Small shareholders under the companies Act 2013, means the shareholders holding shares of nominal value of less then Rs. 20000/-. In most of the cases, a company is directed and managed by shareholders who hold majority of shares. Companies Act, various regulations and rules, in addition to various judgements delivered by Supreme court of India, various tribunals have also underlined the importance of safeguarding the interest of small shareholders.
Even when we look on from a layman’s angle, we can see that, small shareholders should be protected to ensure shareholders democracy
Rule 7 of Companies (Appointment and Qualification of Directors) Rules, 2014
1. Every listed company, may upon notice of not less than one thousand small shareholders or one-tenth of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders:
Provided that nothing in this sub-rule shall prevent a listed company to opt to have a director representing small shareholders suo motu and in such a case the provisions of sub-rule (2) shall not apply for appointment of such director.
2. The small shareholders intending to propose a person as a candidate for the post of small shareholders’ director shall leave a notice of their intention with the company at least fourteen days before the meeting under their signatures specifying the name, address, shares held and folio number of the person whose name is being proposed for the post of director and of the small shareholders who are proposing such person for the office of director:
Provided that if the person being proposed does not hold any shares in the company, the details of shares held and folio number need not be specified in the notice.
3. The notice shall be accompanied by a statement signed by the person whose name is being proposed for the post of small shareholders’ director stating –
(a) his Director Identification Number (DIN);
(b) that he is not disqualified to become a director under the Act; and
(c) his consent to act as a director of the company
4. Such director shall be considered as an independent director subject to, his being eligible under sub-section (6) of section 149 and his giving a declaration of his independence in accordance with sub-section (7) of section 149 of the Act.
5. The appointment of small shareholders’ director shall be subject to the provisions of section 152 except that-
(a) such director shall not be liable to retire by rotation;
(b) such director’s tenure as small shareholders’ director shall not exceed a period of three consecutive years; and
(c) on the expiry of the tenure, such director shall not be eligible for reappointment.
6. A person shall not be appointed as small shareholders’ director of a company, if the person is not eligible for appointment in terms of section 164.
7. A person appointed as small shareholders’ director shall vacate the office if –
(a) the director incurs any of the disqualifications specified in section 164;
(b) the office of the director becomes vacant in pursuance of section 167;
(c) the director ceases to meet the criteria of independence as provided in sub-section (6) of section 149.
8. No person shall hold the position of small shareholders’ director in more than two companies at the same time:
Provided that the second company in which he has been appointed shall not be in a business which is competing or is in conflict with the business of the first company.
9. A small shareholders’ director shall not, for a period of three years from the date on which he ceases to hold office as a small shareholders’ director in a company, be appointed in or be associated with such company in any other capacity, either directly or indirectly.