The Removal Of A Company Director - Many Changes Are Painful
Company

The Removal Of A Company Director - Many Changes Are Painful

Change Is The Road To Development 

"Every change is painful", said one of the most prominent personalities of this millennia, namely Karl Marx. This premise speaks volumes about the difficulties which are caused when something big has to change. But then, common logic tells us that change is also inevitable. In fact, it is a must for variability. Or else life and movement will dwindle, which can lead to lifelessness and entropy.

The Changing Of Company Director Is No Exception To The Above Rule 

This logic also applies to the hip and happening world of business, a field of human activity which lies at the base of the economy, which in turn is the factor which fuels civilization and the society. So, in creation, emergence, consolidation and dissolution of companies, there will be points of time when we will have to make big changes. One of these changes is the removal of a director from his/her post. 

Also read about The Unique Identity Of A Company Director As Per The Company Law

Removing The Company Director 


Every private company has to have a minimum of two directors, and any public company has to have at least three directors at any given time. Let us look at three possible cases during the removal of a director:

1) When The Director Himself/Herself Submits his/her Resignation

The concerned director submits his resignation to the Board. In this case, the following steps will be taken to remove his name from the register of directors:

The company will hold a Board Meeting by giving seven days of clear notice (Clear notice means 21 days notice excluding the day on which the notice was sent and received.


When the Board meets, they will discuss amongst themselves and decide whether to accept the resignation or not.


Once the Board accepts the resignation of the director they will pass a Board resolution accepting the resignation in the following format:


“RESOLVED THAT the resignation of Mr. XYZ be and is hereby accepted with immediate effect
“FURTHER RESOLVED THAT the Board places on record its appreciation for the assistance and guidance provided by MR. XYZ during his tenure as Director of the Company”


“RESOLVED FURTHER THAT directors of the company be and are hereby jointly authorized to do all the acts, deeds and things which are necessary to the resignation of the aforesaid person from the directorship of the Company
After the passing of the resolution, form DIR – 11 has to be filed by the outgoing director along with the Board Resolution, Proof of delivery of the resignation letter and a copy of the resignation letter.


While the filing of DIR – 11 is the responsibility of the director, form DIR – 12 is the responsibility of the company which has to be filed with the Registrar of Companies along with the Resignation letter and the Board Resolution.
After filing all the forms, the name of the director will be removed from the master data of the Company on the Ministry of Corporate Affairs website.

You may also like reading Know About The Annual Compliance Filings For LLPs.


2) When The Board Removes The Director Suo-moto


A Company has the authority to remove a Director by passing an Ordinary Resolution, given the Director was not appointed by the Central Government or the Tribunal.

A Board Meeting will be called by giving seven days’ notice to all the directors. A special notice will go to the directors informing them about the removal of the director.


On the day of the Board Meeting, a resolution for the holding of an extraordinary general meeting will be passed along with the resolution for the removal of the director subject to the approval of the shareholders.


A general meeting will be held by giving 21 days clear notice. In the meeting, the members will be asked to vote on the matter. If the majority is in favour of the decision, the resolution will be passed.


Before the passing of the resolution, an opportunity of being heard will be given to the director.


After the passing of the resolution, the same procedure will be followed, and the forms DIR – 11 and DIR – 12 will be filed along with the same attachments of the Board Resolution, Ordinary Resolution.
After the filing of the forms, the name of the director will be struck off from the Ministry of Corporate Affairs website.


3) When the Director Does not Attend 3 Board Meetings in a Row


As per section 167 of the Companies Act, 2013 if a Director does not attend a Board Meeting for 12 months, starting from the day on which he was absent at the first board meeting even after giving due notice for all the meetings, it will be deemed that he has vacated the office and a Form DIR – 12 will b filed on his name and his name will b removed from the Ministry of Corporate Affairs.

Conclusion

The removal of a director from the company is a big corporate development and thus there are special laws to tackle the same.  

