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A presentation on Topic:Appointment of Directors

Who is the DIRECTOR??


Acc. To the Sec.2(13) of INDIAN COMPNIES ACT 1956, Director includes any person occupying the position of the director by whatever name called

Director may be defined as an individual who directs , controls or manages the affairs of the company.
The directors of the company collectively are referred to as the board of directors or board

Qualification
No educational or other qualifications are required in order to become director of the company whether public or private. Similarly, the Companies act 1956 does not prescribe any requirement as to age limit for becoming a director. The only condition is as per section 253 No body corporate, firms or associates can become a director. Only Individual can be a Director of a company because the office of a director is office of responsibility, accontability and position of trust.

Number of Directors
As per section 252 every public company shall have 3 directors and every other company shall have at least 2 directors. Maximum no. of directors in case of private company shall be as specified by the articles. It could be 7 or 8 or even 20 or 25.Central Govt. approval not required in case of any increase in number. The act does not prescribe any maximum number of directors for public company also but if the maximum no of directors exceed 12, prior approval of central Govt. would be required. Thus the approval of central govt will be necessary for the increase in number of directors , and not for the appointment .

Appointment of DIRECTORS
The appointment of directors is accordingly regulated by the act. Directors may be appointed in following ways:-

By the articles as regard first directors [sec. 254] By the company in general meeting [sec. 255 to257 , 263 , 264] By the directors [sec. 260 , 262 , 313] By third parties [sec. 255] By the principle of proportional representation [sec. 265] By the central government [sec. 408]

By the articles as regard first directors section 254


The first directors are usually named in the articles. The articles may also provide that both the number and the names of the first directors shall be determined in writing by the subscribers of the memorandum. Where the company has no articles or the articles are silent regarding the appointment of directors, the subscribers to the memorandum who are indivisuals shall be deemed to be first director until the directors are appointed at first annual general meeting. If all the subscribers to the memorandum happen to be bodies corporate , none of the subscribers can be deemed to be directors and the company will have no directors until the first directors are appointed under section 255. Where the person named in the list of first directors do not assume the office , for any reason for example , death, then it is the duty of the subscribers of the memorandum to hold a meeting for appointment of directors.

Appointment by the company [Section 255 to 257 , 263 , 264]


Appointment of subsequent directors is made at every annual general meeting of the company. Section 255 provides that not less than two third of the total number of directors of a public company or a private company must be appointed by the company in general meeting. These directors must be subject to the retirement by rotation.
Section 263 prohibites the placing of the composite motion for the election of two or more directors before the general meeting . The purpose of prohibition of composite motion is that it will enable shareholders to accept or reject a perticular individual standing for directorship without being compelled to accept or reject all of them.

Section 264of the companies Act requires every director to give his concent to the directorship. There are two types of Consents : 1.Concent of the candidate for Directorship to be filed with the company 264(1) 2.Concent to act as director to be filed with the registrar 264(2) . The consequence of a director continuing to act as such without filing his concent within the period specified would attract the penalty under section 629A i.e.Rs. 500 Every day. Such concent may however be filled after the expiry of the said period on payment of additional fees as contemplated by section 611(2). It is further open to the central government u/s 637B to condone the delay in filling concent.

BY THE DIRECTORS
The directors are empowered to appoint : Additional directors Alternate directors Directors filling casual vacancy

ADDITIONAL DIRECTORS
The board of director may appoint additional directors from time to time if so authorised by the articles. The number of directors and additional directors must not exceed the maximum strength fixed for the board by the articles. The additional directors shall hold office only upto the date of next annual general meeting.

ALTERNATE DIRECTORS
The board of directors may appoint an alternate director if authorized -By the articles -By a resolution of the company at general meeting
An alternate director acts in the place of a director who is absent for more than three months from the state in which board meetings are held. He must vacate the office on the return of the original director.

CASUAL VACANCY
Where the office of any director appointed by the company in general meeting is vacated before the expiry of his term the director may fill up the vacancy at the meeting of board. Any vacancy other than one caused by retirement of a director by rotation is a casual vacancy. Such a vacancy may occur by reason of death , resignation , bankruptcy , or disqualification. The director so appointed will hold office till the end of the term of the director in whose place he is appointed.

APPOINTMENT BY THIRD PARTIES [Section 255]


Section 255 permits that one third of the total number of directors of a public company or a private company which is subsidiary of a public company to be appointed by parties other than share holders on a non-rotational basis. The articles may give right to debenture holders , financial corporations or banking companies who have advanced loans to the company to nominate directors on the board of company. The number of directors so nominated should not exceed one third of the total strength of the board. They are not liable to retire by rotation.

APPOINTMENT BY PROPORTIONAL REPRESENTATION


Directors of the company are generally appointed by a simple majority of shareholders and a substantial minority cannot succeed in in placing even a single director on the board.
Section 265 intends to protect the interests of minority shareholders by giving them an opportunity to place their nominees on the board. The articles of the company may provide that the appointment of not less than 2/3 of the total number of directors of the public company shall be according to the principle of proportional representation.

APPOINTMENT BY SMALL SHAREHOLDERS [ Section 252 ]


A small shareholders means a shareholder holding shares nominal value of Rs.20,000 or less he may be a holder of equity share or preference share or both. Appointment of Small Shareholder director is not mandatory as per sec 252 of the Companies Act 1956 Applicability : The Provisions relating to appointment of a small shareholder Dirctor apply to a company only if all the following conditions are satisfied: (a) The Company is Public Company (b) The Paid Up Capital of Company is Rs. 5 crore or more ( c) The number of Small Shareholders in such a company is 1000 or more

APPOINTMENT BY CENTRAL GOVERNMENT


The central government has the power under section 408 to appoint directors on an order passed by the tribunal (earlier company law board) to effectively safeguard the interest of the company or its shareholders or the public interest to prevent mismanagement.
Such directors shall hold office for a period not exceeding three years on any one occasion.

Managing Director:
Managing Director means a director who :
a. b.

By Virtue of an agreement with the company or By resolution passed by the company

c.
d.

By Resolution passed by its Board of Directors


By virtue of its MOA or AOA

Is entrusted with the substantial powers of management which would not otherwise exercisable by him, and includes a director occupying the position of managing director , by whatever name called.

Provided further that a managing director of a company shall exercise his power subject to control & directions of its Board of Directors.

Whole Time Director:


whole time director is not defined by the companies act. As per section 269,Whole time director includes a director in whole time employment of a company. The Department of Company Affairs Clearified that an whole time employee appointed as a director will be a whole time director only if substantial powers of management is vested with him.

Manager :
Manager means an individual who subject to the control & direction of board of directors has the management of the whole or substantlly the whole of the affairs of the company. And includes the director or the any other person occupying the position of manager, by whatever name called,and whether under a contract of service or not. A manager may or may not be a director of a company. Company cannot have simultaneously two managers . Acompany cannot at a same time employ a managing Director and a manager. However a company can simultaneously a manager an da whole time director . Only An individual can be appointed as a manager. No firm or body corporate can be appointed as a manager.

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