Compliance-Removal/ Resignation of Directors

Overview

Directors in a company can step down, or the Board of Directors might wish to remove a Director for various reasons. If a Director wishes to resign, they can do so by submitting a resignation letter to the company and informing the ROC.

What is meant by removing a director?

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.

Benefit

Removing a director can offer several benefits, especially when they:

• Incur disqualifications outlined in the Companies Act.
• Remain absent from board meetings for over 12 months.
• Engage in contracts or agreements that violate Section 184 of the Companies Act.
• Face disqualification by a court or tribunal order.
• Get convicted by a court for an offense leading to a prison term of at least six months.
• Fail to adhere to the terms and guidelines specified in the Companies Act of 2013.
• If a director wants to resign due to personal reasons then it gives the company a chance to appoint new talent.

Tax & Process

To remove a Director, only two forms are required: E-form MGT-14 and E-form DIR-12.

Following the Director's removal, the company should complete post-compliance tasks, including:

Filing the mentioned forms with relevant attachments to the Registrar within 30 days of passing the ordinary resolution in a general meeting.

Ensuring appropriate entries are made in the company's statutory registers as per the timeframes specified in the Companies Act of 2013.

Failure to comply with these provisions can result in penalties. In such cases, both the company and any officers of the company in default may face fines ranging from a minimum of fifty thousand rupees to a maximum of five lakh rupees.

Documents Required

Notice of Board Meeting: The initial step in removing a director involves convening a board meeting and passing a resolution for their removal. Notice of this meeting must be sent to all company directors, and the resolution should pass with a majority vote.

Special Notice to Director: A special notice detailing the reasons for the removal, along with a copy of the board resolution, must be sent to the director facing removal.

Resignation Letter: If the director wishes to resign voluntarily, a resignation letter should be obtained and submitted to the MCA.

Form DIR-12: Form DIR-12 is used to report the director's removal to the MCA. It should be filed within 30 days of the director's removal.

Board Resolution: A certified resolution supporting the director's removal should be prepared and directly filed with the MCA.

Declaration by Director: The director being removed should provide a declaration confirming they have no objection to their removal.

Procedure

Director's Resignation:

Step 1: Hold a board meeting with seven days' clear notice.

Step 2: Note the resignation in the meeting.

Step 3: Pass a resolution in a specific format.

Step 4: The resigning director files Form DIR-11 individually.

Step 5: The company submits Form DIR-12 to the Registrar of Companies (RoC) with the resignation letter and board resolution.

Step 6: After completing all formalities, the director's name is removed from the company's records on the Ministry of Corporate Affairs (MCA) website.

Director Absence for 12 Months:

Step 1: If a director misses all board meetings over twelve months, with or without seeking leave, they are considered to have vacated their office under Section 167.

Step 2: File Form DIR-12.

Step 3: After completing the formalities, the director's name is removed from the MCA database.

Removal by Shareholders:

Step 1: Send a notice to shareholders for a board meeting within seven days.

Step 2: Pass a resolution in the general meeting for the director's removal, subject to shareholder approval.

Step 3: Hold a second meeting after a 21-day notice to vote on the resolution, allowing the director to speak on their removal.

Step 4: Shareholders file Form DIR-12 with board and ordinary resolutions as attachments.

Step 5: Upon completing formalities, the director's name is removed from the MCA database and website.

FAQ's