You can also read About Increasing The Authorised Capital Of The Company

The Legalities Pertaining To The Appointment Of A New Company Director
Company

The Legalities Pertaining To The Appointment Of A New Company Director

The Significance Of The Leader In A Group 

No entity can exist efficiently & effectively without the existence and prevalence of a formal or official leader.  The same holds true for a company director. The director (or the directors) of a company lead the company through thick and thin. They motivate the company officials, personnel and staff towards meeting the vision and mission of a company. 

Also read The Unique Identity Of A Company Director As Per The Company Law.

The Decision To Change A Director/Appoint A New One In A Pvt Ltd Company 

In case, a company has to choose its new director and change an existing one, it is a big decision and involves various legal and other formalities and rituals.  As an existing director leaves and a new one comes up, it translates into a lot many changes. So, the company law has laid down various legalities and procedures while a company effects such a change. 

In Private Limited Company Directors plays main role in its functioning, Directors takes day to day decisions for business operations, Directors are key person in whom Shareholders of company trusts for their money invested, here in this article we will discuss about how a company can have new Director on its Board legally in India

You may also read The Removal Of A Company Director - Many Changes Are Painful


The Proposed Director Should Give His/Her Consent 

The proposed director should give his/her consent to act as Director in the Company as per Form DIR-2 , this is very important document and company must obtain form DIR-2 form before proposing him/her as the Director of the Company. 

Proposed Director Should Give His/Her Digital Signature

If proposed Director does not have Digital Signature , he must obtain Digital Signature from Certifying Authority in India.

Procure The Director Identification Number (DIN)
If the proposed Director does not have DIN , he should let the company know that he does not have ,and than the Company in which he is about to be appointed as Director is required to pass Board Resolution for proposing him to be Appointed as Director of the Company , the company should apply for DIN no of the proposed person. The Resolution is required to be attached with Form DIR 3.  ( This is new requirement for obtaining DIN , as new person cannot just apply for DIN if he is not to be appointed as Director in any Company. DIN is only allotted once for lifetime of Director.   

The Company should obtain all KYC documents along with necessary educational Qualification documents required as per terms of job, it is important to note that there is no minimum education qualification required to hold position of Director in the Company in India

A General Meeting Notice Should Be Issued 
The Director in the Company are appointed in the General Meeting , the Company should issue notice to all the Shareholders of the Company for holding Extra Ordinary General Meeting of the Company, Please note that Notice of General Meeting should be issued in accordance with provisions of Companies Act, 2013 and rules made there under and Secretarial Standards issued by Institute of Company Secretaries of India (ICSI).

An Extra Ordinary General Meeting of the Company Should Be Organised
Once the Notice of EGM is issued to the shareholders , now on the meeting date and time , hold the meeting and Pass the Necessary Resolution for Appointment of Director as Company.

Letter of Appointment Should Be Issued 
Now issue letter of appointment to the Director of the Company mentioning terms and conditions of appointment and salary to be payable to the Director.

File form DIR-12 to ROC
Once all the above steps are completed the Company should file Form DIR-12 to ROC within 30 days form the date of appointment of Director , It is always advisable to File the Form DIR-12 within next day of appointment, so as to avoid late filing and Additional Fee.

Make Required Entries In Register of Directors
Company should make necessary entries in the Register of Director and Key Managerial Personals. 

File Necessary Amendment Application to GST, Tax Authorities  Other regulators
The Company is required to make necessary application for Changes in Directors details in GSTN and Other Certificates, wherever applicable. 

Also read Know the various facts about Share Purchase Agreement

Conclusion

Changing a company director should be a smooth and natural process. It should not create disturbances, disruptions and ripples of disharmony or at least these things should be minimized. 

