The Companies Act does not prescribe any qualification for a person to become director in a company. However, director of a company may be required by the Articles to hold certain shares in the company to be eligible to become director in the company (Sec. 2 70). These shares are called qualification shares.
The nominal value of these qualification shares must not exceed Rs. 5,000 or the nominal value of one share where it exceeds Rs. 5,000. A director may purchase these qualification shares within 2 months of his appointment.
A person cannot be asked to obtain qualification shares before his appointment as a director or within a period shorter than 2 months of his appointment. The bearer of a share warrant shall not be deemed holder of shares for the purposes of qualification shares.
But unless the articles provide otherwise, if the joint holders hold the qualification shares in their joint name, one of them is entitled to be appointed as director. Similarly, a pledge of shares by the shareholder will not disqualify a person to be a director of the company on this basis unless the articles require holding of unencumbered shares.
A person who acts as a director of a company without holding qualification shares after the expiry of the period of two months from the date of his appointment shall have to vacate his office as a director and shall be punishable with a fine extending to f 500 for every day from the date of expiry of the period of two months till the date he continues to act as a director (Sec. 272).
Directors not required holding the Qualification Shares:
(i) Directors appointed by the Central Government to prevent oppression or mismanagement of companies.
(ii) Directors appointed by the Public Financial Institutions (i.e. nominee directors), (in) Small Shareholders’ directors.
(iv) Directors exempted by the Articles of Association of the company.
(v) Directors of private companies.
Directors of government companies are, however, not exempted from the requirement as to the holding of qualification shares.