Changes in Pvt Ltd Company
Adding a Director to the Company - An Overview
Adding a director to a company can be a complicated process. It is essential to follow the correct steps to ensure the appointment is legal and compliant with regulations. The procedure for appointing a director varies depending on the type of company and its jurisdiction. However, there are some general steps that are common to most appointments.
Why do you need to appoint a director ?
A company might need to add or change directors for various reasons. For instance, it may want to expand its board, replace a retiring director, or bring in someone with specific expertise. Changes in directors might also occur if a director is disqualified or if there is a shift in the company’s ownership.
Steps for Adding a Director to the Company
Adding a director to a company involves several detailed steps.
Step 1: Check if the company’s Articles of Association (AoA) allow for adding a director. If not, modify the AoA to permit it.
Step 2: Obtain the proposed director’s consent to act as a director through a director appointment form.
Step 3: Pass a board resolution to officially appoint the new director.
Step 4: Obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the new director.
Step 5: Gather the necessary documents and complete Form DIR-2, Form DIR-12, and Form DIR-8 at the Registrar of Companies (ROC).
This simplified process is often handled by professionals, who will also guide you through any additional formalities
Procedure for Appointing Directors in a Company
- Identify the Need for a Director: Determine if a new director is needed due to retirement, resignation, or board expansion.
- Identify Potential Candidates: Find suitable candidates through internal or external recruitment or professional networks.
- Conduct Due Diligence: Check the candidates’ qualifications, experience, and any potential conflicts of interest.
- Make a Recommendation: After due diligence, recommend the candidate to the board of directors.
- Pass a Resolution: The board must pass a resolution at a general shareholders’ meeting. This requires a simple majority vote.
- File with the Registrar of Companies (ROC): Submit the necessary paperwork, including the new director’s consent and a declaration of eligibility, to the ROC.
Documents Required to Appoint a Director
- Director’s PAN card
- Identification proof (Aadhaar card, voter ID, or driver’s license)
- Proof of residence (utility bills or rental agreement)
- Passport-size photograph
- Digital Signature Certificate (DSC)
- Form DIR-2 (Consent to act as a director)
- Form DIR-12 (Particulars of appointment of a director)
Steps to Remove a Director
Reasons for Removing a Director:
A director can be removed for various reasons, including:
- Incurring any disqualifications under the Companies Act.
- Absence from board meetings for over 12 months.
- Engaging in contracts or arrangements against Section 184 of the Companies Act.
- Being disqualified by a court or tribunal order.
- Being convicted of an offense and sentenced to imprisonment for at least six months.
- Failing to comply with the Companies Act of 2013.
- Voluntarily resigning from their position.
Ways to Remove a Director:
There are three main methods for removing a director from a company:
- When Directors Resign:
- Step 1: Hold a board meeting with seven days’ notice.
- Step 2: Note the resignation in the meeting.
- Step 3: Pass a resolution in a specific format.
- Step 4: The resigning director files Form DIR-11.
- Step 5: The company files Form DIR-12 with the Registrar of Companies (RoC) along with the resignation letter and board resolution.
- Step 6: Once the forms are submitted, the director’s name will be removed from the company’s master data on the Ministry of Corporate Affairs (MCA) website.
- Director Absent from Board Meetings for 12 Months:
- Step 1: If a director misses all board meetings for 12 months, with or without leave of absence, they are deemed to have vacated their office as per Section 167.
- Step 2: File Form DIR-12.
- Step 3: After completing the formalities, the director’s name is removed from the MCA database.
- Removal by Shareholders:
- Step 1: Send a notice to all shareholders for a board meeting within seven days of the notice.
- Step 2: Pass a resolution for a general meeting to discuss the director’s removal.
- Step 3: Hold a second meeting of shareholders after a 21-day notice to vote on the resolution, allowing the director to speak on their removal.
- Step 4: Shareholders file Form DIR-12 along with the board and ordinary resolutions.
- Step 5: After the formalities, the director’s name is removed from the MCA database.
Consequences of Not Filing Form DIR-12
Form DIR-12 must be filed within 30 days of the director’s resignation. Failure to do so results in penalties:
- Within 30 to 60 days: Twice the government fees.
- Within 60 to 90 days: Four times the government fees.
- Beyond 90 days: Ten times the government fees.
- Beyond 180 days: Twelve times the government fees, and a compounding offense charge.
Documents Required for Director's Removal
- Notice of Board Meeting: To hold a board meeting and pass a resolution for the director’s removal. The notice must be sent to all directors, and the resolution passed by majority vote.