The Unique Identity Of A Company Director As Per The Company Law
Corporate

The Unique Identity Of A Company Director As Per The Company Law

Not even the head of the nation state in a modern, vibrant, functioning democracy is immune to the law of the land and its various applications. So also, in the happening corporate world, the directors, who head and lead companies, are bound by various rules & regulations, norms & conventions, identities & formalities, as provided in the corporate laws. One significant identity possessed by any formal director is the Director Identification Number, which is abbreviated as DIN. 

You may also read The Removal Of A Company Director - Many Changes Are Painful.

DIN – What Does It Stand For?


DIN is the unique number provided to the director of a company by the Central Government. We can also say it is a specific number provided to an individual, who directs one or more companies. DIN is specific to a person, which means even if he or she is a director in two or more companies, he or she has to obtain only one DIN. And if he or she leaves a company and joins some other company, the same DIN would work in the other company as well.

 

Well, DIN is made up of an 8-digit number that is valid all through, which means DIN exists until the person continues to be director of the company. Through DIN, details of the directors are maintained in a database.

 

The Usage of DIN

If a return, an application or any information related to a company is submitted under any law, the director signing such return, application or information will mention his DIN underneath his/her signature.

DIN Application Procedure

Whenever the application fee is paid and the application is submitted, the system will generate an application number. Central Government will undertake the application and decide the approval or rejection.


When the DIN application is approved, the central government will communicate the DIN to the applicant within one month.

In case, the DIN application is rejected, it will e-mail the the reason for rejection to the applicant and will also put the reason on the website. The applicant will have 15 days to rectify the reason. If he rectifies such reasons and is able to satisfy the central government, he will be allotted DIN otherwise central government will label the application INVALID.

 

The Categories For DIN: 

a)     SPICe Form: Application for allotment of DINs to the proposed first Directors in respect of New companies shall be made in SPICe form only.

 

b)    DIR-3 Form: Any person intending to become a director in an already existing company shall have to make an application in eForm DIR-3 for allotment of DIN.


 c) DIR-6 Form: Any changes in the particulars of the directors shall be filed in form DIR-6.


To apply for DIN, the above forms are to be filed electronically. It has to be digitally signed and then uploaded on the MCA21 portal .

Also read One Person Company – What It Can Provide And What It Can Not


The Documents Required For DIN:

a) For SPICe Form

 Attach proof of identity and address proof. DIN would be allocated to an applicant only after approval of the form.

b) For Form DIR 3 

i)  Attachments: Photograph, Identity proof, Residence proof, Verification (Name, father’s name, present address, date of birth, text of declaration and physical signature of the applicant). In the case of foreign nationals, they are required to submit their passport as identity proof.

ii). Documents to be attested by a CA or CS or CMA:

Photograph, identity proof and residence proof must be attested by a Chartered Accountant or a Company Secretary or a Cost Accountant, in whole-time practice.

iii) In the case of foreign nationals, their documents can be attested by the Consulate of the Indian Embassy and Foreign Public Notary.

iv) After uploading DIR-3 and the supporting documents, the applicant will pay the fee in the next window screen. It has to be paid through net banking, credit card or NEFT. Manual(offline) payment is not allowed.

 c) For Form DIR-6
For changing any details mentioned in the DIR-3 form/ SPICe with respect to Directors, then Form DIR-6 has to be submitted online. With the form, the attested supporting document is also required to be submitted

 Generation of DIN:
 

Once the application fee is paid and the application is submitted, the system will generate an application number. Central Government will process the application and decide the approval/ rejection.

If the DIN application is approved, the central government will communicate the DIN to the applicant within 1 month.

If the DIN application is rejected, it will e-mail the reason for rejection to the applicant and will also put the reason on the website. The applicant will get 15 days to rectify the reason. If he rectifies such reasons and is able to satisfy the central government, he will be allotted DIN otherwise central government will label the application INVALID.

Intimating DIN to company:

Within one month of receiving a DIN from the central government, the director has to intimate about his DIN to all companies where he is a director.  

