Appointing a Nominee Director: Process for Start-up companies and SME companies.

Who is the Nominee Director?

A Nominee Director is a director in a company appointed by financial institutions, banks, or investors to represent their interests on the Board of Directors and monitor the activities of the borrower company or investee.

Conditions For Appointment Of Nominee Director:

1. Financial institutions appointing nominee directors must adhere to applicable laws and company agreements.
2. Anybody with the legal authority under applicable laws can nominate the director, including the central or state governments.
3. After appointing such a Director, the total number of Directors in the Company cannot exceed the maximum limit.
4. The appointment of a such director precludes their classification as an independent director.

Procedure For Appointment Of Nominee Director:

• AOA Authorization:

The appointment of nominee directors is subject to and governed by the provisions outlined in the company’s articles of association. In case the article of association does not provide authorization, the company has to alter the article to authorize the company to appoint such director.

• Board Approval: 

The decision to appoint a nominee director typically requires board resolution under section 161(3). Hold a board meeting to discuss and vote on the appointment. Document the resolution in the board minutes.

• Submission of Nomination Letter and DIR-3:                  

The person nominated as a nominee director shall submit a nomination letter and confirm that they have a Director Identification Number (DIN) which they obtain by the filing of Form DIR-3.

• Consent and Declaration:  

Obtain the written consent of the nominee director agreeing to their appointment in Form DIR-2. They may also need to provide a declaration confirming their eligibility, and absence of disqualifications under section 164(2) of the Companies Act 2013 in Form DIR-8.

• Filing of Returns with the ROC:

The company must submit a Return of Appointment of Directorship (Form DIR-12) to the Registrar within 30 days of the Board meeting. This submission should include a copy of the Board Resolution, Consent, and Declaration, along with the required documents attached to Form DIR-12:

1. A certified True Copy of the Board Resolution passed
2. DIR-2 Consent to Act as Director
3. DIR-8 Declaration by Director
4. Letter of Appointment.

• Disclosure in MBP-1:

After the appointment, the disclosure is required to be obtained, i.e. the nominee director should inform the other companies that he is the director in Form MBP-1 about the appointment.

Disclaimer:

It’s essential to seek legal advice or consult with professionals familiar with corporate governance and regulatory requirements to ensure compliance throughout the process of appointing a nominee director. Additionally, maintain open communication and a positive working relationship with the nominee director to maximize their value to the company. 

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