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Who is a Director
As per the Companies Act, 2013 means a director appointed to the Board of a company. In literal sense, it is natural person who has certain qualifications and/or experience which adds up to the growth of company.
The collective group of these individual directors are referred as Board of Directors of company. There are different type of directors like:-
1. Managing Director:- As per the Companies Act, 2013 “Managing Director” means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.
2. Additional Director: As per the Companies Act, 2013 a director can only be appointed by members of the company. However, till there appointment is approved by members, the Board of company an appoint a director as additional Director.
3. Nominee Director: A Nominee Director is a director who is appointed as nominee who watches the working of company or the operations or activity for which they are appointed. Again, there is no definition prescribed under The Companies Act, 2013. The Board may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government company.
4. Whole time director: As per The Companies Act, 2013 a whole-time director includes a director in the whole-time employment of the company. So, any director who is on permanent payroll of the company is referred as whole time director.
5. Independent Director: As per “Independent Director” means an independent director other than a managing director or a whole-time director or a nominee director and who falls into below given criteria:-
(a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;
(b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate company;
(ii) who is not related to promoters or directors in the company, its holding, subsidiary or associate company;
(c) who has or had no pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten per cent. of his total income or such amount as may be prescribed, with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year;
(d) none of whose relatives—
(i) is holding any security of or interest in the company, its holding, subsidiary or associate company during the two immediately preceding financial years or during the current financial year: Provided that the relative may hold security or interest in the company of face value not exceeding fifty lakh rupees or two per cent. of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may be prescribed;
(ii) is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors, in excess of such amount as may be prescribed during the two immediately preceding financial years or during the current financial year;
(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company, for such amount as may be prescribed during the two immediately preceding financial years or during the current financial year;
(iv) has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to two per cent. or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii) as referred above.
(e) who, neither himself nor any of his relatives—
(i) holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;
Provided that in case of a relative who is an employee, the restriction under this clause shall not apply for his employment during preceding three financial years.
(ii) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of—
(A) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or
(B) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;
(iii) holds together with his relatives two per cent. or more of the total voting power of the company; or
(iv) is a Chief Executive or director, by whatever name called, of any non-profit organisation that receives twenty-five per cent. or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent. or more of the total voting power of the company; or
(f) who possesses such other qualifications as may be prescribed.
6. Small shareholder director: As per The Companies Act, 2013, a listed company have liberty to appoint a small shareholder director. Not less than one thousand small shareholders or one-tenth of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders and small shareholder director shall always be Independent Director.
How long a Director can be appointed in a company
As discussed above the different types of director have different appointment terms. Like Managing Director and whole-time directors have term of five (5) years, Additional Director has term upto next ensuing General Meeting, Nominee director has term upto the term as written into the agreement or other arrangement, etc.
Know about director's change in a company
Directors are the said to be brain of the company. They are the managerial personnel who control and administer the company’s operations. The rotation of directors takes place in one or the other way – either by appointment of new director or resignation of existing. Aim to carry out change of directors is always to ensure optimum combination of experts on board for interest of company.
The authority to approve the resignation of the director lies with the members of BoD whereas the appointment must be made through consent of shareholders. Whether it is an appointment, removal or resignation, the change does not take effect until the intimation is made to Ministry of corporate affairs.
Why changing directors is required?
Hire new talent on board
With the growth of business, strategies and alliances are developed, that requires inputs of each department are required for effective planning. Also, with an addition of the new product line or department, an expert to lead the team can be hired in a managerial position being director of the company. This benefits the company with specialization and focused efforts.
Assign operational responsibility without dilution ownership
Directors are responsible for day-to-day operations. With the appointment of an additional director, the shareholders can assign the operational responsibilities to directors keeping strategic control in hand. Here, a director does not require subscribing to share capital, hence, the ownership and voting rights of shareholders does not dilute with a new person on Board.
Inability to work by existing directors
The existing directors may be unable to serve the company after a certain period due to retirement or other personal reasons. Whether it is a resignation by the director or his death, the company needs to make sure that its work is unaffected. It needs to process for both discontinuations by director and appointment of a new director if any.
Number of directors fall under statutory limit
The Companies Act has prescribed the minimum number of directors in any company, which is 2 and 3 for Private and Public company respectively. At any time during the company’s existence, the number of directors shall not reduce below from the limit. The company must appoint a new director(s) within 6 months if the number reduces below 2/3.
Documents required for Addition or Removal of director
Passport size photograph of the director to be appointed
Self-attested PAN card of the director to be appointed
Proof of Residence
Aadhar Card/ Voter ID/ Passport/ Driving License director to be appointed
Digital Signature Certificate
DSC of the continuing director and director to be removed
Process for addition or removal of directors
Consultancy for requirement of change of directors
Collection of basic Information & documents
Application for DSC (for director to be appointed)
Day 2 - 4
Drafting necessary resolutions and documents
Provide documents required provided after signature
Day 5 - 7
Preparation of online application
Filing of application for changing directors
Sharing master data from MCA with updated information
Change directors in 3 Easy Steps
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Preparation of necessary documents
Preparation and filing of Application
Updated MCA master data with modified details
3. Director is Added or Removed
All it takes is 5 – 7 working days*