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According to the Companies Act, only an individual can be appointed as a member of the board of directors. Usually, the appointment of directors is done by shareholders. A company, association, a legal firm with an artificial legal personality cannot be appointed as a director. It has to be a real person.
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Appointment of Directors
In public or a private company, a total of two-thirds of directors are appointed by the shareholders. The rest of the one-third remaining members are appointed with regard to guidelines prescribed in the Article of Association.
In the case of a private company, their Article of Association can prescribe the method to appoint any and all directors. In case the Articles are silent, the directors must be appointed by the shareholders.
The Companies Act also has a clause that permits a company to appoint two-thirds of the company directors to be appointed according to the principle of proportional representation. This happens if the company has adopted this policy.
Nominee directors will be appointed by third party authorities or the Government to tackle mismanagement and misconduct. The duties of directors are to act honestly, exercise reasonable care and skill while performing their duties on behalf of the organization.
Conditions for Appointing Directors
The following conditions are applicable when appointing a director:
- He or she should not have been sentenced to imprisonment for any period, or a fine imposed under a number of statutes.
- They should not have been detained or convicted for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
- He or she should have completed twenty-five (25) years of age, but be less than the age of seventy (70) years. However, this age limit is not applicable if the appointment is approved by a special resolution passed by the company in general meeting or the approval of the Central Government is obtained.
- They should be a managerial person in one or more companies and draws remuneration from one or more companies subject to the ceiling specified in Section III of Part II of Schedule XIII.
- He or she should be a resident of India. ‘Resident’ includes a person who has been staying in India for a continuous period of not less than twelve (12) months immediately preceding the date of his or her appointment as a managerial person and who has come to stay in India for taking up employment in India or for carrying on business or vocation in India.