The company will intimate RoC about DIN within 15 days from the date when the director intimates his DIN to the company.

Failure of the director to intimate DIN to the company or failure of the company to intimate RoC about DIN will result in penalties.

Reasons for Surrendering or cancelling the DIN
The Central Government may cancel the DIN due to the following reasons:

If a duplicate DIN has been issued to the director. 
DIN was obtained by wrong means
On the death of the concerned person
The person has been declared of unsound mind by the court
The person has been adjudicated as insolvent
The director can also surrender the DIN in Form DIR-5. With the form, he has to submit a declaration that he has never been appointed as a director in the company and the said DIN has never been used for filing any document with any authority. Upon verifying the e-records, the central government will deactivate the DIN.

You can also read About Increasing The Authorised Capital Of The Company

How To Increase Authorised Share Capital?
Company

How To Increase Authorised Share Capital?

A company is made up of parts called shares. The maximum number of shares a company can issue is called authorised share capital. In India, a company can decide to increase this number before selling shares to everyday investors. This is also known as nominal capital. So, think of authorised capital like the company's growth limit. On the other hand, paid-up capital is the total of shares the company has already sold. This means, paid-up capital can never be more than the authorised capital. In simple terms, if a company's authorised capital is like its maximum capacity, the paid-up capital is how much of that capacity is already filled.

How To Increase Authorised Share Capital?

Following steps may be taken to increase the authorised share capital of a company:

Step 1: Verification of Articles of Association: The first step towards increasing an enterprise’s authorised capital is the verification of Articles of Association (AoA) to check if there is necessary authority to increase the authorised share capital, if not then the Articles of Association are to be accordingly changed which can be done by passing a Special Resolution as per Section 14 of the Companies Act.

Step2: Convening a Board Meeting: The next step is to convene a Board Meeting which can be done by providing of the notice of the same to the Director at least 7 days prior to the meeting and at the Board Meeting itself, approval is to be obtained the Board of Directors in order to increase the authorised share capital. Following this an Extraordinary General Meeting (EGM) is to be conducted and the date, time and venue of such meeting is to be fixed at the Board meeting. Other things that are required to be done during the Board meeting include issuing the notice of Extraordinary General Meeting to all the shareholders, auditors and directors of the enterprise.

The purpose of holding an EGM in this process is to obtain the assent of the shareholders. The approval of the shareholders is required to be in the form of an ordinary resolution authorising increasing of authorised share capital. It is to be noted here that if the Annual General Meeting (AGM) is to be conducted in the near future then this issue can be present before the shareholders under ‘Special Business’ and their assent can be obtained for the purpose of increasing share capital. The notice of a general meeting is to be issued at least 21 days prior to the meeting along with an Explanatory Statement as per Section 102 of the Companies Act. If there is a need to amend the Articles of Association then the company must file the form MGT-14 within 30 days after passing the Special Resolution at the General Meeting. Filing of form MGT-14 is a necessary step is Article of Association does not allow increasing of authorised share capital.

Step 3: Filing of Form SH-7: After conducting the EGM and obtaining the consent of shareholders the company is required to file form SH-7 within 30 days of passing the ordinary resolution at the general meeting. A certain amount of fee is to be paid while filing form SH-7 and along with filing the form, the company is required to attach and submit a copy of the Board Resolution, the notice concerning the EGM along with the explanatory statement, an authorised true copy of the ordinary resolution passed in the general meeting and an altered version of Memorandum of Association which has the new higher limit of authorised share capital.

Step 4: Increase in the Authorised Share Capital: if the procedure for increasing the authorised share capital is followed properly then the Registrar would authorise the request to increase the authorised share capital and the updated authorised share capital will be reflected on the Ministry of Corporate Affairs’ online portal. Following this, the company can increase its paid-up capital by attracting more investors to purchase their equity shares.

