Director’s Appointment Letter FAQs
A Director’s Appointment Letter outlines the terms and conditions of the appointment, including the role and responsibilities, the tenure of the directorship, remuneration details, and any other specific terms related to the position.
The letter is an important legal document and forms part of the director’s contract with the company. It’s typically issued after the Board of Directors has approved the appointment.
See also: Non-executive Director’s Letter of Appointment
What happens after appointing a new director?
After the appointment of a director, the director needs to submit his Consent to Act as a Director.
Consent to Act as a Director is written consent of the appointed to act as a director of a company.
Essentially, Directors have numerous duties that they have to perform in accordance with the Corporations Act 2001 (Cth).
Duties are strictly enforced. Therefore, due to the importance of the appointment and all that goes along with it, a Director must provide their consent to act in that role in writing within 28 days of a director’s appointment.
What to include in the Director’s appointment letter?
Commitments to the Terms of Office
Every director that is newly appointed should agree to the norms of office.
Duties & Responsibilities
Chiefly, all the directors should comply with the duties and responsibilities of that organisation drafted by the Board of Directors.
Conflict of Interest
Importantly, after appointment as a director in a company, he/she should not engage in any other similar position in another organisation that may lead to a conflict of interest in the near future. Additionally, they must not improperly use their position for personal gain.
Remuneration
The newly appointed director may receive remuneration based on their knowledge and experience. Specifically, the remuneration amount comes from the Board of Directors.
Confidentiality
As a company director, one can access companies’ documents & records, including financial statements. Therefore, it’s crucial to maintain confidentiality for any organisation’s security.
How do I make an appointment for a director?
Firstly, the initial step is to call a board meeting where every shareholder has the legal right to choose the board of directors.
If more than 50% of shareholders vote for the same director, the legal formalities to appoint a new director should follow.
What are the restrictions on the appointment of directors?
Generally, there are different restrictions on appointing directors according to the nature of the company.
If it is a public company, there should be a minimum of 3 directors. However, if it’s a private company, there should be a minimum of 2 directors. A company can have a maximum of 15 directors according to the Company Act, 2013.
Notably, a person cannot be appointed a company director if they are under 18 years of age.
What is a Non-Executive Director?
A non-executive director is also known as an external, outside, or independent director.
They are a part of the company’s Board of Directors but are not a part of the company’s executive team and so are not engaged in the daily operations. Their roles typically involve policymaking and planning.
They are often used to add value to a company’s image or brand for PR reasons. In practice, their responsibility also includes monitoring the executive directors too.
Conclusion
A simple contract outlining the terms of the appointment of a director is one of the first steps to making your board of directors official.
Importantly, creating this simple document ensures good corporate governance, and everyone knows their specific role’s expectations.
Related legal templates
- Shareholder Agreement
- Option Agreement
- Employee Option Agreement
- Share Appreciation Rights Plan
- Share Option Plan
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