Removal of Director from a Company

Company Directors oversees the management and operations of a business, while shareholders own the company. Situations may arise where shareholders opt to remove a director due to inadequate performance or other concerns, or a director may choose to resign. Removing a director is a significant corporate action that requires careful deliberation and strict compliance with the legal framework provided by the Companies Act 2013 or applicable local laws. Whether initiated by an ordinary resolution, board resolution, or judicial order, the process must be conducted fairly, transparently, and in the company's best interest.

IndiaFilings specialises in navigating the intricacies of the director removal or resignation process, ensuring full compliance with legal standards and meticulous attention to detail. Let our experts assist you in navigating this critical corporate transition smoothly and effectively. Contact us today to get started.

Reasons for Director Removal

Under The Companies Act 2013, it's mandatory for a private limited company to appoint at least two directors to commence its operations.

Shareholders have the authority to dismiss a director during the General Meeting, barring instances of government-appointed directors. A director may be subject to removal under several conditions, including:

1. Being disqualified as per the criteria set out in the Companies Act.

2. Not attending board meetings for more than a year.

3. Violating the terms of Section 184 of the Companies Act by engaging in prohibited transactions.

4. Being prohibited from participating due to a court or Tribunal order.

5. Conviction by a court for a criminal offence with a sentence of at least six months.

6. Non-compliance with the regulations and requirements of the Companies Act, 2013.

7. Choosing to resign voluntarily from the board.

Methods for Director Removal from a Company

There are three primary methods to remove a director from a company:

Resignation by Directors: This method involves directors resigning voluntarily from their positions.

Director Absence from Board Meetings: This approach is used when a director fails to attend board meetings for 12 months, triggering their removal.

Shareholder-initiated Removal: This method is employed when the shareholders of a company vote to remove a director from their position.

Law Governing the Director Removal

Removing a director is governed by the Companies Act, 2013, under Section 169.

Section 169: This part explains how a company can legally remove a director, detailing the steps and rules that need to be followed.

Section 115: While this section mainly talks about how to add new directors, knowing it helps to fully understand the rules about directors, including how they might be removed.

Section 163: This section deals with choosing directors so everyone gets a fair representation. It's essential for removing directors because it affects how decisions are made in the company.

Rule 23 of the Companies (Management and Administration) Rules, 2014: This rule gives specific guidelines on how a company should be run, including how to remove directors properly.

Essential Requirements for Director Removal

To lawfully remove a director, specific critical steps must be followed:

Issuance of Special Notice: According to Section 115 of the Companies Act 2013, a special notice must be issued to initiate the removal process.

Notice Period to Director: This special notice must be sent to the director in question at least 14 days before the resolution for their removal is voted on, ensuring they have adequate time to prepare a response.

Right to be Heard: The director facing removal must be allowed to present their side of the story. They should be allowed to make a written representation, which could be circulated to members or read at the meeting.

Restriction on Reappointment: Once removed, the director in question is not eligible for reappointment to the board.

Filing of Form DIR-12

Form DIR-12, mandated by the Companies Act 2013, must be filled out and submitted to document the official removal of a director. This form is a crucial part of the legal procedure for removing a director from their office.

Procedure for Director Removal

The procedure for removing a director from a company involves several steps, which are outlined below:

Essential Obligations:

A director's resignation becomes effective on the date the company receives the notice or on a later date specified by the director in the notice, whichever comes later.

Even after stepping down, a resigned director remains accountable for any offences committed during their term.

A director can step down from their position by submitting a written resignation to the company. Upon receiving this resignation, the Board is required to acknowledge it formally. The company must notify the Registrar of Companies about the resignation and include this information in the directors' report presented at the next General Meeting, as stipulated by Section 168 of the Companies Act, 2013.

Mandatory Requirements

The effective date of a director's resignation is either the date the company receives the notice or a later date specified by the director within that notice, depending on which comes last. Additionally, a director who resigns remains responsible for any legal infractions during their time in office.

Why choose IndiaFilings for Director removal?

Choosing IndiaFilings for director removal offers several advantages:

Expertise and Experience: IndiaFilings has a team of professionals who are well-versed in corporate law and the specific procedures outlined in the Companies Act 2013 for director removal.

Compliance Assurance: With a deep understanding of legal requirements, IndiaFilings experts ensure that every step of the director removal process complies with statutory regulations, thereby minimizing the risk of legal complications.

End-to-End Support: From the initial consultation to the final submission of necessary forms like DIR-12, IndiaFilings provides comprehensive support, guiding companies through each process phase.

Customized Solutions: Understanding that each company's situation is unique, IndiaFilings offers tailored advice and solutions that best fit the specific circumstances and objectives of the company.

By choosing IndiaFilings, companies can ensure that the director removal process is conducted smoothly, compliantly, and with a professional touch that respects the interests of all parties involved.