Change of Directors in India

A "change in director" refers to any alteration in the composition of a company's board of directors. This can involve the appointment of a director, resignation of a director, or removal of a director. These changes are integral to the lifecycle of a private limited company and are governed by specific provisions of the Companies Act, 2013.

It’s crucial to officially record these changes by passing board resolutions and notifying the Ministry of Corporate Affairs (MCA) through the correct forms. Timely compliance ensures the company's records remain accurate, which helps build trust with shareholders and regulators.

Why Do Director Changes Happen?

Director changes can occur for several reasons, including:

• Resignation of director: A director may choose to step down due to personal reasons, new opportunities, or retirement.
• Removal of directors: Directors can be removed by shareholders or the board for various reasons, such as non-performance or misconduct.
• Appointment of director: New directors might be appointed to bring in fresh expertise, expand the board, or fill vacancies.
• Change in designation of director: A director's role within the company might change (e.g., from Whole-time Director to Non-Executive Director).
• Update in Director’s Personal Details: Director name change in MCA or change of address of the director in MCA are also considered changes.

Several sections of the Companies Act, 2013, dictate the procedures and compliance requirements for director changes.

1. Section 152 of the Companies Act 2013

This section deals with the appointment of a director and outlines the process for obtaining a Director Identification Number (DIN) and the requirement for a director to provide consent to act as a director (through Form DIR-2).

2. Section 168 of the Companies Act 2013

This section addresses the resignation of the director. It stipulates that a director can resign by giving a notice in writing to the company. The company must then inform the Registrar of Companies (RoC) using Form DIR-12, and the director can also file Form DIR-11.

3. Section 169 of the Companies Act 2013

This section outlines the removal of a director under the Companies Act 2013. It details the procedure for ordinary resolution to remove a director before the expiry of their period of office, with certain exceptions. Removal of directors by shareholders typically follows this section.

4. Section 164 of the Companies Act 2013

This section specifies the disqualifications for the appointment of a director. It lists conditions under which a person cannot be appointed as a director, such as being an undischarged insolvent or having been convicted of certain offenses.

The process for appointing a new director involves the following steps:

1. Obtain DIN: If the proposed director does not have a DIN, an application for a DIN needs to be made using Form DIR-3.
2. Board Meeting: Convene a board meeting to approve the appointment of a director form and pass a board resolution for the appointment of a director.
3. Consent: Obtain consent from the proposed director in Form DIR-2 (Consent to Act as Director).
4. Filing with RoC: File Form DIR-12 (Particulars of Appointment of Directors & KMP and Changes Among Them) with the RoC within 30 days of the appointment.
5. MGT-14 (if applicable): If the appointment requires a special resolution (e.g., appointment of a whole-time director), Form MGT-14 (Filing of Resolutions and Agreements) must also be filed.

The procedure for the resignation of a director is as follows:

1. Resignation Letter: The director provides a written resignation letter to the company.
2. Board Meeting: The board acknowledges the resignation in a board meeting and passes a board resolution for the resignation of the director.
3. Filing by Company: The company files Form DIR-12 with the RoC within 30 days of receiving the resignation.
4. Filing by Director (Optional but Recommended): The resigning director can also file Form DIR-11 (Notice of Resignation of Director to RoC) to inform the RoC directly about their resignation, ensuring proper record-keeping.

To remove a director from a company, you need to follow these steps:

1. Special Notice: A special notice is issued under Section 169 of the Companies Act, 2013, by a shareholder holding at least 1% of the voting power or shares worth ₹5 lakh, signaling the intention to remove the director.
2. Board Meeting & Extraordinary General Meeting: The board convenes a meeting to consider the special notice, followed by calling an EGM where an ordinary resolution is passed to remove the director. The director in question must be allowed to be heard during this process.
3. Filing with RoC: The company files Form DIR-12 to report the removal of a director.

Beyond appointment, resignation, and removal, companies often need to manage changes of director particulars like their address or designation.

How to change the address of a director in the MCA?

To update a director’s address with the Ministry of Corporate Affairs (MCA):

• File Form DIR-6:
  • Used for Intimation of Change in Particulars of Director to the Registrar of Companies (RoC).
  • Must be digitally signed by the director and certified by a professional (CA/CS/CMA).
  • Documents needed:
    • Proof of new address (utility bill, rent agreement)
    • PAN copy
    • Passport-size photo
    • Director’s DSC
• Update MCA Records:
  • Once DIR-6 is approved, the new address is reflected under the director’s DIN.