- Special Notice to Director: A special notice to the director being removed, stating the reasons and including a copy of the board resolution.
- Resignation Letter: If the director resigns voluntarily, a resignation letter should be filed with the MCA.
- Form DIR-12: To file the removal details with the MCA within 30 days.
- Board Resolution: A certified resolution supporting the director’s removal, filed with the MCA.
- Declaration by Director: A statement from the director being removed, indicating no objection to the removal.
Increase Authorised Share Capital
Authorized share capital sets the maximum number of shares a private company can issue. According to the 2013 New Companies Act, there is no minimum requirement for increasing capital. To issue more shares or raise the authorized share capital, the company’s board must approve an ordinary resolution and update the capital clause of the Memorandum of Association.
The amount of share capital increase varies by company and requires shareholder approval. For example, if a company has authorized capital of ₹2 lakhs, it can issue shares up to that amount. However, this authorized capital can be adjusted as needed. If a company has ₹1 lakh in authorized capital but an investor wants to invest ₹1 crore, the company can increase its authorized capital to ₹1 crore. This explains how authorized share capital can be adjusted for company registration.
Guidelines for Increase in Authorised Share Capital
Here are the few guidelines one must know about increase authorised capital:
- ₹5 lakhs for including the phrases Hindustan, Bharat, and India in the company name.
- ₹10 lakhs for the use of the phrases ‘Enterprise’, ‘Products’, ‘Business’, and ‘Manufacturing’ in the company name.
- ₹10 lakhs for the use of the phrases ‘Enterprise’, ‘Products’, ‘Business’, and ‘Manufacturing’ in the company name. ₹50 lakhs for the use of the phrases global, intercontinental, continental, Asian, and international in the company’s name.
- Bharat, Hindustan, and India were paid ₹50 lakhs to be the first word in the firm name.
- For employing words like ‘international’, ‘global’, ‘universal’, ‘continental’, ‘intercontinental’, ‘asiatic’, and ‘industry’ anywhere in the firm name, as well as ‘udhyog’ and ‘industry’, the fine is ₹1 crore.
- ₹ 5 Crore if the company name contains the word ‘Corporation’ even once.
Documents Required for Increase in Authorised Share Capital
The documents must be filed with the MCA within 30 days after obtaining consent from the shareholders for the share capital increase. The standard resolution for private firms is merely SH-7, and MGT-14 is not required.
- Digital Signature Certificate online: A copy of a DSC from any authorised director of the company
- Memorandum of Association: A copy of the modified or latest version of the MoA
- Articles of Association: A copy of the modified or latest version of the AoA
- Certificate of incorporation: A copy of the company’s incorporation certificate
- PAN card: A copy of the company’s PAN card.
Procedure for Increase in Authorised Share Capital
- Check the AOA: Verify if the company’s Articles of Association (AOA) allows for increasing the authorized capital. If not, a Special Resolution must be passed to amend the AOA.
- Board Meeting: Hold a board meeting to decide the date, time, and location of an extraordinary general meeting (EGM) to discuss increasing the authorized capital. Send notice of the meeting’s details and agenda to all members/shareholders, directors, and auditors of the company.
- Conduct the EGM: Hold the EGM at the scheduled time and place, and pass a resolution to get shareholder approval for the increase. If required, submit the necessary form within the given timeframe.
- Amend the MOA: Update the company’s Memorandum of Association (MOA) to reflect the increase in authorized share capital.
- File Forms: If the shareholders approve the resolution, file form SH-7 with the Registrar of Companies within 30 days. If it was a Special Resolution, also file form MGT-14 within 30 days of passing the resolution.
Reasons for Increase in Authorised Share Capital
What can be the reasons for increase in authorised share capital of the company? There could be various reasons for a company needing to increase the authorised capital. Let us see a few:
- The need for enormous funds
- Financing the company’s new projects
- Merger of two enterprises and their cash infusion as part of an arrangement strategy
- Additional share capital issuance
- Debt is converted to equity capital.
- To fulfil the legal requirements
Liquidation of a Company in India
Liquidation is when a company stops its business operations and sells its assets to pay off its debts. Companies might choose liquidation for several reasons, such as not wanting to continue business or because they can’t pay their bills (insolvency). During liquidation, the company’s assets are sold, and the money is used to pay off its debts. Any leftover money is given to the shareholders. The process can be complicated and requires careful handling.
Benefits of Company Liquidation
- Debt Relief: Directors and staff are freed from all company debts and creditor pressure.
