How to treat a Board Observer

[anushaka basu]

Dear All,

Please  guide me how to treat the appointment of a board observer? As he is a person who enjoys all the rights as a Director, except voting rights and his appointment is not official...

Do I just mention it in the minutes of the Board Meeting and General Meeting? Is there a form or something...?

Please respond ASAP.

Regards,

Anushaka

[kameswara Rao Kappagantula]

Show his name as invitee as his appointment is not official and it is better to show his presence as invitee

 

Kamesh

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[anushaka basu]

Invitee as in...?

[Premnarayan Tripathi]

Dear Friend

 

This situation generally arises in companies availing Private Equity investments.

 

They have right to nominate an Observer in addition to Nominee Director on the Board of the Company. You rightly mentioned that he/she enjoys all right as a Director except right to vote.

 

You may adhere to following procedure;

 

1.      Please check whether the appt. is proposed to be made due to any provisions of the Articles of the Company or due to covenant mentioned in the Shareholders Agreement.

 

2.      Obtain a letter from the investor nominating an individual as Observer on the Board of the Company.

 

3.      Consider it as one of the agenda for the ensuing Board meeting and get the resolution passed by the Board.

 

4.      No statutory filing required.

 

5.      Ensure that copy of all notices/agenda of Board meeting is also sent to the Observer in future in additional to the directors of the Company.

 

6.      He can be removed from the office only when the nominating authority withdraws his/her nomination or in accordance with provisions as mentioned in the Article/SHA.

 

Hope the above would help you in the matter.

 

Thanks & regards,

CS. Premnarayan Tripathi

PRT & Associates,

Company Secretaries

201, Sarthik Square, Nr. GNFC Info Tower,

S G Highway, Ahmedabad - 380054

Tel: (O) 079 6545 1206

(M): +91 89800 26497

E-mail: premnar...@gmail.com

[anushaka basu]

Dear Premnarayan, 

Thanks for the response. Really appreciative and helpful to us.

Regards,

Anushaka

[K Degaleeswaran]

Dear Sir,

One of our group Company is having  private equity and they have appointed a nominee director as per the terms of SHA.  Usually the nominee director is accompanied with one persons ( i thought him as a personal Secretary to that Director). 

We are also not recording his presence in the minutes and not sending notice, agenda to that person and there is  no provision in the SHA about observer.

In this context can we assume him as observer?

Also can you please explain the purpose of appointing observer and functions of observer?

Thanks and Regards

K Degaleeswaran

[Premnarayan Tripathi]

Dear Friend

 

Unless there is a provision in Articles or SHA, there is no obligation to consider him as Observer. Hence, in your case you should not assume him as Observer.

 

Generally nominee directors are individuals of very high profile and busy in their schedule. It may happen that they will not be in a position to serve the purpose of protecting interest of investor unless they are aware of all the nitty-gritty of business operations of the company. Hence, the Observer enters into the Board room by virtue of contractual rights to help the nominee directors in fulfilling various objectives.

 

Thanks & regards,

CS. Premnarayan Tripathi

PRT & Associates,

Company Secretaries

201, Sarthik Square, Nr. GNFC Info Tower,

S G Highway, Ahmedabad - 380054

Tel: (O) 079 6545 1206

(M): +91 89800 26497

E-mail: premnar...@gmail.com

 

[K Degaleeswaran]

Thank you Sir!