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Post Updated on : 23-10-2024
There are different types of directors in a company such as independent directors, executive directors, non-executive directors, nominee directors, etc. In this blog post, we shall discuss nominee directors.
A board member may designate a nominee director to take their place during a transitional time, such as during merger or acquisition, or when the company is experiencing financial difficulties or significant legal battles. Both private limited businesses and public limited firms may nominate such a director.
The meaning of nominee director has been provided in the Companies Act 2013. According to Section 149(7) of the Act, a nominee director refers to a director appointed by a financial institution in accordance with the provisions of any applicable law or agreement or appointed by a government or any other entity to represent its interests.
In simple words, a nominee director is a person who is appointed to a board of directors by another person or entity to act on their behalf. Board resolution for appointment of nominee director in a company is mandatory.
The main reason to appoint nominee director is to give the appointing person or organization some degree of control over the business, without serving as shareholders or directors themselves.
To be eligible for nominee director, an individual is required to fulfill the same legal requirements as a director. The requirements which must be fulfilled to become a director are:
The individual must be at least 18 years old.
They must be in capacity to comprehend the nature of their obligations as a director and also the consequences their actions can have.
They must have an active Director Identification Number (DIN).
The following are the prerequisites which must be fulfilled before a nominee director can be appointed in a company:
The nominee director’s appointment must be made in pursuance of any law or agreement terms entered into by the company when a financial institution decides to appoint them.
After appointing a nominee director, the company’s total number of directors should not exceed the maximum limit prescribed for them.
The central or state government or any other authorized person can appoint a director as per the legal provisions.
Let’s look at the procedure for the appointment of nominee directors in a company:
The company’s articles of association (AOA) provisions govern the appointment of nominee directors. If the AOA does not permit appointing company nominee directors, then this document must be amended to authorize the company to appoint such a director.
A board resolution is required, under section 161(3), to appoint nominee director. A board meeting must be held to discuss the director’s appointment and to vote in favor of it. The minutes of the board meeting must be documented.
The person nominated as nominee director must submit a nomination letter. Additionally, they must ensure that they possess a valid DIN obtained by filing DIR 3 form. To know the DIN Registration Process Click Here
A written consent must be provided by the nominee director wherein they agree to their appointment in the company by filing DIR 2 form. Also, they are required to provide a declaration which confirms their eligibility and absence of disqualifications under Companies Act 2013 under section 164 (2). For this, DIR 8 form must be filed.
Within 30 days of conducting the board meeting, the company is required to submit a return of appointment of directorship to the registrar by filing form DIR 12. The submission shall include a certified copy of board resolution, consent to act as director, declaration by director and appointment letter.
The disclosure must be obtained once the nominee director has been appointed. It means that the nominee director must inform other companies that he’s the nominee director. For this, form MBP 1 shall be filed.
To guarantee the protection of the financial institution's interests, a nominee director is appointed by it. The nominee director is also responsible for meeting obligations to the borrower company and its stakeholders. If you want to appoint nominee director, a certain procedure must be followed as mentioned in this blog post.
Q1. Who nominates the nominee director?
A. A nominee director is nominated by financial institutions, banks, or investors. Such a director represents the interest of these entities on the Board of Directors.
Q2. What is the minimum age requirement for becoming a nominee director?
A. The minimum age requirement for becoming a nominee director is 18 years.
Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.
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