Resignation of Director

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The resignation of a director is a formal process wherein a director of the company relinquishes their position on the board of directors. This action is typically voluntary, governed by the Companies Act 2013, and must be executed as per the company’s articles of association.

The resignation process involves submitting a resignation letter, notifying stakeholders, and filing statutory forms like Form DIR-11 and Form DIR-12 with the Registrar of Companies.

Provision related to Resignation of Director under Companies Act, 2013

Section 168 of the Companies Act

Under Section 168, a director may resign by submitting a written notice to the company. The resignation of the director shall take effect on the date of resignation mentioned in the notice or when the company receives the notice, whichever is later.

Key Obligations for the Director and the Company

  1. The director shall submit their resignation in writing to the board.
  2. The company must notify the Registrar of Companies by filing Form DIR-12 within 30 days of receiving the resignation.

Key Reasons for Resignation

A director may resign for various reasons, including:

  1. Personal Reasons: Health issues or family commitments.
  2. Professional Conflicts: Disagreements with company policies or other directors.
  3. Statutory Compliance: A foreign director or a retiring director might need to step down due to legal restrictions.
  4. Business Strategy: Changes in company goals may require a leadership transition.

Step-by-Step Procedure for Resignation of a Director

  1. Submission of Resignation Letter: The resigning director must submit a written notice to the board, clearly stating the reason for resignation.
  2. Board Resolution: The board of directors must acknowledge the resignation and pass a resolution during a board meeting.
  3. Filing of Form DIR-11 by the Director: The director who has resigned shall file Form DIR-11 with the Registrar of Companies, providing details like the date of resignation and reasons.
  4. Filing of Form DIR-12 by the Company: The company must file Form DIR-12 within 30 days of receiving the resignation notice.
  5. Updating Records: The resignation must be reflected in the company’s records, including the register of directors.

Director Resignation Letter Format

Sample Format of Director Resignation Letter

Director Resignation Letter Format

Resignation of Director Board Resolution Format

Resignation of Director Board Resolution Format

Download Director Resignation Letter Word Format: 

Download Resignation of Director Board Resolution Format:

Director’s Responsibilities After Resignation

The director who has resigned may still hold certain responsibilities, such as:

  1. Liabilities: A director remains liable for decisions made during their tenure.
  2. Disclosure: Reporting the resignation to the stock exchange (for listed companies).
  3. Compliance: Ensuring all filings, like Form DIR-11, are accurate and timely.

Responsibilities of the Company

Upon receiving the resignation notice:

  1. The company shall intimate the Registrar of Companies within 30 days using Form DIR-12.
  2. The company must inform stakeholders and update official records.
  3. If applicable, the company secretary will oversee the documentation process.
  4. A requirement to appoint a new director to ensure compliance with the rule that a company must have at least two directors.

Documents Involved in the Resignation Process

Resignation Letter

The resignation letter must outline the reasons for stepping down and the effective date of resignation.

Form DIR-11

Filed by the director, this form includes:

  1. Personal details.
  2. Reasons for resignation.
  3. Attachments, such as the resignation letter.

Form DIR-12

The company must file this form to inform the registrar about the resignation of director under companies regulations.

Effective Date of Resignation

The effective date of resignation is:

  1. The date specified in the resignation letter, or
  2. The date of receipt of the resignation notice by the company.

The resignation becomes effective when both parties are notified and formalities are completed.

Impact of Director Resignation on the Company

The resignation of a director can lead to:

  1. Strategic shifts in company operations.
  2. The need to appoint a replacement.
  3. Potential reputational impact if the reasons for resignation highlight conflicts.

Special Considerations for Foreign Directors

A foreign director must comply with additional requirements, such as:

  1. Ensuring that their Digital Signature Certificate (DSC) is valid.
  2. Filing forms electronically from their registered location.

Distinguishing Resignation from Removal

While the resignation is a voluntary act initiated by the director, the removal of a director is a company-driven process. Both require compliance with the Companies Act and timely filings.

Challenges in Director Resignation

Some challenges include:

  1. Delays in filing Form DIR-12 or Form DIR-11.
  2. Disputes over liabilities that remain even after his resignation.
  3. Ensuring the resignation complies with company policies.

Conclusion

The resignation of a director is a significant event that must be handled with transparency and strict adherence to the Companies Act 2013 procedure. By following the correct steps, filing necessary forms like Form DIR-11 and Form DIR-12, and ensuring compliance with legal obligations, companies can effectively manage the transition while protecting their interests.

FAQs About Director Resignation

Yes, a director may resign by submitting a written notice, and board approval is not mandatory.

If the company fails to file, it may face penalties for non-compliance.

Yes, a director who has resigned shall remain liable for actions taken during their tenure.

While not compulsory, filing Form DIR-11 ensures the resigning director fulfills their compliance obligations.

The company must immediately appoint a new director to comply with the rule that a company must have at least one director.

A director may withdraw their resignation before the effective date, subject to board approval.

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