PROCEDURE TO APPOINT NOMINEE DIRECTOR IN A COMPANY

PROCEDURE TO APPOINT NOMINEE DIRECTOR IN A COMPANY

INTRODUCTION :Subject to the articles of association of the Company, 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. [Section 161(3)] A Nominee Director is a director in a company who has been appointed by financial institutions, banks or investors to form part of the Board of Directors. A nominee director is nominated to ensure that the interests of the financial institution/interested party and for the stake of transparency.

Why do you need a nominee director?

In order to successfully register your company, you must provide a director’s name which will be included in the board of director’s list. Choosing a nominee director gives business owners the benefit of anonymity when handling business-related operations.If you are still unsure about how to start with the registration process, we can help you with your company formation in the UK.There are two main reasons why you need a nominee director

What are the duties of a nominee director?

Appointing a nominee director is legitimate. However, be sure to note that your nominee director fits the job requirement. The requirement of a nominee director is somewhat similar to how you would appoint a real director.  

The nominee director

  • Must be a natural person;
  • Must be over 16 years of age;
  • Has not ever been disqualified from a director role;
  • Is not bankrupt;
  • Is not the company’s auditor

The foremost duty of a nominee director is to do what is asked of him by the beneficiary owner. In simpler terms, the nominee director must only act on your behalf and is unable to make any decisions by themself. Doing so will result in a breach in the contract agreement signed prior to appointment and the nominee director can face legal charges.

Consent and Declaration from the Proposed Director

The Proposed Director has to submit Form DIR-2 (Consent to act as a Director) and Form DIR-8 (Intimation by Director about his disqualification) to the Company either before the Board Meeting or during the Board Meeting.

Filing of Returns with the ROC.

 After the Board meeting, a Return of Appointment of Directorship (Form DIR-12) is required to be filed with Registrar within 30 days of appointment with copy of Board Resolution along with Consent and Declaration. In case of Companies other than OPC and Small Company, the return is also to be certified by a Company Secretary/Chartered Accountant/Cost Accountant.

Following documents will be required as an attachment with Form DIR-12: 

 Certified True Copy of the Board Resolution passed

i. DIR-2 Consent to Act as Director

ii. DIR-8 Declaration by Director

iii. Letter of Appointment.

If you’re in the process of starting your company, you would probably have heard of the option to appoint a nominee director for your company. Choosing a nominee director is an optional part of forming your company, and will typically take place in the first stages of registering your company. However, you may be unsure about what a nominee director is and why do you need to appoint one.

MANDATORY REQUIREMENTS FOR APPOINTMENT OF NOMINEE DIRECTOR:-

  1. When a financial institution contemplates the appointment of or decides to appoint a nominee director, the appointment should be made in pursuance of any law or terms of an agreement entered into by the company.
  2. The appointment of the director can be made by the Central/ State Government or by any other person in whom the authority is vested according to the relevant legal provisions.
  3. Total number of Directors in the Company shall not exceed the limit after appointing of a Nominee Director Section 149(1).
  4. The individual who will be appointed as a Nominee Director shall hold Active  (Section 152(3).

    1.Check the AOA of the Company

    Refer the AOA, if not authorized by the AOA then it needs to be altered for the appointment of the Nominee Director.

    2. Obtain Nomination Letter

    Further, a nomination letter has to be obtained from the nominee director who is nominated for appointing as a nominee director.

    3. Obtaining and Digital Signature Certificate

    a. If the person does not have Digital Signature, he shall obtain Digital Signature from Certifying Authority in India.

    b. The person shall have a valid  allotted by the Ministry of Corporate Affairs. At present, application for allotment of can be submitted to only through the company where he/she is proposed to be appointed.

  5. Nominee directors are usually appointed by financial institutions or investors, generally referred to as nominators, on the board of the borrower company for the purpose of representing and safeguarding their interest thereof

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