Shareholder Meaning and Process to appoint Small Shareholder Director, Section 151 companies Act 2013

Introduction

A minor shareholder is someone who owns shares in a public corporation with a nominal value of less than INR 20,000. A listed company’s small shareholders have the right to elect a director. A ‘Small Shareholders Director’ is a director who is elected by these shareholders. In this article we will discuss about Shareholders meaning, Section 151 Companies Act, and the process to appoint Small Shareholder Director.

Shareholder Meaning

• A person, organization, or institution that owns a company’s stock or stock options.
• Shareholders are, in fact, proprietors of the company, and they profit from its success through increasing stock prices and dividends. If the company is losing money, the portfolio of the shareholders suffers as well.
• The shareholders’ obligation is not a personal liability, and if the firm goes bankrupt, the shareholders’ personal assets cannot be attached.

Information on Section 151 Companies Act

Only listed companies are eligible to opt for SSD (Small Shareholder Director) under Section 151 of the Act. Under Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014, 1000 small shareholders, or one-tenth of a listed company’s total number of shareholders, may recommend the election of SSD. Furthermore, the Rule states that small shareholders intending to propose a person as a candidate for the post of SSD must notify the company at least 14 days prior to the meeting, specifying the name, address, and any shares held by the person whose name is proposed for the post of director, as well as the small shareholders who are proposing such person as a candidate for the post of director.

Process to Appoint Small Shareholder Director of a Company

A firm may appoint a small shareholder director on its own initiative or in response to a small shareholder’s request. A small shareholder director is unable to become a company’s Whole-Time Director or Managing Director. Certain conditions must be met before a small shareholders director maybe declared an independent director.

A notice must be provided at least 14 days before the general meeting if the small shareholders wish to designate a Small Shareholders Director. Name, address, and a number of shares held by the person sought to be nominated as a Small Shareholders Director should all be included in the notice. A statement with the following declarations must be issued along with the notice:

• Director Identification Number (DIN) of the prospective person.

• The recommended candidate is not ineligible to serve as a director.

• The suggested person’s permission to act in the capacity of a director.

A resolution for the appointment of a Small Shareholders Director should be passed at the general meeting after the preceding formalities are completed. Finally, a postal ballot will be used to elect the small shareholder nominee.

Reason for Vacation of Office

A small shareholder director may resign if one of the following conditions exists:

• If a director is disqualified for any reason.

• Due to the discovery of flaws in their appointment, the office of directors becomes vacant.

• He/she refused to meet the independence standards.

• A specific resolution is passed to remove him/her from the position.

FAQs on Small Shareholder Directors, Section 151 Companies Act, 2013

1. What is the tenure of appointment?

A director for small shareholders can be appointed for a maximum of three years. By rotation, he or she may not necessarily retire. After his or her services have ended, he or she cannot be reappointed. Furthermore, for three years after ceasing to serve as a director, small shareholders cannot be linked with the company in any way.

2. Is it Possible for a Small Shareholders Director to Serve in Another Company?

A Small Shareholders Director is allowed to serve two firms at once, but not more. This is subject to the caveat that a small shareholder director cannot occupy the same position in a firm that competes with the one he or she is currently representing.

3. Is being a small shareholder director required?

The Small Shareholder Director (SSD) is not required to be an independent director under Section 151 of the 2013 Act. In reality, the Act expressly states that a nominee director is not an independent director.

4. Is it possible for directors to make decisions without the input of shareholders?

In a corporation, shareholders and directors have two distinct responsibilities. The shareholders (also known as members) own the firm and the directors are in charge of it. A director does not have to be a shareholder (and most do not), and a shareholder does not have the right to be a director.

Conclusion

As stated in the Statement of Objects and Reasons, the purpose of including this concept in the Company Act of 2013 was to defend the interests of small shareholders. Small shareholders who wish to propose a candidate for the position of small shareholder director must give the company written notice of their intention at least fourteen days prior to the meeting, including the name, address, number of shares held, and other necessary information of the person whose name is being proposed for the position of director.