- Avoid Legal Action: If the resolution is passed voluntarily, directors can avoid legal actions and focus on new opportunities.
- Low Cost: The expenses related to liquidation are relatively low.
- Cancel Lease Agreements: Any company leases will be terminated, and fines will be covered from the asset sale proceeds.
- Creditor Benefits: Creditors will receive payments after a long legal process.
Documents Required for Liquidation in India
- PAN Card: Business PAN card.
- Closing Bank Statement: Final bank statement of the business.
- Indemnity Bond: Notarized bond executed by directors.
- Financial Statements: Latest financial statements reviewed by a Chartered Accountant.
- Resolution Proof: Proof that at least 3/4 of the board members approved the resolution.
- Name Change Application: Application to change the company’s name.
Regulations for Liquidation in India
Companies Act, 2013
- Section 7 & 9: Conditions for shutting down a company, such as a special vote, illegal activities, or failure to file returns.
Insolvency and Bankruptcy Code, 2016
- Section 59: Voluntary liquidation through a special resolution passed by the board members.
Priority of Claims
When a company is liquidated, the order of payments is as follows:
- Secured Creditors: Lenders with collateral.
- Costs of Winding-Up: Legal and administrative expenses.
- Preferential Creditors: Unpaid taxes, employee wages, and social security contributions.
- Unsecured Creditors: Suppliers, trade creditors, and general lenders.
- Subordinated Creditors: Creditors with lower priority.
- Shareholders: Company owners, paid last if any funds remain.
How to Close a Company in India ?
Winding Up
- Initiate Voluntarily or by Court Order: Hold a meeting and pass a specific resolution, or follow a court or tribunal order.
- ‘Strike Off’ Mechanism: MCA provides a way for inactive businesses to remove their names from the Register of Companies.
- Fast Track Exit: Can be done Suo Moto by Registrar or if the company hasn’t started business within a year or conducted any activity for two fiscal years.
Consequences of Winding Up
- Loss of Control: You lose control over the company and its assets once a liquidator is appointed.
- Directors Lose Power: Directors no longer control the company.
- Asset Sale: Assets are sold to repay debts.
- Personal Guarantees: Directors must repay personally guaranteed debts.
- Occupational Ban: You may be barred from working in the same industry for three years.
By understanding and following these simplified steps and concepts, the process of liquidating a company can be managed more effectively.
Change Your Registered Office Address
Section 12 of the Companies Act of 2013 requires all businesses, including LLPs, to have a registered office at the time of registration or within 30 days of it. This registered office is the main place of business for a company or LLP, and it’s where the Ministry of Corporate Affairs (MCA) sends official communications. If a company changes its registered office address, it must notify the Registrar of Companies (RoC) or the MCA.
While a business might have various locations like corporate, branch, or administrative offices, the MCA only needs to know the registered office address. There’s no need to inform the RoC or MCA about other office locations or changes to those addresses.
Documents Required for Changing the Registered Office Address
When changing the registered office address, you need to follow Rule 27 and file Form INC-22 with the required fees. Section 12(2) describes the necessary documents and verification process. The documents required include:
- Property Transfer Deed
- Lease Deed
- Rental Documents: These documents must be in the company’s name, and the rent receipt should cover no more than one month.
- Non-Objection Certificate (NOC): If the property is owned by a director or another person, the company must provide a NOC.
Additionally, utility bills (like gas, electricity, or phone bills) showing the company’s registered address must be submitted. The board members should pass a resolution authorizing the director to move the company to a property owned by the director. All documents, along with Form INC-22, must be submitted within two months to avoid penalties.
Procedure for Changing Registered Office Address
- Board Resolution: The board should pass a resolution to approve the change.
- Gather Documents: Collect all necessary documents, including property deeds, lease agreements, and utility bills.
- File Form INC-22: Submit Form INC-22 with the required documents and fees to the MCA.
- Update Records: Update the company’s address in all relevant places, including PAN, TAN, bank accounts, licenses, and registrations.
Once Form INC-22 and the necessary documents are submitted, the MCA will process the change in the company’s registered office address.
Types of Changes in Registered Office Address
Organizations may need to change their registered office address for various reasons. The process for changing this address is defined by the Ministry of Corporate Affairs (MCA) and must be followed to avoid penalties. The different types of address changes are:
- Changing the Registered Office Within the Same City
- Arrange a board meeting to pass a resolution for the address change.
- File Form INC-22 with the MCA within 30 days of passing the resolution.
- Provide proof of the new business address and a No Objection Certificate (NOC) from the property owner.
