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Unit 10: Management of Company

10.4 Appointment of Directors Notes

The appointment of directors rests in the following hands:
1. Subscribers to the memorandum – s.254; Clause 64 (Table A);

2. Company in general meeting – Ss.255-57; 263-265;
3. Board of directors – Ss.260, 262, 313;
4. Central Government – s.408; (e) Third parties – s.255.

10.4.1 Appointment of First Directors

The first directors are usually named in the articles of a company. The articles may, however,
instead of naming the first directors confer power on the subscribers, or majority of them, to
appoint the directors. Where the appointment is to be made by the majority of subscribers, the
majority of them (and not only the quorum fixed by the articles) should be present if the
appointment is to be valid. Where there are no articles or the articles neither name them nor
confer any such power on the subscribers, then Clause 64 of Table A in Schedule I to the Act
confers powers on the subscribers or a majority of them to make the appointment of first
directors. Furthermore, if the articles neither name them, nor do they contain a provision for
their appointment by the subscribers and Table A is excluded, then the subscribers to the
memorandum who are individuals are deemed to be the first directors of the company until the
directors are duly appointed at a general meeting of the company in accordance with the
provisions of s.255.

10.4.2 Appointment of Subsequent Directors

Sections 255 and 265 provide for three alternate schemes for the constitution of the Board of
directors of a public company or a private company which is subsidiary of a public company.
These schemes are: (i) all the directors retire at every annual general meeting [s.255]; or (ii) at
least two-thirds of the total number of directors must be persons whose period of office is liable
to determination by retirement by rotation (s.255); or (iii) at least two-thirds of the directors
may be appointed by the principle of proportional representation, by a single transferable vote
by a system of cumulative voting or otherwise and shall be directors for a period of three years
at a time (s.265). The remaining directors in (ii) and (iii) and the directors generally of a pure
private company, unless otherwise provided in the articles, must also be appointed by the
company in general meeting.
Thus, a company may have two types of directors, retiring and non-retiring. The directors may
retire by rotation as given in s. 256 or after a period of 3 years as given in s. 265.
Thus, every company should have a duly constituted board appointed in accordance with the
provisions of s.255. A general meeting is called by the ‘first’ directors after the allotment of
shares in the case of a company limited by shares and in the case of any other company, after its
incorporation, for the specific purpose of appointment of directors.

10.4.3 Restrictions on Appointment of Directors

Section 266 states that a person cannot be appointed a director by the articles, or named as a
director in the prospectus or statement in lieu of prospectus unless, before registration of the
articles, publication of the prospectus, or filing of the statement in lieu of prospectus, he has:

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