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Appointment of a Director

Rishav Saraf (CA) (71 Points)

12 April 2010

CAN AN INDIVIDUAL BE THE DIRECTOR OF A COMPANY WITHOUT BEING ITS SHAREHOLDER?

Please let me know the answer in respect to a private limited company.

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21 Replies

(Guest)

The Disqualification of a Director u/s 274 of Co.s Act says that 1 cannot be appointed as a Director if he has not paid ANY OF his calls, whether alonor jointly with others and 6 months have elapsed from the last date fixed for paying the call

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(Guest)

From this disqualification, it is clear that DIRECTOR = SHAREHOLDER

Santhosh Poojary (SIEMPRE AHÍ PARA TI) (15607 Points)
Replied 13 April 2010

NO...

DIRECTORES OF THE COMPANY MUST HAVE SOME( MINIMUM) AMOUNT OF SHARES OF THAT PARTICULAR COMPANY FOR QUALIFY THE POST OF DIRECTOR.

jalpa Gaurang bhatt (Company Secretary) (56 Points)
Replied 13 April 2010

Dear San...

where it is mentioned that "

DIRECTORES OF THE COMPANY MUST HAVE SOME( MINIMUM) AMOUNT OF SHARES OF THAT PARTICULAR COMPANY FOR QUALIFY THE POST OF DIRECTOR."

and if it is minimun amount of share then how much shares to be purchased to become Director?

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 13 April 2010

Originally posted by : Rishav Saraf
	CAN AN INDIVIDUAL BE THE DIRECTOR OF A COMPANY WITHOUT BEING ITS SHAREHOLDER? Please let me know the answer in respect to a private limited company.

It is a very plan query.

YES. An individual can be appointed as a director of the company without being its shareholder.

There is no doubt about that.

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Kaushik Vankadkar (Service) (350 Points)
Replied 13 April 2010

I agree with Ankur sir,

To be a director one need not be a shareholder,

however if that particular director has subscribed for any shares and subsequent to it the liability for calls remains more than 6 months then in such case he is disqualified u/s 274.

Vikram Kothari (Sen. Man.&CA Fin.LawTeacher) (213 Points)
Replied 13 April 2010

Agree with Ankur completely.
In case of public company it becomes very clear by section 257 whereas a person whether he is member or not can stand for directorship. In private company also one can become director without becoming shareholder.

Harish Arora (Chartered Accountant) (52 Points)
Replied 13 April 2010

In case of the Public Limited Companies one needs to have to take the Qualofication shares of the Company. In case of the Private Limited Company it is no where mentioned to have the QS taken by the directors of that Pvt Ltd Company

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 13 April 2010

Originally posted by : Harish
	In case of the Public Limited Companies one needs to have to take the Qualofication shares of the Company. In case of the Private Limited Company it is no where mentioned to have the QS taken by the directors of that Pvt Ltd Company

Dear sir, QS u/s 270 is not mandatory in a public company and based on specific AOA requirement. Kindly guide me further in this respect or confirm the above interpretation, if correct.

Thanks

Mritunjay (ca final new) (78 Points)
Replied 13 April 2010

YES. An individual can be appointed as a director of the company without being its shareholder. In private limited company there is no any requirement of qualification share.

There is no doubt about that.

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Harish Arora (Chartered Accountant) (52 Points)
Replied 13 April 2010

Qualification shares are the minimum number of shares a person must own, as provided in the articles of the company, in order to qualify to become a director of the company. Qualification shares must be acquired by a director within 2 months of his appointment. The articles cannot require a director to acquire qualification shares within a shorter period. The face value of the qualification shares cannot exceed five thousand rupees, or if the face value of one share is more than five thousand rupees, then the qualification share will be one qualification share.

Every director, not being a technical director of a director appointed, by the Central or a State Government, shall within two months after his appointment file with the company a declaration specifying the qualification shares held by him. If, after the expiry of the said period of two months, any person acts as a director of the company when he does not hold the qualification shares, he shall be punishable with the fine which may extend to fifty rupees for every day between such expiry and the last day on which he acted as a director.

The above provisions do not apply to-

a company not having a share capital;
a private company;
a company which was a private company before becoming a public company; or
a prospectus issued by or on behalf of a company after the expiry of one year from the date on which the company was entitled to commence business.