- Changing the Registered Office Address in a Different ROC Within the Same State
- Apply for approval using Form INC-23 with the regional director.
- File the resolution with the ROC within 60 days of passing the resolution.
- The address change will be processed within 30 days of filing the application.
- Changing the Registered Office Within the Same State but Under a Different ROC
- This involves a special procedure in states with multiple ROCs, such as Tamil Nadu and Maharashtra.
- Changing the Registered Office to Another State
- Convene a board meeting and pass a resolution.
- Amend the Memorandum of Association (MOA) to reflect the new address.
- File Form MGT-14 with the MCA within 30 days.
- Publish an advertisement about the address change in both local and English newspapers at least 30 days before applying.
- Notify all creditors and partners about the change.
- Submit necessary documents to the regional director and attend a hearing if objections arise.
- After receiving confirmation from the regional director, update the address with the ROC within 30 days.
- File Form INC-22 with the ROC, including all required documents.
Compliances for Changing the Registered Office Address
Under the Same ROC:
- Within the Same City:
- Pass a board resolution.
- File Form INC-22 with the ROC within 15 days of the resolution.
- Outside the City but Within the Same ROC’s Jurisdiction:
- Convene an Extraordinary General Meeting (EGM) and pass a special resolution.
- File Forms INC-22 and MGT-14 with the ROC within 30 days of passing the resolution.
Under Different ROC:
- Within the Same State but Different ROC:
- Pass a resolution at an EGM.
- File the special resolution with the ROC within 30 days.
- Publish a notice about the address change in newspapers and notify all stakeholders.
- Apply to the regional director using Form INC-23.
- File the confirmation with the ROC within 60 days.
- Receive ROC confirmation for the address change.
- From One State to Another:
- Pass a resolution at an EGM and amend the MOA.
- File Form MGT-14 within 30 days.
- Publish a notice and notify all stakeholders as described above.
- Apply to the regional director using Form INC-23 and await confirmation.
- File the regional director’s confirmation with the ROC in both states using Form INC-28.
Importance of Registered Office Address
The registered office address is crucial as it is the official address where all government communications, legal notices, and regulatory correspondence are sent. It is also where the company maintains its statutory records, such as financial books and registers. The address determines the company’s jurisdiction and is essential for the service of legal processes. Keeping the registered office address updated ensures smooth operations and compliance with legal requirements.
FAQ's
Directors are usually appointed by the shareholders of a company during the annual general meeting (AGM). Additionally, the board of directors may have the authority to appoint additional directors between AGMs.
Yes, there are eligibility criteria for adding a new director:
- The proposed individual must be a major.
- They must qualify as per the laws mentioned under the Companies Act, 2013.
- The members of the board must consent to the appointment of the proposed individual.
No, according to the Companies Act, 2013, only individuals can serve as directors of public and private limited companies.
Yes, an NRI or foreign national can be added as a director in a private limited company, provided there is at least one director on the board who is an Indian resident. The foreigner or NRI must have a valid passport and a Director Identification Number (DIN).
A private company can have a maximum of 15 directors.
A director can be removed in three ways:
- By the director by giving their resignation
- If the director is absent from board meetings for 12 months
- By the shareholders, if they deem it necessary.
To increase its share capital, a Pvt Ltd company must first pass a resolution during a board of directors meeting. Following this, it needs to obtain approval from its shareholders.
No, a company cannot raise funds beyond its authorised capital.
If a private company exceeds 50 shareholders, it must convert into a public company.
The Companies Act, 2013 does not prescribe a minimum authorised capital for private companies.
A company should increase its authorised share capital when it needs to raise additional funds or issue more shares to investors.
The liquidation process can be initiated by the company itself through a special resolution, by creditors if the company is insolvent, or by the tribunal in cases of fraud or misconduct.
Yes, during liquidation, employees’ rights are protected as preferential creditors. Their unpaid wages or salaries are paid from the company’s assets before other unsecured creditors.
While liquidation is often the primary choice, directors have other options if it doesn’t meet their company’s needs, especially if the company has minimal debts or assets. Alternatives include Administration, Company Voluntary Arrangement (CVA), and Company Strike-Off.
When a company is struck off, it is removed from the official register and ceases to exist as a legal entity. As a result, it can no longer trade, make payments, or sell assets. Additionally, the directors and shareholders lose their limited liability protection and may become personally liable for any of the company’s debts or obligations.
In India, a company can have only one registered office for legal correspondence. However, it can operate multiple branch offices at various locations.