Conclusion

As the company grows and expands, or for the purposes of raising capital through an IPO, or to attract investors, an increase in the authorised share capital becomes essential. It is pertinent to know the procedure by which the same can be done. It is always preferable to obtain legal advice before you decide to increase the authorised share capital of your company.

Setting up a Sole Proprietorship Business in India
Company

Setting up a Sole Proprietorship Business in India

A sole proprietorship is the simplest form of company formation. In this form of business incorporation, you set up a business solely on your own. Sole proprietorship business is not separate from the owner, i.e., it does not have a separate legal identity of its own. The personal income tax return of the owner is used to file taxes for the business as well. In this form of business, a person alone is liable to pay the debts, if any, and enjoy the profits earned. A sole proprietorship is the preferred form of business for professionals such as consultants, lawyers, etc. Its popularity stems from factors such as simple to set up, low cost of formation, etc.

How is a Sole Proprietorship Business set up?

It is easy to form a sole proprietorship company. Since the entire business is done on the name of the owner itself, there is less paperwork to be done while setting up this kind of business. It is a hassle-free form of business. Any person who wishes to start a business that is not so complex, he/she may consider the Sole Proprietorship form of business. 


The following steps must be followed to form a Sole Proprietorship business:-

  1. Select a name and register your business: Name selected for business by a person can be any, but one must ensure that the name chosen must not be registered by others. After selecting a name, the person must register the name, if possible, the person must get the name trademarked. 
  2. Finding an appropriate location for the business: A person must decide whether he wants to do the business from home or at rent or purchase an office. If a person decides to work from home, then there's no need for finding an apt place for setting up a business. However, if a person is not opting for work from home, then he/she must find a suitable location for its business. If a person has set up a business premise, then it must be registered under the Shop and Establishment Act. 
  3. Apply for GST Registration: If the business is engaged in the sale of goods or services, it must apply for GST registration number. GST registration can be applied by providing certain documents such as Aadhar Card, PAN Card, and self-attested copies of the above documents. 
  4. Open a Current Bank Account: Most important is to open a current bank account. The person must open a separate current account in the name of the owner or business in order to avoid any mixing of the expenditure made for personal purposes or business purposes. 


Advantages of Sole Proprietorship

  1. The most important advantage of a sole proprietorship is its simplicity and that it is easy to establish and has a hassle-free process of establishment. 
  2. The owner himself enjoys all the profits earned. However, when there is a loss, he alone is liable to pay all the debts. 
  3. The person who sets up a sole proprietorship business he alone has authority over the entire business. He himself makes plans, invests money, supervises the business, enjoys profits.
  4. A sole proprietor and his business are not a separate legal entity, but it is one. Therefore, all the assets, liabilities, profits, and losses on the part of the owner. 
  5. In a sole proprietorship, the trader is taxed on the personal income of the owner, i.e., the tax is levied on the profits earned by the owner. Like other forms of business, the sole proprietor need not pay any other form of tax. 
  6. The sole proprietor can work for as long as he wishes, he may even sell it when is wishes, or may pass on to its heirs. 

 

Disadvantages of Sole Proprietorship 

  1. The owners are fully liable, i.e., if the owner fails to pay the debts, then the owner's personal property such as home, personal savings can be taken away to pay the debts. 
  2. The main disadvantage of a sole proprietorship is that it is difficult to expand the business due to factors such as lack of resources, lack of staff, and many more
  3. In the absence of a sole proprietor, the business can go haywire, i.e., it can cause huge losses if it is not managed aptly. 


Conclusion

A sole proprietorship is an excellent first step for those diving into the business world, especially if you're starting without much funding and want to gauge your product's appeal in the market. This business structure is essentially an extension of you as an individual, meaning you are the sole owner, and you hold all the decision-making power. The setup process is straightforward and cost-effective, making it ideal for those with a limited budget. You're not burdened by numerous formalities or paperwork, which are common in other types of business structures. This simplicity extends to compliance requirements as well, with fewer legal and financial regulations to worry about. However, remember that in a sole proprietorship, the owner is personally liable for the business's debts and liabilities. This means that if your business runs into financial trouble, your personal assets could be at risk.  In conclusion, if you're looking to start small, have little funding, and want to test your product in the market, a sole proprietorship could be a smart way to dip your toes into the entrepreneurial waters. As your business grows, you can always consider transitioning to a different business structure that better suits your evolving needs.

