The Companies Act is the governing law of the corporate bodies in India. From their incorporation to make any simple change in them, company law will come into action. The Companies Act is an act according to which the corporate bodies work in India. According to this law for the incorporation of any kind of corporate body there must be a minimum number of directors. For instance in order to do private limited company registration minimum two directors are required, without which one cannot incorporate such a corporate body.
Hence it can be said that without having a minimum number of directors a corporate entity cannot be formed. Directors are one of the most important personnel in a corporate body. A company cannot be started without them. There are different types of directors in a company. In order to know about the same, keep reading the blog.
About the Participation of the Removal of Directors in a Company
In a company, the removal of a director typically requires a resolution passed by the shareholders. Shareholders, who are the owners of the company, have the authority to participate in such decisions. The removal process usually involves voting on a resolution during a general meeting of shareholders, where each shareholder has the opportunity to cast their vote. The specific procedures for removal may vary depending on the company’s articles of association and applicable laws and regulations.
Understanding Behind Removal of Directors
The directors of the Company have every right to leave the company whenever they wish to. This is called resigning from the company on one’s own wish. Now the director has to give his resignation to the board of directors. Then a board meeting will be held by giving notice to all the directors. Then in that meeting all will decide whether to take the resignation or not. If the board accepts the resignation, then they will pass a resolution and allow the resignation. Some of the key reasons due to which a director can resign are:
- Personal reasons.
- Career advancement.
- Health issues.
- Conflict of interest.
- Dissatisfaction with company direction.
- Relocation or moving abroad.
- Retirement or age-related factors.
- Pursuing other opportunities.
- Differences with management.
- Family commitments.
Who is Eligible to Become a Director in a Company?
Following persons are eligible to become the director of a company:
- Minimum age requirement must be completed in order to become the director in any kind of corporate entity
- Mental soundness is really a important factor to become any type of director in any entity
- A person who wants to become any type of director in a company must not an undischarged bankrupt
- Not convicted of fraud in his past experience. This will disqualify him or her to become any kind of director in any kind of entity.
- He or she must not be disqualified by any law to become director of an entity
How to Remove a Director from a Company?
When we talk of directors, the main question which comes to our mind is their appointment and removal. They can be removed in the meeting in which shareholders are present. In that meeting, the shareholders vote and accordingly the directors are removed. However, if the directors are appointed by the Government or the tribunal, there is a different way. It is given under section 242. Below is the procedure showing the removal of directors from a Company. There are three ways or possibilities of director’s removal. They are as follows:
- When the Board of directors decides to remove one director.
- When the Director wants to leave the company, he gives resignation.
- When the director fails to attend three continuous Board Meetings.
Discharge a Director from Board of Directors
It is up to all the other directors whether they want to keep any director or not. The Companies Act gives reasons based on which the board can remove the director. Some of the key reasons are given below:
- Section 164– If the director does anything wrong, then he can be removed. i.e., if he does anything which is counted as a disqualification.
- Section 167(1)- Board meetings are very important to attend. As their discussions are made regarding the company’s working. If the director fails to attend this meeting for 12 months then he is removed. This is because being absent in the company meetings shows that he is not serious at all.
- Section 168- This section allows the director to resign from the company at his own will.
- Section 167 (1) (c) and (d)– If the directors make a contract with anyone which is against the Act.
- Section 167 (1) (f)- If the director invites some serious trouble and is convicted by the court, then he will be removed from the company.
Different Types of Directors in a Corporate Entity
There are mainly 6 types of Directors in a company which are discussed below:
- Executive Directors- The Executive Directors are removed by the shareholders. The shareholders have the right to vote in the meeting.
- Non- Executive Directors- The Non- executive Directors too are removed by the shareholders in the meeting of the board of directors. If the majority of the Directors decide to remove that director, then their vote prevails. And the director is removed.
- Nominee Directors- These types of directors are appointed either by the financial institution or by shareholders. It must be kept in mind that the ones who appoint them, can also remove them.
- Additional Directors- The board of directors appoints these directors. This power of appointment is given to them by the Article of Association of the company. They are made permanent by the shareholders later on. Until they become permanent, the board of directors have the right to remove them.
- Managing directors- The managing directors too can be removed by the board of directors.
Process of Removal of Directors from a Company
Mainly there are two ways through which removal of directors is possible:
Removal of a Director Suo- moto by the Board
- A notice has to be given to all the directors. In this notice, information should be written about the board meeting which is going to be held. All directors must be told about the removal of the director.
- After providing all with the notice, the meeting will take place. Then discussions will be made regarding removal of the directors. Then a resolution will be passed.
- Then a general meeting will be held. This meeting has to be held after 21 days of informing the directors. Then voting will be done by the directors. Then based on the majority of the votes, the director will be removed.
- The director will then get an opportunity to present himself before everyone. He has been given a right to be heard. He has a chance to prove his innocence in case he does not want to be removed.
- The director now has to fill two forms, Form DIR-11 and Form DIR-12. These forms have to be attached with the board of resolution which has been passed in the meeting of the directors of the entity.
- The last step after removal of the director is the removal of his name from the record. The Ministry of Corporate Affairs (MCA) will now delete his name from all the records as well as the website.
Removal of Directors by Voluntary Resignation
- Director submits resignation letter.
- Board approves resignation.
- Company updates records.
- Director hands over responsibilities.
- Company issues acknowledgement.
- Regulatory filings completed.
- Resignation process closed.
Required Documents for the Removal of Directors
Some of the key documents required for the removal of any type of director from an entity are:
- Photograph of the director
- Pan-card of the director
- Address proof of the director
- Digital Signature of the director of the one who is removed and one who will be appointed in that place.
- Identity proof such as Aadhaar Card etc.
- Personal contact details of the director
- Email id of the director in order to communicate
Conclusion
The Directors are the main pillars of any company. They can also be called the whole and sole of the company. It is due to their efforts and hard-work that a business can flourish. Hence, their appointment as well as removal of directors is a matter of concern. Everyone must be aware that the directors can be removed suo- motto and by resignation. Along with following the process of removal of director, certain documents too have to be submitted. Without this, the removal cannot be successful.
