Appointment of Whole-Time Director- Companies Act, 2013

The term director is a title given to the senior management staff of businesses and other large organisations.

The term is in common use with two distinct meanings, the choice of which is influenced by the size and global reach of the organisation and the historical and geographic context. Further to this, the term is also used in reference to various technical (legal) definitions specific to corporate governance legislation in individual countries.

Sticking to our topic, a Whole time Director who has special position in company and The Companies Act, 2013 along with related rules governs the concept of Whole time Director. Let us explore it more in more understanding way.

1. Who is Whole-time Director?

As per the Companies Act, 2013, a “whole-time director” includes a director in the whole-time employment of the company. The definition is Term is inclusive.

There is no where defined the power and functions of whole-time director, though company has full liberty on the vesting of power to whole-time director depending upon the various factors of company.

A whole-time director is a director rendering his services on Whole-time basis to the company. Further, a whole-time employee, when appointed as a director of the company, will be occupying the position as the whole-time director. This position is clarified by DCA vide letter no. 2/19/63-PR dated 29.06.1964 which provided that a whole-time employee of a company also appointed as a director of the company is in the position of whole-time director

2. Why are they appointed in a company?

A whole-time director is a member of a board of directors for an organisation, but the meaning of the term varies between countries and their Statues. It varies from company to company and their roles and responsibility allotted to them.

The Companies Act, 2013 defines that such class of companies (we will discuss later which class of companies) to have director in full time employment nothing regarding their power. Hence, it the discretion of management why they are appointed in a company.

Generally, are person with rich experience and expertise in fields for which they are appointed in company.

3. Which companies are required to appoint a whole-time Director?

As per section 204 of the Companies Act, 2013 below given companies are required to appoint a whole-time Director:-

1. Every listed company

2. Every other public company having a paid-up share capital of ten crore rupees or more

4. What laws governs the appointment of whole-time Director?

The appointment and other related provisions for appointment of whole-time Director are:-

1. The Companies Act, 2013

• • Section 204, 196, 197 and 202 of The Companies Act, 2013 along with The Companies (Appointment and Remuneration of Managerial personnel) Rules, 2014.

2. SEBI (Listing Obligations and Disclosure requirements) Regulations, 2015.

• • Regulation 17, 17A, 30 read with Schedule III of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015

 Note that clause (b) is applicable to companies whose securities are listed in stock exchange.

5. Is whole-time Director is considered as Key managerial personal (KMP)?

As per the Companies Act, 2013 Every listed company and every other public company having a paid-up share capital of ten crore rupees or more are required to appoint whole-time Director as Key Managerial personnel.

As per interpretation if any company not falling in above category or ambit, a whole-time Director are not required to be considered or appointed as whole-time Director in such company.

6. For how long a whole-time Director can serve in a company?

A whole-time Director can be appointed for a maximum five (5) years on one term as per The Companies Act, 2013.

Though their reappointment can be made again but not before one year from the expiry of term.

7. What is the process to appoint a whole-time Director?

 The following process is followed for appointment of whole-time Director:-

1. First appoint the candidate as Additional Director of the Company, if not already appointed as director.

2. Prepare notice of board meeting along with draft resolution(s) to be passed in the board meeting.

3. Convene board meeting and pass the following board resolution.

4. Sending of Outcome of Board Meeting to Stock exchange wherever company’s securities are listed within 30 minutes from the conclusion of meeting.

5. Issue letter of appointment to the candidate.

6. File e-Form DIR-12 along with attachments with the Registrar of Companies regarding appointment of whole-time director within thirty (30) days.

7. File e-form MGT-14 for board resolution along with attachments with the Registrar of Companies regarding appointment or variation (if any) in terms of appointment of whole-time Director within thirty (30) days from passing of resolution.

8. Filling of E-form MR-1 within sixty (60) days.

9. Prepare Annual General Meeting/ Extra Ordinary General Meeting notice for taking approval from member for appointment of whole-time Director whichever is coming first after their appointment.

10. Convening and passing of ordinary resolution for appointment of whole-time

11. Sending of Appointment letter to whole-time Director and entry in register minutes, etc of company.

8.  What are the forms to appoint a whole-time Director in a company?

Only three forms are required for appointment of whole-time Director and these are:-

1. MGT-14 within thirty (30) days

2. DIR-12 within thirty (30) days

3. MR-1 within sixty (60) days

9. What if whole-time Director resigns from the company?

There are many times when a situation arises that a whole-time Director wants to resign from the company, whatever the reason maybe.

If a whole-time Director resigns, she/he can anytime resign from the company after giving a notice as well as reason. The company will take the required steps for such resignation.

It should be noted that the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.

10. What are the documents required for appointment of whole-time Director?

 The following documents are required: –

1. Intimation letter to stock exchange

2. Copy of Board Resolution for Board Meeting

3. Copy of resolution passed in general meeting

4. Appointment letter

5. DIR-2

6. DIR-8

7. MBP-1

8. Any other as required.

11. What is remuneration/ salary aspects of whole-time director?

 The remuneration of the whole-time director is required to be paid after complying with the provisions of section 197 and schedule V of the Companies Act, 2013 and rules made thereunder. I have already covered remuneration part in my article:- https://taxguru.in/company-law/managerial-remuneration-provisions-companies-act-2013.html

12. What if company fails to appoint a whole-time Director?

 The companies which are required to appoint whole-time Director should appoint them within time.

And if Any company fails to appoint within time, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.

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Disclaimer: – The above article is prepared keeping in mind all the important and basic question as well as provision of section 196, 197 and 203 of the Companies Act, 2013 which comes in mind of a professional or other stakeholder while company appointing a Whole-Time Director. The author has tried to cover all the important and basic question. Under no circumstance, the author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

(The Author is Corporate Consultant and provides varied array of services including Start-ups mentor, Secretarial, Legal, Trademark, taxation, Audit, GST, Book keeping and other ancillary advisory service in Delhi, Chandigarh as well as The National Capital Region (NCR) and can be contacted through email id:- [email protected] and Contact Number: 91-8178515005)