Can a Salaried Person Be a Director in Another Company?

Imagine Rahul works in an IT company and earns a monthly salary. One day, his friend asks him to become a director in a private limited company. Rahul wonders, "Can I become a director while keeping my job?"

Need help with director appointment or company compliance? Connect with Startup Movers for guidance on director documentation, appointment filings, and private limited company compliance.

Can a Salaried Person Become a Director ?

Yes, a salaried person can become a director in a private limited company in India without leaving their job. However, they should check a few things before accepting the role:

• Employment Contract: Check if their employer allows them to become a director in another company.
• Employer's Permission: Get permission from the employer if needed.
• Conflict of Interest: Make sure the new company does not create problems with their current job.
• Confidential Information: Do not share private business information from their current employer.
• Legal Eligibility: Make sure they meet the rules under the Companies Act, 2013, and are not legally barred from becoming a director.

Being a salaried employee does not stop someone from becoming a director, but they must follow the law and their employer's rules.

What Are the Eligibility Criteria for a Salaried Person to Become a Director?

A salaried person can generally become a director in a private limited company if they meet these conditions:

• Must be an individual: Only a person, not another company or firm, can be appointed as a director.
• Must not be legally disqualified: The person must not fall under the disqualification rules of the Companies Act, 2013.
• Must give written consent: The person must agree to act as a director, generally through Form DIR-2.
• Must provide the required declarations: The person must provide the applicable declaration confirming that they are not disqualified, along with other required disclosures.
• Must follow the appointment process: The company must approve and record the appointment according to the law and its Articles of Association.
• Must check employment restrictions: The person should review their employment contract and obtain any required permission from their employer.
• Must comply with directorship limits: The person must stay within the legal limits on the number of companies in which they can hold directorships.

Important: There is no general rule that a salaried person must resign from their job or invest money in a company to become its director. However, the company's specific requirements and any separate shareholding arrangements must be checked.

What Documents Are Required for a Salaried Person to Become a Director?

The required documents depend on whether the person already has a DIN and whether the company is newly incorporated or already registered.

Additional documents or declarations may be required depending on the circumstances.

If the person does not have a DIN, they must obtain one through the applicable process. For an appointment in an existing company, Form DIR-3 is generally used to apply for a DIN. A DIN may also be obtained through the relevant company incorporation process.

A Digital Signature Certificate (DSC) may be required for the relevant electronic filing, depending on the process and the person responsible for filing it.

Note: Salary slips and a resignation letter are not normally required merely because someone wants to become a director.

What Can Disqualify a Salaried Person From Becoming a Director?

Having a job does not disqualify a person from becoming a director. However, certain legal conditions can prevent a person from being appointed.

Section 164 of the Companies Act, 2013, sets out important disqualifications. These include:

A private company's Articles of Association may also provide additional grounds for disqualification, subject to applicable law.

Not every criminal allegation, financial difficulty, or company filing delay automatically disqualifies a person. The specific legal conditions must be checked.

Can an Employer Stop a Salaried Person From Becoming a Director?

An employer's restrictions are different from legal disqualification under company law.

For example, an employment contract may require written permission before an employee joins another company's board. Some employers may also restrict competing business activities or outside work that affects the employee's responsibilities.

A salaried person should review their employment terms and obtain any required approval before accepting the position.

How Can a Salaried Person Become a Director in a Private Limited Company?

The process generally involves these steps:

1. Check eligibility: Confirm that the person meets the legal requirements and review their employment contract.
2. Obtain a DIN: Apply for a Director Identification Number if the person does not already have one.
3. Prepare the documents: Collect the required identity and address proofs, consent, declarations, and other applicable documents.
4. Obtain company approval: Follow the appointment process required under the Companies Act, 2013, and the company's Articles of Association.
5. File the required forms: The company generally needs to file Form DIR-12 with the ROC within 30 days of the appointment, along with the required documents and fee.
6. Perform director duties: After appointment, the person must follow company law, act responsibly, and fulfil their duties as a director.

The exact procedure may differ depending on whether the company is newly incorporated or already operating.

Conclusion

A salaried person can become a director in a private limited company in India without leaving their job. They must meet the eligibility criteria, have a DIN, submit the required documents, and follow the legal appointment process. A person who is legally disqualified cannot become a director. Before accepting the role, they should also check their employment contract and obtain their employer’s permission if required.

Need help with director appointment or company compliance? Connect with Startup Movers for guidance on director documentation, appointment filings, and private limited company compliance.