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Share Qualification of Directors

Provisions under the Companies Act 2013
The new companies act does not specify any provisions for holding qualification shares by directors. Apparently it has been removed in toto.

Provisions under the Companies Act 1956

The Articles of Association of a Company may require the Directors of that Company to hold some minimum shares at the time of his Appointment within such time limit as prescribed under Section 270 of the Companies Act, 1956; this holding of minimum shares is known as 'Share Qualification of Directors'.


Time limit as prescribed under Section 270: If the Director already doesn't hold that Share Qualification at the time of his appointment, then he must acquire them within two months after his appointment as Director.


The Subscribers to the Memorandum, as per the Act are the deemed first directors of the Company and are not required to hold the Share Qualification unless the Articles of a Company so requires them to hold such share qualification.


Maximum Value of Share Qualification: The nominal value of the qualification shares shall not exceed Rs. 5,000, or the nominal value of one share where it exceeds Rs. 5,000/-.


Share Warrants shall not be included for the purposes of calculation of share qualification.


Penalty for Not Obtaining the Share Qualification within the time limit – Section 272: If, after the expiry of the said period of two months, any person acts as a director of the company when he does not hold the qualification shares referred to in section 270, he shall be punishable with fine which may extend to Rs. 500/- for every day between such expiry and the last day on which he acted as a director.


Non-Applicability of Provisions: The above provisions, both under Sections 270 for share qualification and Section 272 for penalty for non-compliance, shall not apply to a Private Company which is not a Subsidiary of a Public Company.


Though the Directors of a Private Company which is not a Subsidiary of a Public Company are not required to obtain Share Qualification, the Articles of such Private Company may provide for provisions relating to obtaining Share Qualification by the Directors, in such a case it will be required to comply with such provisions. However by way of passing a Special Resolution such provision can be removed.
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