number of directors are exceeding 15 and company will not be covered under exemption as it has failed to furnish annual return as required under section 92 of companies act, 2013.
One Woman Director
Which are the companies that are required to appoint woman directors on board?
According to companies act, 2013; some of the companies which are covered under the rule prescribed are required to appoint compulsorily one woman as part of board of company. There is no limit if company is appointing more than one-woman director.
As per rule 3 of companies act, 2013; following companies shall have at least one director on board as woman director.
For the purpose of checking the limit in case of public company paid up share capital or turnover, as the case may be, as on the last date of latest audited financial statements shall be taken into account.
It shall be noted that there is no requirement to appoint woman director in case of company which is registered as private limited irrespective of their turnover or paid-up share capital.
What if company incorporates as listed entity or as public entity which fulfills any of the above two requirements?
In that case company will be provided with 6 months from date of incorporation to comply the provision of appointment of women director.
Which resolution is required to be passed in case of appointment of women-director?
In case of appointment of women-director ordinary resolution is required to be passed.
Illustration: Company incorporated as listed entity as on 1st June, 2020; within which time company shall appoint its first woman director to comply with the provision of companies act, 2013.
In this case company is required to comply with provision up to 31st December, 2020; i.e. company shall appoint its women director on or before 31st December, 2020.
What if there is vacancy in place of women director?
In this case it is to be decided whether vacancy caused is vacancy required to be fulfilled by law i.e. vacancy is of women director which was required to be as per proviso to section 149(1) of companies, 2013; than in that case it shall be fulfilled in immediate next Board meeting or three months from the date of such vacancy whichever is later. But in case vacancy caused is causal vacancy (it is the case where there is already one women director on board even after resignation). This is the situation where there is vacancy but not as per law; even if it is not filled than also there is no violation of provision; therefore, in this case there is no time limit to fulfil the vacancy.
Illustration: Mr. Sita is and Mr. Meta are the women directors on board of company; due to health reasons Mr. Sita resigned from the post of women director. What is the time limit within which new women director is required to be appointed?
In this case the vacancy caused is causal vacancy (it is the case where there is already one women director on board even after resignation). This is the situation where there is vacancy but not as per law; even if it is not filled than also there is no violation of provision; therefore, in this case there is no time limit to fulfil the vacancy.
Resident Director
It has been specified that company shall have at least one director who stays in India for a total period of not less than one hundred and eighty-two days during the financial year.
Which year is to be considered while calculating the limit of 182 days?
It has been specified that for calculating above limit current financial year is to be considered.
What if company is incorporated during the year?
In case company is incorporated during the year than in that case above requirement shall apply proportionately; i.e. if company is incorporated on 1st October then in that case director shall be resident in India for period of not less than ninety-two days during the financial year.
First Directors
Who are the first directors of company?
The following sequence shall be followed for determining who will be first director of the company:
1. The name of person which is mentioned under article of association.
2.The manner or method provided for appointing first directors under article of association.
3.If both of this is not available than in that case individuals who are subscribers to memorandum of association shall be deemed to be the first directors of company.
Therefore, from above point it is clear that in case condition 1 or 2 as specified above is not fulfilled than in that case subscriber to memorandum of association shall be 3 Individual in case of public company 2 Individual in case of private company and 1 Individual in case of one-person company so that it will satisfy the condition of minimum directors.
In case of a One Person Company (OPC), an individual being member shall be deemed to be its first director until the director is duly appointed by the member in accordance with the provisions of this section.
What will be tenure of first director which is appointed?
The first director which are appoint will hold the office till holding of first Annual General Meeting (AGM); In AGM the director will be appointed by passing ordinary resolution in case more than one director is to be appointed than separate resolution will be required for appointment of each director.
Rotation and Non-rotational director
To whom the provision of rotational and non-rotational director?
It is applicable to public company or a private company which is subsidiary of a public company in case company is private limited other than specified above than it is not covered under above provision and to them clauses relating to rotational and non-rotational director will not be applicable.
It has been provided that at least 2/3rd directors on board of company will be rotational directors; however, article of association can also provide that all the directors will be rotational directors. From these rotational directors, retiring directors are also to be decided.
It shall be noted that following directors will not be considered while determining director that will be considered for provision of rotational director
- Independent Directors
- Small Shareholder Directors
- Nominee Director
- Additional Director appointed under section 161 of companies Act, 2013.
- Alternate Director appointed under section 161 of companies Act, 2013.
- Director appointed by National Company Law tribunal
- Director appointed by Banking or Financial Institution.
While deciding the above number if the answer is coming in fraction than in that case it shall be always rounded upwards.
Situation 1: Company has 12 directors on board of company. From this 2 are Independent directors, one of them is additional director, one of them is director of small shareholder who are the director that are liable as rotational directors?
In this case from 12 all the 4 persons i.e. 2Independent directors, 1 being small shareholder director, 1 additional director, remaining 8 will be multiplied by 2/3rd. Therefore, it be 6 will be director which will be treated as rotational directors (8/3*2 = 5.33 to be rounded upward)
What if company is incorporated as Private Limited?
In that case there is no requirement of applicability of provision relating to rotational director.
What if article of association provided for rotation of director of less than 2/3rd?
It shall be noted that in case of public company article of association can provided for more 2/3rd but cannot provide less than of 2/3rd. But in case of company which is incorporated as private limited than in that case it can provided to less than 2/3rd directors of total directors as there is no requirement of law in respect of rotational director for company which is incorporated as private limited. It is apparent that government does not want to increase the compliance burden on company which has been incorporated as private limited.
Retiring Directors
After the number of directors who are liable to retire by rotation is determined, only one-third out of that number will retire from office. If such number is not three or not a multiple of three, then, the number nearest to one-third will be considered.
Total Number of Directors | Rotational Director | Retiring Directors |
10 | 7 | 2 |
12 | 8 | 3 |
7 | 5 | 2 |
9 | 6 | 2 |
What if company is not able to determine who will retire first?
It shall be those who have been longest in office since their last appointment, however in case if both the person is appointed on same day than in that case, they shall mutually decide that who will retire by rotation. If in case it is not possible than in that case decision will be taken by draw of lot. It shall be noted that shall sequence is to compulsorily followed no person who is senior is appointment can argue to have draw of lots unless person with which he is liable to retired is appointed on same day.
Whether rotational director can be reappointed?
Yes, members can re-appoint them by passing ordinary resolution.
In next article we will check what are the provision relating to re-appointment of retiring directors and in which case they are deemed to have been reappointed.