How To Become a Director in a Private Limited Company
Becoming a director in a company can be a dream of many, but do you know how to fulfil this dream. Yes, a director is indeed a very important position in a company and on his shoulders almost all important responsibilities are laid.
So, the journey to becoming a director is not a simple process and there are many steps involved in it. Here you will get complete information on how you can become a director in a company.
Qualifications of a Director
A director of a private limited company is a person that is elected or appointed by the shareholders of the company to manage the affairs of the company according to the MoA and AoA.
The Companies Act, 2013 defines ‘Director’ as a person appointed to the Board of the company by the shareholders who can administer, control, direct, manage and direct the affairs of the company.
As a company is an artificial legal entity it can act only through the agency of a natural person that is its directors. So, the director has to be a living person and the management of the private company is entrusted to its Board of Directors.
Here the Board of Directors is a group of individuals who are elected by the shareholders of the company to manage the affairs of the company, make decisions, and sign contracts on their behalf.
The directors of a private limited company play a crucial role in the functioning of the company. He conducts the business and take the day–to–day decisions and he is the key person in the company on which the shareholders of the company trust to invest their money.
A corporate body or any business entity can’t be appointed as a director in a private limited company. So only an individual can become a director. In a private limited company, there can only be a maximum of 15 directors.
If the number of directors is to be increased by more than 15 then the shareholders have to pass a special resolution. In a private limited company minimum of two directors are required whereas in a public limited company minimum of three directors are required.
While there is no such requirement for the director that prohibits appointing of an NRI or foreigner as a director of the company according to the Companies Act, 2013.
Under section 149(3) it is stated that every company shall have at least one director who has resided in India for a fixed period.
In the case of listed companies and limited companies where the paid-up share capital is Rs. 100 crores or more or has a turnover of Rs. 300 crores then it is mandatory to appoint at least one women director.
The Procedure to Become A Director
For becoming a director there is a prescribed process that has to be followed by the individual who wishes to appoint as a director in the private limited company.
The first step in this process is to obtain the consent of the proposed director and for that form DIR – 2 is to be signed by the director to the company. The next step is to obtain the digital signature certificate of the individual that is going to be a director.
This digital signature certificate is then used by the director to sign the digital documents, tax returns, and other compliances. The process of obtaining DSC is very easy and simple.
After this, the director has to obtain the DIN or the Director Identification Number. DIN is mandatory for all who want to become a director. This DIN has to be obtained in form DIR – 3.
When DIN is obtained by the director then this becomes a lifetime license and this license can be used by the directors in all companies in which he/she wants to become a director. Having more than 1 DIN is a crime and punishable.
Types of Directors
There is not only one type of director in the corporate world and we have several directors which are as follows,
1. Managing Director
First is the managing director who is a director by the virtue of an agreement with the company or AoA or Articles of Association of a company.
2. Executive Director
The executive director is a director who is employed full–time in the company and manages the day-to-day affairs of the company.
3. Additional Director
He/she is an individual who is appointed by the Board of Directors between the 2 annual general meetings and subjected to the provisions of the AoA of the company. These types of directors can hold the office of the director till the date of the next annual general meeting.
4. Ordinary Director
He/she is an individual who is a simple director who participates in the Board meetings of the company and in the matters that are put forward in front of the Board of Directors.
All these directors are not managing directors and whole-time directors.
5. Professional Director
He/she is a person who is not interested in the business of the company but holds professional qualifications that can be useful in the conduct of the business. These professional directors are appointed on the board to make use of their expertise.
These are some of the types of directors in a company. Becoming a director seems very exciting but on the other hand, it is full of responsibilities. So, make your decision wisely and before becoming a director learn about the job role as well the procedure of becoming a director.