 

last updated on: 14 May 2023 

 

 

How To Start A Single Person Company in India
Company

How To Start A Single Person Company in India

The general misconception among prospective founders is that to start up, they require at least one more co-founder. What they miss out on is the fact that with the recent reforms introduced in the Companies Act it has been made possible to form a One Person Company or OPC which can be setup by a single person. Such a company works wonders for someone who wants 100% control over his company. However, an OPC may have certain issues such as not having the ability of introducing a partner, personal liability and not being high on the priority list of investors. Through this post, we discuss how is an OPC set up and what are the legal requirements associated with the same. 

 

Requirements for setting up a One Person Company

Following are the requirements for setting up a One Person Company:-

  1. Member:  A member of One Person Company should be an Indian citizen. He/she should have stayed in India for not less than 180 days in the preceding calendar year. A person cannot incorporate more than one OPC.

  2. Nomination: A member of One Person Company shall nominate name of another person with his consent. In case there is death of the member or there is member’s incapacity to contract, such another person would become the member of One Person Company.

  3. Director: There has to be one Director to form a One Person Company.

 

Steps for setting up a One Person Company 

Following steps need to be followed in order to set up a OPC:

 

  1. Applying for the Digital Signature Certificate of the proposed Director of the One Person Company.

  2. Applying for the Director Identification Number of the proposed Director of the One Person Company.

  3. Selecting a name of the Company and making an application for the same to the Ministry of Corporate Affairs. The Ministry of Corporate Affairs has started a web service by the name of Reserve Unique Service (RUN) through which a unique name can be reserved for a new Company.

  4. Filing an application for Incorporation of Company with the Registrar within the jurisdiction of the registered office of the company. The application is to be made in Form No. INC.2 for a One Person Company.

  5. Filing of application mentioning consent of Nominee. It is to be done as per Form No. INC.3.

  6. A fee is to be paid along with Form No. INC.2 and Form No. INC.3.

  7. Filing of Memorandum of Association and Articles of Association of the One Person Company. 

  8. Filing of forms with Ministry of Corporate Affairs.

  9. Payment of fees to Ministry of Corporate Affairs and stamp duty.

  10. Issue of the certificate of Incorporation.

 

Compliances required by an OPC


The following compliances are required for an OPC:

  1. Filing of annual returns

  2. Filing of financial statements

  3. Appointing of auditor

  4. Filing of income tax return

  5. Annual meeting: First meeting should be held within 30 days of incorporation. 

  6. Submitting to ROC the following documents: 

                  *  Balance sheet

                  *  Accounts of profits and losses

                  *  Cash flow statement

                  *  Change in equity

Those who read this article also consulted a startup expert to decide what is the right company for you.


Conclusion

A One Person Company (OPC) might be the right choice for you if you don't want to spend a lot of money to start your business and want to keep control over it. But remember, an OPC might not attract many investors because it doesn't offer them much. Plus, you can't offer employee stock options in an OPC. An OPC is a good option if you want to start a business on a tight budget without a lot of outside interference. Always take time to learn about your business and make a plan, and get professional advice when you need it. Also, keep up with any changes in the rules and regulations that might affect your OPC. Starting an OPC in India could be a great first step in becoming a business owner. With the flexibility and perks this type of business offers, you can really make your business grow and reach your goals. We hope this guide has given you a good overview of how to start an OPC in India. We wish you lots of luck on your journey as a business owner and entrepreneur!

 

Update on 14 May, 2023