Company Directors

Although the Companies Act, 2013 treats companies as individual persons, in reality, they require the management of real people. A director of the company is someone who is tasked with managing the affairs of the company. In most cases, the company’s Articles of Association (AoA) specify the guidelines for appointing a director. However, shareholders can also exercise certain powers when a director is appointed.

An organization’s Board of Directors

As a collective team of directors, the Board of Directors (BoD) of a company is responsible for decision-making and protecting the rights of all stakeholders.

The removal of a director

It is the Board of Directors’ responsibility to remove a director from the company if necessary. The delicate process of removing a director from his office must be documented properly in the company’s laws. Nevertheless, certain rules and guidelines have been laid out in the Company Act, of 2013.

Directors are commonly removed for the following reasons:

There is a possibility that the board of directors will have disagreements from time to time. Some issues may arise with specific directors. However, removing a director from the board must be a deliberate, well-thought-out process.

In the case of the director’s removal by the board, the following reasons could be cited:

  • Absence from board meetings or committee meetings on a regular basis
  • Issues arising due to micromanagement on the part of the CEO, or other executives
  • Participating in competitor activities
  • Taking part in the board of another corporation in violation of the organization’s policies.
  • In addition to violating the company’s ethics code, directors may also infringe on any other written agreements between them and the company.
  • Conducting illegal activities, particularly involving the corporation’s securities
  • The disclosure of confidential and sensitive information about the company to unauthorized parties.
  • Behaving inappropriately or disrespecting the other board members and creating an unhealthy and dysfunctional boardroom.
  • Taking advantage of the company for personal gain.

It is the responsibility of the other directors and shareholders to decide whether a director of company should be removed or not. A board of directors makes the decision.  It is appropriate to remove a director from the board if he has not followed the company’s rules and has not fulfilled his fiduciary duties.

Taking a Director off the Board

There are a number of reasons why a director may be removed by the Board of Directors via a voting process conducted at a board meeting. However, the concerned director must be given a chance to express his or her opinion.

Upon approval of the removal, the board must file Form DIR-12 with the Registrar of Companies (RoC). A failure to file Form DIR-12 can result in significant penalties. Following the completion of all the formalities, the director’s name will be removed from the Ministry of Corporate Affairs database.

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