Appointment and Removal of Private Limited Company Directors - As per Companies Act 1994

A company is a separate legal entity but it (artificial legal person) cannot manage or direct its own affairs to run its functions. Section 2(1) (F) of the Companies Act, 1994 defines the term ‘director’. It depends on the directors who hold the most important position relating to the administration and management of the company. Ultimately, it is the directors who determine how the company will operate on a day-to-day basis, for the benefit of the shareholders. Hence, the provisions relating to the appointment and removal of directors become a common part of company law.

The Basic Procedure of Appointment and Removal

The appointment and removal of the directors are governed generally by the provisions of sections 90-115 of the Companies Act of 1994.

Appointment of Director

The appointment of a director is not only a crucial administrative requirement but is also a procedural requirement that has to be fulfilled by every company. Company directors are appointed by the shareholders of a limited company and must be registered and listed as a company director at Companies House. It is common for shareholders and directors to be the same people in smaller companies.

Section 91 provides that the subscribers to the memorandum of association shall be deemed to be the directors of the company until the first directors are appointed. Other directors are to be elected by the members in general meetings or in the case of a casual vacancy to be appointed by the board.

In respect of re-appointment and replacement of directors, Section 91 does not make it clear whether the appointment of directors in a general meeting can be done by an ordinary resolution.

A vote of at least 51% of those members entitled to vote is required to appoint a director by an ordinary resolution.

Generally, a corporate body, firms or associates cannot alone become a director. Only an individual can be a director of a company. The Articles of the company can also contain the policy and procedure of appointment or removal of a director.

To be appointed as a director of a company, a person must satisfy the following conditions contained in the Companies Act 1994. the person must:

• Consent in writing to the appointment (Section.93)
• Be a natural person (Section.90)
• Not be a minor (Section.94)
• Not be disqualified from being a director (Section.94)

It appears that all kinds of people cannot be appointed as a director of a company. Persons who are insolvent or bankrupt, fraudulent persons, persons under the age of 18 years old, persons of unsound mind, Directors that have been absent from Board of Directors meetings for a consecutive period of six months, and persons of like these characteristics, cannot be appointed as a director of a company.

As per section 110, no company should appoint or employ any individual as its managing director for a term exceeding five years at a time.

Removal of Director

Under the Companies Act 1994 of Bangladesh, a director of a company can be removed- (i) by passing a resolution, and (ii) by the order of the court.Section 106 of the Companies Act 1994 empowers the company to remove a director by extraordinary resolution before the expiry of his period of office. Where a company decides to remove one or some of its directors, whether or not they are employees of the company, the company must serve a special notice of the removal on all the Directors of the company including the Director that is proposed to be removed. “Special notice” must be given of the resolution to remove a director.

The most common method of removing a director of a company is either through voluntary resignation or by rotation.

Section 106 provides that the company may appoint a director in place of another by ordinary resolution, although the removal of his predecessor must be done by an extra-ordinary resolution.

A vote of at least three-fourths (75%) of those members entitled to vote is required to remove a director by an extraordinary resolution.

Disqualification is dealt with in more detail in Section 94. In summary, the main grounds of disqualifications are:

• Being unsound, or
• Being undischarged insolvent, or
• He has applied to be adjudicated as an insolvent and his application is pending; or
• ?He has not paid any call-in respect of shares of the company held by him, whether alone or jointly with others, and six months have
• Elapsed from the last day fixed for the payment of the call; or
• He is a minor.

Vacation of The Post of Director

When a director becomes disqualified by law or by the articles from continuing to be a director, he automatically vacates under Section 108. It states that the post of a director shall become vacant if:

• He fails to obtain within the time specified in section 97 (1) or at any time thereafter ceases to hold, the qualification shares, if necessary for his appointment; or
• He is found to be of unsound mind by a competent court; or
• He is adjudged an insolvent; or
• He fails to pay calls made on him in respect of shares held by him within six months from the date of such calls being made; or
• He or any firm of which he is a partner or any private company of which he is a director, without the sanction of the company in general meeting accepts or holds any office of profit under the company other than that of a managing director or manager or a legal or technical adviser or a banker; or
• He absents himself from three consecutive meetings of the directors or from all meetings of the directors for a continuous period of three months, whichever is the longer, without leave of absence from the Board of Directors; or
• He or any firm of which he is a partner or any private company of which he is a director accepts a loan or guarantee from the company in contravention of section 103; or
• He is removed by extraordinary resolution
• Makes a contract with the company without disclosing his interest in the contract.
• He is punishable with imprisonment for a term exceeding six months.

Register Book of Directors

Under the Companies Act of 1994. the companies are required to keep a register in which particulars of all such contracts or arrangements shall be entered and which shall be open to inspection by any member of the company at the registered office of the company during business hours.

Please note that this is only applicable to private limited companies. For one-person companies (OPC) and public limited companies, there are additional regulations to follow.

Reference:

1. The Companies act 1994 (Section 90 to 115)