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Appointment of First Directors of the Company

Appointment of First Directors of the Company

 “First directors” mean those directors who hold office from the date of incorporation of the company. The first directors are usually named in the articles of association or are appointed by the directors. The above statement can be inferred by reading section 254 of

the Companies Act, 1956 which says that in default of and subject to any regulations in the articles of a company, subscribers to the memorandum who are individuals shall be deemed to be the directors of the company, until the directors are duly appointed in accordance with section 255. The articles may adopt the provisions of Table A (Regulations for Management of a Company Limited by Shares) of Schedule I to the Companies Act, 1956 in the articles of association of the company. In that case, regulation 64 provides that the names of the first directors shall be determined in writing by the subscribers of the memorandum or a majority of them. In such a case, the subscribers must determine the names before or at the incorporation of the company and give intimation thereof to the Registrar by Form No. 32 at the time of incorporation or within 30 days thereafter. It is only, if there is no provision in the articles of association of the company regarding the appointment of first directors, the subscribers to the memorandum shall be the first directors of the company. Generally, the first directors are named in the articles. In such a case, there is no appointment. The general practice is that the promoters of  the company select the first directors and name them in the articles. The Department of Company Affairs (Now, Ministry of Corporate Affairs) vide DCA’s Circular No. 1/95 14/6/94-CL-V, dated 16 February, 1995 advised that at least one of the promoters of the company, whose names were mentioned in the application for availability of the company’s name, must be the first director of the company. The words “who are individuals” in section 254 of the Companies Act, 1956 is in accordance with the provisions of section 253. Section 253 says that only individuals can be appointed as directors. Thus, a body corporate, an association of persons or a partnership firm cannot be appointed as director of any company. Thus, only those subscribers to the memorandum who are individuals shall be deemed to be the first directors of the company if the articles do not mention the names of first directors. If nothing is mentioned in the articles of association of a company regarding the appointment of first directors of a company, the subscribers to the memorandum of association shall be deemed to be the first directors of the company (including a private company which is a subsidiary of a public company). The first directors shall hold office till directors are appointed in accordance with the provisions of section 255 at the first general meeting held after the date of incorporation. However, the meeting shall be held before the date of holding the first annual general meeting of the company.

Procedure for appointment of first directors

Ø      Consent of each of the persons proposed to be named as director in the articles of association, seeking his consent to act as director, shall be obtained in the form of a letter. [section 264 (1)].

Ø      Consent of the first directors (unless they are named in the articles of association) in Form No.29 prescribed under the Companies (Central Government’s) General Rules &Forms, 1956 shall be filed with the Registrar of Companies [section 264(2)].

Ø      Form No.32 prescribed under the Companies (Central Government’s) General Rules & Forms, 1956 in duplicate in respect of the first directors shall be filed with the Registrar, in the case of every company. [section 303].

Ø      The agreement, if any, which the company proposes to enter into with any individual for appointment as its managing director or whole-time director or manager shall be filed with the Registrar. [section 33(1)(c)]

Ø      Form Nos.29 and 32 may be filed within 30 days after incorporation. However, it is advisable to file them at the time of incorporation. The Registrar also insists on it to be filed at the time of incorporation.

Ø      Where a director undertakes to take up qualification shares, if any, Form No.29 should bear requisite stamp duty as applicable under the Stamp Act of the State in which the form is executed.

Ø      The particulars required to be entered in the Register of Directors under section 303 will be entered with respect to each director immediately after the incorporation of the company.

Ø      The particulars of the director’s shareholding will be entered in the Register of Directors’ Shareholdings. [section 307].

Ø      Information relating to the director’s interests in other companies, firms and also names of his relatives for the purposes of sections 297 and 299 of the Act will be obtained. A general notice of the interests under section 299 will also be given in Form No.24 AA prescribed under the Companies (Central Government’s) General Rules & Forms, 1956.

Appointment of first directors at a general meeting

A public company and a private company which is a subsidiary of a public company must hold an extra ordinary general meeting before the first annual general meeting and appoint the first directors by passing ordinary resolutions. For each director, a separate resolution should be passed, unless it has first been agreed by a unanimous resolution that two or more directors shall be appointed by a single resolution (section 263). This meeting can be held on any day before the first annual general meeting. It can even be held on the date of the first annual general meeting. The only condition is that the meeting shall be held before the beginning of the annual general meeting on that date. Procedure for appointment of first directors at general meeting

Ø      Consent of the directors named in the articles of association in Form No.29 prescribed under the Companies (Central Government’s) General Rules & Forms, 1956 shall be filed with the Registrar of Companies [section 264]. This is not required in the case of a private company unless it is a subsidiary of a public company.

Ø      Form No.32 prescribed under the Companies (Central Government’s) General Rules & Forms, 1956 in duplicate in respect of the first directors shall be filed with the Registrar, in the case of every company. [Section 303].

Ø      The date of appointment of the directors will be entered in the Register of Directors kept under section 303 with respect to each director immediately after the incorporation of the company. [Section 303].

Appointment of directors in the case of a private company which is not a subsidiary of a public company

In case of a private company, like in the case of other companies, first directors hold office from the date of incorporation of the company. Also, the first directors need not be appointed at the general meeting held before the date of first annual general meeting of the company in case of a private company which is not a subsidiary of a public company.

Therefore, a private company is free to provide in its articles the manner of appointment of first directors. The articles can also provide that the first directors shall continue to hold office until their office becomes vacant by resignation, removal, and death etc. In the absence of any contrary provision in the articles of association of a private company regarding the appointment of first directors, the first directors who have been appointed under the articles may hold office till they are duly appointed at the general meeting held before the holding of the first annual general meeting of the company. In the case of Swapan Dasgupta v Navin Chand Suchanti (1988) 64 Comp Cas 562 (Cal), the Calcutta High Court held that it is advisable that in the case of a private company there should be

clear provisions regarding the appointment of first directors in the articles of association of a company. If the articles are silent or do not specifically provide for appointment of directors otherwise than at a general meeting, and then the directors of such a private company are to be appointed at general meetings.

Source: Student Company Secretary

Comments
 A.K.Maitra June 21, 2012
What happens if the first directors mentioned in the prescribed form to RoC, subsequently refuses to act as directors before the 1st board meeting?
 A.K.Maitra June 21, 2012
A very useful article.
S BANERJEE November 29, 2012
study
Amita February 12, 2013
 can first directors be appointed as Wholetime director or Managing Director?
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