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SECTION 151: APPOINTMENT OF DIRECTORS ELECTED BY SMALL SHAREHOLDERS

SECTION 151: APPOINTMENT OF DIRECTORS ELECTED BY SMALL SHAREHOLDERS

 

SECTION 151 OF COMPANIES ACT: APPOINTMENT OF SMALL SHAREHOLDER DIRECTOR

As per Section 151 of the Companies Act, 2013, a listed company may have one director appointed by small shareholders. This provision enables the small shareholders to place their representative on the Board of Directors of a listed company so that their voices is also listened effectively.

The term “Small Shareholder” means shareholder holding shares of nominal value of not more than Rs. 20,000 or such other sum as may be prescribed.

Manner of Appointment of small shareholders directors and terms and conditions of such appointment are prescribed by Rule 7 of the Companies (Appointment and Qualifications of Directors) Rules, 2014. These provisions are discussed below:

  1. Strength of Small Shareholders required for appointment of their director: A listed company may upon notice of not less than:

 

S.NO

Explanation

(a)

One thousand small shareholders; or

(b)

1/10th of the total number of shareholders

Whichever is less

Have a small shareholder director elected by small shareholders.

However, a listed company may opt to have a director on suo moto representing small shareholders and in such a case the provisions below in point(ii), shall not apply for appointment of such directors.

 

  1. Serving of notice by small shareholders: The small shareholders intended to propose a candidate for the post of small shareholders directors shall give a notice of their intention with the company at least fourteen days before the meeting under their signature specifying the name, address, shares held and folio number of the person whose name is being proposed for the post of director and of the small shareholders who are proposing such person for the office of director.

However, if the person proposed does not held any shares in the company, the details of shares held, and folio number need not be specified in the notice.

 

  1. Statement to be annexed with notice: The notice shall be accompanied by a statement signed by the person whose name is being proposed for the post of small shareholders director stating-

 

S.NO

Particulars

(a)

His Director Identification Number (DIN)

(b)

That he is not disqualified to become a director under the Act and

(c)

His consent to act as a director of the company.

 

  1. Small Shareholders director as independent director: Such director shall be considered as an independent director. Therefore he should meet the eligibility criteria pertaining to independent directors as given under Section 149(6) and should give a declaration of his independence in accordance with Section 149(7) of the Act.

 

  1. Applicability of Section 152: The appointment of small shareholders director shall be subject to provisions of Section 152 except that:

 

S.NO

Particulars

(a)

Such director shall not be liable by rotation.

(b)

Such director’s tenure as small shareholders directors shall not exceed a period of three consecutive years; and

(c)

On the expiry of the tenure, such directors are not be eligible for re-appointment.

 

  1. Applicability of Section 164: A person shall not be appointed as small shareholders director of a company, if he is not eligible for appointment in terms of Section 164 which specifies the disqualifications for appointment as a director.

 

  1. Vacation of office: A person appointed as small shareholders director shall vacate the office if: -

 

S.NO

Particular

(a)

The director incurs any of the disqualification specified in Section 164.

(b)

The office of the director becomes vacant in pursuance of Section 167.

(c)

The director ceases to meet the criteria of independence as provided in Section 149(6).

 

  1. Maximum number of directorships: No person shall hold the position of the small shareholders director in more than two companies at the same time.

However, the second company in which he has been so appointed shall not be in a business which is competing or is in conflict with the business of the first company.

 

  1. Cooling period: A small shareholders director shall not be appointed in or be associated with such company in any other capacity, either directly or indirectly for a period of three years from the date on which he ceases to hold office as a small shareholders director in a company.

 

PROCEDURE TO APPOINT SMALL SHREHOLDER DIRECTOR

S.NO

ACTIVITY

GOVERNING PROVISION

STEPS

1.

Board Meeting

Section 173

When the notice is received, the company shall first examine that the notice meets the requirements of Section 151 w.r.t to Rule 7 (Appoint and Qualifications of Directors) Rules, 2014.

 

Hold a board meeting or pass resolution by circulation to authorize the CS or CFO or any director of the company to intimate the members regarding the resolution for appointment of small shareholders director to be elected by small shareholder.   

2.

General Meeting

 

Hold a “General Meeting to pass ordinary resolution for appointment of small shareholders directors by small shareholders

3.

Time-bound disclosures

Regulations 30 and 46(3) of the SEBI (LODR) Regulations 2015

Disclose the proceedings of general meeting/ postal ballot to stock exchanges (where shares are listed) as soon as possible and not later than 24 hours from the conclusion of general meeting and post the same on the website of the company withing 2 working days.

4.

Regulations 44 of the SEBI (LODR) Regulations 2015

The listed entity shall submit to the stock exchanges, within two working days of the conclusion of its General Meeting in the format specified by the board.

5.

Appointment Letter

 

Issue an appointment letter to the small shareholders director.

6.

Time-bound disclosures

Regulations 7 of the SEBI (LODR) Regulations 2015

Person so appointed as a small shareholder director of the company shall disclose his holding of securities of the company as soon as on the date of appointment to the company within seven days of such appointment.

7.

Statutory Register

 

Make entries in the register of directors and key managerial personnel and register of contracts or arrangements in which directors are interested in “Form MBP-4”.

8.

Form and documents filing

 

File return of appointment of director with ROC within 30 days from the date of appointment in Form DIR-12 along with the requisite documents and prescribed fees.

 

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KLATH CONSULTANCY PRIVATE LIMITED