Alternate Director

Alternate Director Meaning

An alternate director is an alternative person or representative who substitutes the original director in the company. The primary purpose of hiring or appointing them is to act as a principal when the original director needs to make it up for important board meetings.

These directors act as a representative for the original directors of the organization. It usually happens in smaller companies and joint ventures. In addition, they help in making effective decisions. Their power is the same as the other directors. However, for any mistake, these directors are held liable for any breach by them.

• An alternate director is an individual appointed by the company that acts as a director on behalf of the current director in their absence. It is mainly practiced in joint ventures and small companies.
• Their role is to make decisions, propose resolutions, raise concerns, review the minutes of meetings, etc.
• The reason for the alternate appointment can be sick, parental, work fulfillment, and others. However, the primary factor in appointing them is when directors stay abroad.   
•   Although they act as a whole, they remain an officer. Therefore, they cannot be appointed if they already alternate for another company.

Alternate Director Explained 

An alternate director refers to an appointed representative who acts on behalf of the original director in their absence. The alternate director duration is generally specified in the company's corporate bylaws or articles of association. Moreover, the company appoints them for a temporary period. Therefore, on the appointment of an alternate director, the legal and ethical responsibility of the original director remains the same.

The appointment of an alternate director only occurs when the original directors make a major decision. However, there can be many reasons for their absence, For instance, sickness or bereavement (anxiety), vacation, parental leave, or sudden work fulfillment. So, if a company wants to approve a significant deal, these directors will keep a representative who will attend the meeting on their behalf. As a result, the board meeting is conducted successfully. Furthermore, these directors are subject to the same fiduciary duties as regular directors, including the duty of care, loyalty, and confidentiality.

In joint ventures, companies often practice this because the number of directors is limited, and their presence is necessary. Therefore, companies appoint them for a short duration. However, there is no such compulsion for them. Besides, they have the right to appoint multiple alternate directors per their requirements.  

An alternate director is considered a company officer, even though they can act as the original director. The alternate director's duration is temporary, so they cannot work in full. In addition, they must find another alternative to fulfill their duties. Besides, they only need to satisfy the shareholder's requirement if the company's memorandum says so. Moreover, the powers of an alternate director may vary depending on the organization's bylaws or governing documents. In general, a company expects these directors to possess the following powers:

• Attend meetings
• Vote on resolution
• Make decisions
• Represent the organization

Responsibilities

Let us look at the rights and responsibilities as per the alternate director disclosure:

• Similar to the process for selecting an original director, one would select alternate directors with the same rights and liabilities.
• They have to act on behalf of the director in their absence.
• In addition, they must first consider the company's best interests without any conflicts.
• Furthermore, they can vote whenever a significant resolution is passed during the board meetings.
• Also, the representatives must have complete information about the company's business before voting for any decision.
• Besides, they must take full accountability for any past decisions made.
• Alternate directors can be any individual, shareholder, or company director. However, the number cannot exceed the maximum limit of the directors.
• They must make sound decisions. Otherwise, they might be held liable for their actions or any loss.
• These directors have the right to raise issues against the business decisions. Also, they can propose resolutions and receive minutes of meetings for review.
• Their responsibilities include informing the director about any significant developments or decisions made during their absence.
•  Hence, their duration stays under three months or until the director returns. However, if the latter resigns, dies, or gets expelled, the role of the former also ceases to exist.

Procedure Of Appointment

Let us look at the procedure for the appointment of alternate directors:

1. After a person qualifies for this position, they must go through a specific, defined procedure.
2. Check if the AOA (Articles of Association) mentions the appointment of an alternate director. If it is missing, the company cannot appoint one. However, they can alter the AOA and then proceed with it.  
3. The potential candidate’s eligibility should be reviewed based on state law and the company’s governing documents. Therefore, a person must be 18 years old, not have any legal disqualifications, and meet the citizenship requirements.
4. Have written consent or declaration from the proposed director stating their roles and responsibilities as an alternate. They also must submit the DIR-2 (stating their consent) and Form DIR-8 (Directors disqualification) to the company. Also, they must file Form MBP-1 stating the alternate director’s disclosure of interest.
5. Hold a Board of Directors (BOD) meeting informing them about the appointment of an alternate. However, they must send the notice seven days before the meeting. In addition, attach the draft resolution, agenda, and notes with it.
6. Hence, the appointment of these directors should be formalized through a written resolution.

Frequently Asked Questions (FAQs)

Recommended Articles

This has been a guide to Alternate Director and its meaning. Here, we explain its responsibilities and procedure of appointment. You can learn more about it from the following articles –

• Director vs Executive Director
• Director’s Report
• Independent Director