Removal of Director in Company Law

Removal of Director in Company Law

It is possible to add or remove a director from the company at any time. There are different reasons why a director is removed and there are three different procedures based on the reason.

Reasons to Remove a Director

A director can be removed for any of the following reasons:

  1. If they incur any of the disqualifications specified under the Companies Act
  1. If they absent themselves from board meetings over 12 months
  1. If they enter into contracts or arrangements against the provisions of Section 184 of the Companies Act
  1. If they are disqualified by an order of a court or tribunal
  1. If they are convicted by a court of any offense and sentenced to imprisonment for not less than six months
  1. If they have not abided by the terms and protocols mentioned in the Companies Act of 2013
  1. If they have resigned voluntarily from their position.

Ways to Remove a Director

There are 3 ways to remove a director from a company:

1. When the Directors Tender Their Resignation

The steps to be followed in this scenario are:

Step 1: Holding a board meeting by giving seven days of clear notice

Step 2: In the meeting, the board members will take note of the resignation

Step 3: Then they have to pass a resolution in a particular format to that effect

Step 4: After that, Form DIR-11 needs to be filed by the resigning director in his individual capacity

Step 5: The company has to file Form DIR-12 with the registrar of companies (RoC) along with the registration letter and the board resolution

Step 6: When all the forms are filled and the formalities for the removal of the director are done, the name of the director will be removed from the master data of the company on the Ministry of Corporate Affairs (MCA) website.

2. Director Remains Absent from the Board Meetings for 12 Months

Step 1: If a director absents himself from all the meetings of the board of directors held over a period of twelve months, with or without seeking a leave of absence from the board, they are considered to have vacated their office as per Section 167

Step 2: A Form (DIR-12) must be filed

Step 3: Upon completion of the formalities, the concerned director’s name will be removed from the database of the Ministry of Corporate Affairs (MCA).

3. Removal of Director by Shareholders

Step 1: A notice is sent to all the shareholders for a board meeting required to be conducted within seven days from the date of the issue

Step 2: A resolution is passed to have a general meeting and then for the removal of the director, subject to the approval of the shareholders on the day of the meeting

Step 3: After providing a 21-day notice, the second meeting of shareholders is held to vote on the resolution passed earlier and the director who is being removed by the shareholders will be allowed to speak on their removal

Step 4: The shareholders must file Form DIR-12, along with the attachments of the board resolution, and an ordinary resolution

Step 5: Once all the formalities are over, the name of the concerned director is removed from the database of the Ministry of Corporate Affairs (MCA) and its website.

This is a simplified version of the whole process. The removal procedure has to be carried out carefully and should follow the procedure laid down in the Companies Act.

Consequences of Not Filing Form DIR-12:

DIR-12 has to be filed within 30 days from the date of resignation. If the company fails to do so, the following penalties will apply:

  1. After 30 days - within 60 days: twice the government fees
  1. After 60 days - within 90 days: 4 times the government fees
  1. If it exceeds 90 days: 10 times the government fees
  1. If it exceeds 180 days: 12 times the government fees and will be booked for the compounding offense as well.

 



Created & Posted by Pooja

Income Tax Expert at TAXAJ

 

TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you a One Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else visit TAXAJ

 

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