Draft Board Resolution for Change in Designation of Director

When changing a director’s designation (e.g., Executive to Non-Executive):

• Pass Board Resolution:
  • Approve the designation change in a Board Meeting.
  • Record the decision in meeting minutes.
• File Form DIR-12:
  • Inform RoC about the change within 30 days.
  • Attachments:
    • Certified Board Resolution
    • Consent letter (if needed)
    • Supporting documents (if any)

Note: This same process, using Form DIR-6, also applies to a director name change in MCA, which requires proof like a gazette notification or updated PAN card.

Knowing which ROC forms to use is vital for any change of directors form filings.

• Form DIR-2: Every new director must provide their consent to the company using this form.
• Form DIR-3: Used to apply for a Director Identification Number.
• Form DIR-6: Used to update any changes in a director's KYC details, such as name, address, or nationality.
• Form DIR-11: Filed by a resigning director to directly inform the RoC.
• Form DIR-12: This is the primary form used to notify the RoC of any changes in directors or Key Managerial Personnel (KMP), including appointments, resignations, and removals. The purpose of Form DIR-12 is to keep the company's official records current.
• Form MGT-14: Filed for certain resolutions, such as those related to the appointment of a whole-time director or a managing director.

When a company updates its directors, certain forms must be filed with the MCA. The fees for these filings depend mainly on the company’s authorised share capital and the type of form submitted.

Fee Details

• The fee for filing DIR-12 varies with the authorised share capital:
  • Up to ₹1 lakh: ₹200
  • ₹1 lakh to ₹5 lakh: ₹300
  • ₹5 lakh to ₹25 lakh: ₹400
  • ₹25 lakh to ₹1 crore: ₹500
  • Above ₹1 crore: ₹600
• Filing DIR-6 is generally free, but it must be certified by a practising professional, which may involve service charges.

Penalties for Late Filing

• If the required forms are not filed within the prescribed time frame (usually 30 days), additional fees apply.
• Late fees are charged at ₹100 per day of delay with no maximum cap, meaning even short delays can result in significant penalties.

Other Costs to Consider

• Digital Signature Certificate (DSC): Required for online filing; obtaining or renewing a DSC may incur extra costs.
• Professional Fees: Fees paid to consultants or company secretaries for handling filings.
• Stamp Duty: May apply on board resolutions or related documents, depending on the state.

Advice: Always refer to the official MCA website to verify the latest fee schedules and penalty rules. Consulting a professional can help ensure accurate fee calculation and smooth processing.

A change in director can have ripple effects on other business registrations and compliance. It's crucial to update these records to maintain compliance and avoid future issues.

1. GST-Related Update

If the director is listed as an authorized signatory for GST, their details must be updated on the GST portal. This helps maintain access for filings and returns.

• Log in to the GST Portal (gst.gov.in): Use the company’s existing login credentials to access the dashboard.
• Go to the Amendment Section: Select Services > Registration > Amendment of Registration Core Fields. This section allows changes to key business details, including authorized signatories.
• Update Authorized Signatory:
  • Add the new director.
  • Remove the outgoing one.
  • An OTP will be sent to the new director’s email and mobile number for verification.
• Verification and Submission:
  • Use a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC) to confirm the changes.

2. Bank Account Updates

Banks must be informed when there's a change in authorized signatories. Without this, the new director may not be able to access or operate the company’s bank account.

• Pass a Board Resolution: Authorize the new director and remove the outgoing one.
• Submit Documents to the Bank:
  • Certified copy of the Board Resolution
  • KYC documents of the new director (ID and address proof)
  • Director Identification Number (DIN), if required
• Updated Bank Mandate: The bank verifies the documents and updates the list of signatories accordingly.

3. Update Other Business Licenses

Several licenses and government registrations may also need updates after a change in the board.

• Import Export Code (IEC): If the director is linked to the IEC, update the information on the DGFT portal.
• PF and ESI Registration: Update details if the director was named as the principal employer or authorized for compliance filings.
• Sector-Specific Licenses: Depending on your industry, inform relevant regulators about the change:
  • FSSAI (food businesses) to update the responsible person details.
  • RERA (real estate) requires to submission of updated director information.
  • Others (like SEBI, RBI, MSME, etc.): Check specific rules for required updates.

Keeping all records current ensures smooth business operations, avoids penalties, and keeps your company in good standing with regulatory bodies.