How to Appoint or Add a New Director in a PLC?

In a public limited company, introducing a new director holds significant weight in influencing corporate governance and strategic decision-making. This appointment must conform to strict legal and procedural criteria designed to uphold transparency and regulatory compliance. Grasping the complexity behind this process is essential for maintaining effective leadership and safeguarding the company’s interests. In this article, you will learn how to appoint or add a new director to a public limited company.

Understanding the Role of a Director in a Public Limited Company

A director in a public limited company is responsible for managing operations, ensuring legal compliance, and protecting shareholder interests. They help shape business strategy, approve key decisions, and uphold corporate governance standards. Unlike private companies, directors in public firms face stricter regulatory scrutiny and greater accountability due to public shareholding and disclosure norms. Their role is vital in maintaining transparency, meeting legal obligations, and steering the company toward sustained growth and ethical business practices.

Types of Directors in a Public Limited Company

1. Managing Director (MD)
   A full-time director entrusted with substantial powers of management. The MD is actively involved in running the company and making strategic decisions.
2. Whole-Time Director (WTD)
   A director who works full-time in the company. They are responsible for specific functions or departments and are involved in daily operations.
3. Executive Director
   Similar to a WTD, an executive director holds an active management role, often heading a division like finance, operations, or technology.
4. Non-Executive Director (NED)
   Not involved in daily management. Their role is more of oversight, governance, and strategic input, acting as a check on executive management.
5. Independent Director
   A non-executive director who is not affiliated with the company or its promoters. Appointed to improve corporate governance. Mandatory for listed companies.
6. Nominee Director
   Appointed by a stakeholder such as a bank, financial institution, or investor. Their role is to represent and protect the interests of the nominating body.
7. Additional Director
   Appointed by the Board of Directors between two annual general meetings (AGMs). Must be confirmed by shareholders in the next AGM.
8. Alternate Director
   Appointed to act in place of a director who is absent from India for more than three months. Acts with the same powers as the original director during their absence.
9. Resident Director
   As per Section 149(3) of the Companies Act, at least one director must reside in India for a minimum of 182 days in a financial year.
10. Woman Director
    Public companies meeting certain thresholds (e.g., listed companies) are required to appoint at least one woman director to their board.
11. Small Shareholders’ Director
    A director nominated by small shareholders (holding shares of nominal value up to ?20,000) in listed companies, intended to give them representation.
12. Shadow Director (Conceptual/Legal)
    A person who is not officially appointed as a director but whose directions the official directors often follow. Recognized in UK law; not statutorily defined in India but referenced in legal cases.
13. De Facto Director (Legal concept)
    A person who acts as a director without being formally appointed. Courts may treat them as directors in legal proceedings, especially in matters of liability.
14. Professional Director
    Appointed for their professional expertise (e.g., finance, legal, technical). May or may not be independent; contributes knowledge-based input to board decisions.
15. Rotational Director
    In public companies, two-thirds of the directors (excluding independent and nominee directors) are liable to retire by rotation. One-third of these must retire at each AGM, but are eligible for reappointment.

Eligibility Criteria for Appointment of a Director

Listed below are the eligibility criteria for the appointment of a director in a public limited company:

1. Minimum Age Requirement

As per the Companies Act, 2013, an individual must be at least 18 years old to be eligible for appointment as a director in a public limited company. There is no specified upper age limit for general directorships; however, for managing or whole-time directors, the Act restricts appointments to individuals below 70 years of age unless a special resolution is passed to allow otherwise.

2. Director Identification Number (DIN)

Obtaining a Director Identification Number (DIN) is mandatory for any individual aspiring to become a director. This unique identifier is issued by the Ministry of Corporate Affairs (MCA) and is essential for all filings and communications with the Registrar of Companies (RoC).

3. Consent and Declaration

The proposed director must provide written consent to act as a director and declare that they are not disqualified under the provisions of the Companies Act, 2013. These declarations are typically submitted using prescribed forms during the appointment process.

How to Appoint or add a new director PLC

Listed below are the steps to appoint or add a new director in a public limited company:

Step 1: Board Meeting

The company calls a board meeting as per its Articles of Association and the Companies Act, 2013. All directors receive a notice at least seven days before the meeting date. The board discusses the proposal for the new director and votes on it. If the majority approves, the board passes a formal resolution confirming the appointment. This resolution acts as official approval from the board and records the decision in the company’s minutes.

Step 2: Consent and Disclosure

The proposed director must provide written consent to serve as a director. This consent appears in Form DIR-2, which the company collects before the appointment. The individual also submits a declaration in Form DIR-8, confirming that no disqualification under Section 164 of the Companies Act applies to them. These steps ensure the director agrees to the role and meets all legal eligibility requirements.

Step 3: Filing with MCA

The company files Form DIR-12 with the Ministry of Corporate Affairs (MCA) to notify of the appointment. This filing happens within 30 days of the board meeting. Along with the form, the company pays the required statutory fee. The filing updates the Registrar of Companies’ records, making the appointment official under the law.

Step 4: Shareholder Approval (if required)

Some appointments require approval from shareholders. The company holds either an Annual General Meeting (AGM) or an Extraordinary General Meeting (EGM) for this purpose. Shareholders vote on the appointment through an ordinary or special resolution. Passing this resolution confirms the director’s position and meets legal and procedural requirements.

Step 5: Issuing Appointment Letter

After all approvals, the company issues a formal appointment letter to the new director. This letter outlines the terms of service, including duties, remuneration, and tenure. It provides clear documentation of the director’s role and responsibilities within the company.

Disqualifications for Appointment of Director in a PLC

Section 164 of the Companies Act, 2013, outlines specific disqualifications that preclude an individual from being appointed or continuing as a director:

• Insolvency: An undischarged insolvent is ineligible for appointment.
• Unsound Mind: Individuals declared of unsound mind by a competent court are disqualified.
• Criminal Convictions: Persons convicted of an offence involving moral turpitude and sentenced to imprisonment for six months or more are disqualified for five years from the date of expiry of the sentence.
• Non-Compliance: Failure to file financial statements or annual returns for three consecutive financial years can lead to disqualification.
• Company Defaults: Directors of companies that have failed to repay deposits, redeem debentures, or pay declared dividends are disqualified for five years.

Post-Appointment Requirements and Formalities

Listed below are the post-appointment requirement and formalities that a company need to follow:

• Updating Company Registers and Records: After appointing a new director, update the Register of Directors and Key Managerial Personnel (KMP) and other statutory registers as required under the Companies Act, 2013. This ensures official records reflect the current board composition.
• Disclosure in Annual Returns and Board Reports: The company must disclose the details of the new director in the annual return (Form MGT-7) and include relevant information in the Board’s report submitted to the Registrar of Companies. This maintains transparency with shareholders and regulatory authorities.
• Orientation and Induction of the New Director: Conduct an induction program to familiarise the new director with the company’s operations, policies, governance framework, and their roles and responsibilities. This process facilitates effective participation in board activities.

Conclusion

To sum up, the process to appoint or add a new director in a public limited company demands strict adherence to legal and procedural requirements to ensure sound governance and transparency. It is important to follow eligibility rules, approval procedure file with MCA on time, to ensure compliance and company stability.

Although this process seems complex, expert guidance simplifies every step. Among other service providers, Online Legal India provides trusted assistance and offers clear, accurate advice on director appointments and corporate compliance to help you build a strong leadership foundation with confidence.