Removal of a Director

The role of a director is pivotal in steering a company towards its goals, ensuring effective governance, and making strategic decisions that impact its overall success. Directors are responsible for setting the vision, overseeing management, and ensuring compliance with legal and regulatory standards. The authority to add or remove a director typically lies with the shareholders, who exercise this power through voting during general meetings, often based on recommendations from the Board of Directors. A director may choose to resign voluntarily from their position. However, there are circumstances under which a director may be removed from their position, such as underperformance, breaches of duty, conflicts of interest, or changes in business strategy that necessitate a shift in leadership.

Reasons for removal of the Director from a company

Failure to Comply with the Companies Act, 2013: Non-adherence to statutory regulations can lead to removal.

Conviction for an Offense: If a director is convicted of an offense and sentenced to six months or more in prison, they may be removed from their role.

Receiving a Disqualification Order from a Court or Tribunal: A court or tribunal disqualification order necessitates the removal of the director from their position.

Prolonged Absence from Board Meetings Spanning Over 12 Months: Failure to attend board meetings for a continuous period of 12 months may lead to removal.

Entering into Contracts Contrary to the Provisions of Section 184: If a director enters into contracts without properly disclosing their interests, this violation can result in removal.

Underperformance: Consistent failure to meet performance targets or contribute effectively to the company’s goals can lead to removal.

Breach of Duties: Violations of fiduciary duties or failure to act in the best interests of the company can justify removal.

Voluntary Resignation: A director may choose to resign voluntarily, ending their tenure within the company.

Process for Removal of Director from a company.

A. When the Director voluntarily resigns from the Company

1. Written Resignation:

1. The director must submit a written resignation letter to the Board of Directors before. The letter should state the intention to resign and the effective date of resignation.

2. Board Meeting:

1. Convene a Board Meeting to acknowledge the resignation and address any pending matters related to the director's tenure. A minimum notice period of 7 days is required to call a board meeting.

3. Form DIR-11 Filing:

The resigning director must file Form DIR-11 (Notice of resignation of a director) with the Registrar of Companies (RoC). This form includes details such as:

1. The name of the director resigning.
2. The date of resignation.
3. The reason for resignation (if any).

4. Form DIR-12 Filing:

1. Update the company’s statutory registers, specifically the Register of Directors and the Register of Directors’ Shareholding, to reflect the resignation of the director.

5. Issuance of Relieving Letter:

Issue a relieving letter to the resigning director, acknowledging their resignation and confirming the completion of necessary formalities.

B. When the Director is removed by the Shareholders

1. Hold a Board Meeting:

1. The Board of Directors should convene a meeting to discuss the proposal for removal and decide on the date for the general meeting where the resolution will be voted on.

2. Issue of Notice for General Meeting:

1. A notice for the general meeting must be sent to all members (shareholders) of the company, along with the agenda for the meeting.

3. Hold a General Meeting:

Conduct the general meeting as scheduled. During the meeting:

1. Shareholders will discuss the proposal.
2. The director facing removal has the right to present their case and respond to the concerns raised.
3. A vote will be taken on the special resolution to remove the director.

4. Filing with Registrar of Companies (RoC):

1. Once the resolution is passed, the company must file Form DIR-12 with the RoC, notifying them of the change in the directorship.

5. Updating Statutory Registers:

1. Update the company’s statutory registers, specifically the Register of Directors and the Register of Directors’ Shareholding, to reflect the removal of the director.

6. Communication to the Director:

1. Notify the removed director about their removal and provide them with a copy of the resolution.

Consequences of Removal of Director

Loss of Position and Authority: The director loses their official position within the company, including all responsibilities, powers, and privileges associated with the directorship.

Legal Liabilities: The removed director may still be held legally accountable for any wrongful acts or omissions committed during their tenure as a director.

Reputational Damage to Company: Director's removal can impact a company’s financial health, stakeholder relationships, and overall business operations. Companies must manage the situation carefully to mitigate negative fallout and ensure transparent communication with key stakeholders.

Contact JKstartup360 for assistance

At JKStartup360, we specialize in assisting businesses with all their compliance and legal requirements, including the removal of directors. Our expert team is well-versed in the provisions of the Companies Act, 2013 and can guide you through every step of the process, ensuring that all legal procedures are followed smoothly and efficiently. From filing the necessary documents with the Registrar of Companies (RoC) to advising on the potential consequences, JKStartup360 ensures that your company's governance remains compliant and stress-free. Let us handle the complexities, so you can focus on growing your business.