How to appoint and remove officers in an Indian subsidiary

Companies in India are primarily regulated by the (Indian) Companies Act, 2013. While every Indian company is required to have a board of directors consisting of individuals as directors, the requirement of appointment of other officers varies with the type of entity (public or private) and factors such as its paid-up share capital.

Directors

A private limited company must have at least 2 directors and a public limited company must have at least 3 directors. While foreign nationals can be appointed to the board of a company in India, the law mandates the presence of at least 1 resident director, i.e., a director who has stayed in India for at least 182 days in the previous calendar year.

Key managerial personnel (KMP)

Certain officers including the managing director, manager, etc. are recognized as key managerial personnel (KMP). Every listed company and every other public company having a paid-up share capital of INR 100 million (approx. 1.13 million Euros) or more is required to have the following whole-time KMP: (i) managing director, or chief executive officer or manager and in their absence, a whole-time director; (ii) company secretary; and (iii) chief financial officer. Additionally, every private company that has a paid-up share capital of INR 100 million (approx. 1.13 million Euros) or more is required have a whole-time company secretary.

Auditors

Every Indian company is required to appoint an individual or a firm as an auditor. Similarly, listed companies, unlisted public companies and private companies meeting certain criteria relating to paid-up share capital, turnover, etc. are required to appoint an internal auditor.

Directors

The first directors of most of the companies are named in their articles of association (charter document). If they are not so named in the articles of a company, subscribers to the memorandum who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed. All directors (except the first directors) are appointed by the company at a general meeting by passing an ordinary resolution. Director Identification Number is compulsory for appointment as a director. Every person proposed to be appointed as a director shall furnish his/her Director Identification Number and a declaration that he/she is not disqualified to become a director (disqualification arises in situations where a person is declared to be of unsound mind, is convicted by a court of any offence, etc.).

KMP

Every whole-time KMP of a company is appointed through a resolution of the board of directors containing the terms and conditions of the appointment including the remuneration.

Auditors

The auditors of the company are appointed at the annual general (shareholder) meeting of the company. The auditors hold office for 5 years. Listed companies and certain other specified companies cannot appoint an individual auditor for more than one term of 5 consecutive years. If an auditing firm is the auditor, it cannot be appointed for longer than two terms of 5 consecutive years each.

A director/corporate officer can resign by sending a resignation letter to the company. A board meeting must be convened to approve and take on record the resignation, and the appointment of a new director/corporate officer, if required. The resignation of the director/corporate officer must also be notified to the (Indian) Registrar of Companies by filing the prescribed forms.

By a resolution passed at a meeting of the company, a company may remove a director. Having said that, the articles of association of a company may sometimes provide for additional procedures for the removal of a director.

Similarly, the KMP may be removed by means of a resolution of the board of directors.

For the removal of an auditor, a resolution of the board of directors must be first passed. Within 30 days of the same, an application must be made to the Central Government for approving the removal. Within 60 days of such approval, a general meeting of the company must be held in which a special (3/4th majority) resolution is to be passed. The passing of such a resolution shall result in the removal of the auditor.

The law in India does not provide for payment of damages upon the removal of a corporate officer in India. Having said that, the law permits payment of compensation for loss of office to be paid to a Managing Director, Whole-time Director and Manager of a company as consideration for their retirement from the service of the company. Other directors are not eligible to receive any such compensation.