Under Indian law, someone unconnected with the business but with the skills and experience to be a director, can join the board as an “additional director” and bring a fresh perspective to how the company is managed.  Below we examine the steps needed to appoint such a director and how additional directors can help drive company growth.

An additional director is someone not from the company, who first, has the qualifications to become a director; second, has not been previously rejected as a director of the company; and third, does not hold a directorship for any other company, nor do they have any vested interest in another company (Companies Act, 2013).

“A temporary appointment with the possibility of greater achievement” would be an apt phrase to encapsulate the essence of who an additional director is.

An additional director is someone who has the skills and experience matching those of a director and while their role in the company is in most instances temporary, their actions, their knowledge and their expertise can leave a lasting effect on the growth, management and overall culture of a company.

The board of directors will normally choose an individual with an area of expertise that is completely different from that of the other directors on the board.

The idea behind this role is to use an additional director’s area of expertise as a tool to increase the knowledge base as well as the overall scope of the company in order to gain knowledge in the specialized field of the chosen additional director.  This can be either through their contribution to board discussions or by providing guidance in relation to company matters that are related to the additional director’s area of expertise.

How are they appointed?

The additional director’s appointment is provided for under Section 161 (1) of the Companies Act, 2013.  The law states that an appointment is made for usually one of two purposes:  either to temporarily replace a casual vacancy of any director who is unavailable, or to bring in another temporary director for expansion of a company’s area of expertise.

The procedure for appointment of an additional director is done in a few steps.  First, the Articles of Association of the company need to be checked to see if the provision for adding an additional director exists.  If it does, then a meeting is held, which may be the Annual General Meeting or an Extraordinary General Meeting in case of there being a necessity to appoint them before the Annual General Meeting, during which a resolution is proposed before the Board of Directors who directly decide and appoint the additional director.  

Once the appointee’s consent is given, the additional director needs to be registered by the Registrar of Companies (ROC) within 30 days of the passing of the resolution.

How many additional directors are allowed?

For private, single person and public companies the maximum number of full directors allowed is fifteen, however if more are required, the maximum number of directors may be increased further by passing a special resolution during the general meeting. In each of the different types of companies in the remaining slots which are not filled by directors, additional directors may be appointed if the board of directors sees the need for their expertise and requirement for the company.

How long is the appointment?

The additional director’s position is generally held until the next annual general meeting where it is then decided if they should continue to hold the position as an additional director or whether they should be removed. However, additional directors can apply to become full-time directors at the Annual General Meeting and if agreed the additional director can be selected to become a full-time director by following the regular procedure to become a director, so long as they are qualified to do so.

What is their role?

During their tenure the additional director generally has the same duties that are set out for directors under Section 166 of the Companies Act, 2013 such as participating in board meetings, continuously learning and developing their skills for the sake of the company or providing reports.

An additional director has certain duties that they must uphold such as their duty to conduct themselves in a manner fitting their post and a duty to be ethically sound and to act in good faith when dealing with company matters. The additional director also has a fiduciary duty to act in the best interests of the company.

The additional director must also comply with the corporate governance guidelines, upholding company regulations and ensuring that no laws are broken during company pursuits.

In addition, the additional director must also refrain from engaging in any conflict of interest with the company. This includes any family-related interests where the additional director must not utilize company assets for their own uses or for those of their family and must separate their own interests and familial interests from those of the company.

A catalyst to growth

The primary objective in appointing an additional director is to contribute an alternative point of view and bring new expertise.

The appointment can help create a change in a company’s outlook towards a variety of issues and it can also bring about change in business of a company as an additional director may bring their own network along with them which creates more prospective clientele as well as business opportunities. Additional directors can therefore assist not only with the functioning and well-being of a company but also as a catalyst to better growth and delivery of the company’s goals and objectives.

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