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APPOINTMENT & QUALIFICATION OF A DIRECTOR?

APPOINTMENT AND QUALIFICATION OF A DIRECTOR?

Appointment of a Director

The appointment of a director can be made in one of the following ways

  • By the company’s shareholders in general meeting. This is the most common way to appoint a director. The shareholders vote on who they want to be appointed as a director.
  • By the board of directors. The board of directors can appoint a director if they have the power to do so under the company’s articles of association.
  • By a person or persons authorized by the company’s articles of association. The articles of association may authorize a specific person or persons to appoint directors.

Once a director has been appointed, they must be notified of their appointment in writing. The director must also consent to act as a director in writing.

Qualification of a Director

The Companies Act, 2013 sets out the following requirements for the qualification of a director:

  • The director must be a natural person. A company cannot be appointed as a director.
  • The director must have a Director Identification Number (DIN). The DIN is a unique identifier that is issued by the Ministry of Corporate Affairs.
  • The director must not be disqualified from being appointed as a director under the Act. The Act sets out a number of disqualifications for directors, such as being an undischarged bankrupt or having been convicted of an offence involving fraud or dishonesty.
  • The director must consent to act as a director. The director must agree to be appointed as a director and to take on the responsibilities of the role.

In addition to the requirements set out in the Act, there may be other requirements for the qualification of a director that are imposed by the company’s articles of association. For example, the articles of association may require that a director be a shareholder in the company or that they have a certain level of education or experience.

Termination of a Director's Appointment

The appointment of a director can be terminated in one of the following ways:

  • By the company’s shareholders in general meeting. The shareholders can vote to remove a director from office.
  • By the board of directors. The board of directors can remove a director from office if they have the power to do so under the company’s articles of association.
  • By the director themselves. A director can resign from their position at any time.

If a director’s appointment is terminated, they will be entitled to receive any compensation that is due to them under the company’s articles of association or the terms of their appointment.

Other Considerations

There are a few other things to keep in mind about the appointment and qualification of a director:

  • The Act does not specify any educational or professional qualifications that a director must have. However, many companies will require that their directors have certain qualifications, such as a degree in business or law.
  • A director does not have to be a shareholder in the company. However, many companies will prefer to appoint directors who are also shareholders, as this gives them a vested interest in the success of the company.
  • A director can be appointed from outside the UAE. However, there may be some restrictions on this depending on the company’s articles of association.

Conclusion

The appointment and qualification of a director is an important process that should be carefully considered. It is important to ensure that the directors who are appointed are qualified and have the skills and experience necessary to help the company achieve its goals.

some of the advantages and disadvantages of the appointment and qualification of a director:

Advantages:

  • Increased expertise and experience. A qualified director can bring a wealth of expertise and experience to the company. This can be invaluable in helping the company to make sound decisions and to achieve its goals.
  • Improved corporate governance. The appointment of qualified directors can help to improve corporate governance. This means that the company will be more likely to comply with the law and to operate in a transparent and ethical manner.
  • Increased shareholder confidence. Shareholders are more likely to be confident in a company that has qualified directors. This is because they know that the company is being run by people who have the skills and experience necessary to make sound decisions.

Disadvantages

  • Increased costs. The appointment of qualified directors can be costly. This is because they will typically be paid a higher salary than unqualified directors.
  • Loss of control. If a company appoints a large number of outside directors, it may lose control over its own destiny. This is because the outside directors may have different priorities than the shareholders.
  • Conflict of interest. A qualified director may have a conflict of interest. This means that they may have a personal interest in a decision that the company is making. This can make it difficult for the director to make objective decisions.