How to Appoint a Director in a Company – Complete Guid

How to Appoint a Director in a Company—Complete Guide

Building a company is more than having a good idea and securing an investment; it also involves strong leadership to operationalise and grow the business. Directors are crucial to the efficient and legal operation of a company and to meeting its objectives. But what does it actually mean to appoint a director in a company?

Whether you are the entrepreneur of a startup, a small business owner, or even a more established company wanting to expand its board, appointing a director is something you should do carefully and, of course, legally. Let’s walk you through everything you need to know about designating a director in India in this blog.

Who Is a Director?

A director is another person appointed to manage the company’s business by the shareholders or by the directors themselves. They are the corporate brain, making decisions at the strategic level. In legal terms, a director is appointed to act in accordance with the law and the company’s AOA as per the Companies Act 2013.

Types of Directors You Can Appoint 

Before we discuss the appointment process, it’s important to know the different types of directors:

1. Executive Director—Actively involved in day-to-day management.
2. Non-Executive Director – Offers strategic advice but does not handle daily operations.
3. Independent Director – Typically appointed for objective decision-making, especially in listed companies.
4. Nominee Director – Appointed by financial institutions or investors.
5. Additional Director – Temporarily appointed by the board until the next Annual General Meeting (AGM).

Why Appoint a Director?

A company needs directors for several reasons:

• Legal Requirement: Every private limited company must have at least two directors; one director is needed for one-person companies. Public limited companies require at least three directors.
• Expertise and Guidance: Directors provide valuable experience to guide the company’s vision and operations.
• Compliance: Directors make sure the company follows the law, including filing returns and keeping records.
• Decision Making: They participate in important strategic decisions to grow and sustain the business.

Legal Provisions for Appointment of Directors

The appointment of directors in India is governed by Sections 152, 161, and 169 of the Companies Act, 2013, along with the company’s Articles of Association. Key Points to Remember:

• A director must have a valid Director Identification Number (DIN).
• The director must provide written consent in Form DIR-2.
• The company must file Form DIR-12 with the Registrar of Companies (RoC) within 30 days of appointment.

Step-by-Step Process to Appoint a Director

Here’s a straightforward guide on how to legally appoint a director in your company:

1. Check the Articles of Association (AOA)

Start by verifying if the company’s Articles of Association allow for appointing directors. If they don’t, you will need to change the AOA.

2. Obtain Digital Signature Certificate (DSC) and DIN

If the person being appointed does not have a DIN, they must obtain one first. DIN is a unique number given by the Ministry of Corporate Affairs (MCA).

• Apply for DIN using Form DIR-3 along with identity proof, address proof, and a photograph.

3. Get Consent from the Director

The individual being appointed needs to give written consent to act as a director using Form DIR-2. This consent must be kept in the company’s records.

4. Call a Board Meeting

The company must hold a board meeting and pass a resolution for the appointment of a director. Sometimes, approval from shareholders through a general meeting is also required, especially if the director is being made a regular director after acting as an additional director.

5. File Form DIR-12 with the RoC

The company needs to file Form DIR-12 with the Registrar of Companies within 30 days of the appointment. This form includes:

• Director’s details (name, address, DIN, designation)
• Consent form (DIR-2)
• Board or shareholder resolution approving the appointment

6. Update Company Registers

Update your company’s register of directors and key managerial personnel to include the details of the newly appointed director.

Documents Required for Appointing a Director

1. Digital Signature Certificate (DSC)
2. Director Identification Number (DIN)
3. Form DIR-2 (Consent)
4. Board Resolution/Shareholders’ Resolution
5. Form DIR-12 (Filing with RoC)
6. Identity Proof & Address Proof of the director

Appoint a Director in Special Cases 

1. Appointment of Additional Director

The board of directors can appoint an additional director who holds office only until the next AGM.

2. Appointment in Case of Casual Vacancy

If a director resigns or passes away, the board can appoint someone temporarily until shareholders confirm the appointment.

3. Appointment of Independent Directors

In listed companies or those with specific paid-up capital and turnover, at least one independent director is required.

Compliance After Appointing a Director

After appointing a director, the work isn’t done. Important follow-up steps include:

• Updating statutory registers and records
• Notifying banks, auditors, and other stakeholders
• Updating the company’s internal documents, websites, and communication channels

Penalties for Non-Compliance 

Not following the appointment process may lead to penalties:

• The company and any defaulting officers may face fines.
• The appointment itself could be deemed invalid, which might affect legal decisions made by that director.

Practical Tips

• Always check if the person being appointed is free from disqualifications under Section 164 of the Companies Act, 2013.
• Ensure all filings are completed within the specified time to avoid late fees.
• Consider getting help from company secretaries or corporate consultants if you are unsure about the legal requirements.