A company director is akin to a commander of an army or a captain of a ship. A director is responsible for guiding, managing and directing the company’s affairs. As a company director, your actions will affect the business’s day-to-day and long-term operations.
The importance of the post of business director can be gauged by the fact that each company director in India is provided with a director identification number (DIN). This is a unique number similar to our Aadhar or voter ID number. You must apply for a director identification number if you aspire to be a company director. Need help figuring out where to start? We’ve got you covered.
What is the Director Identification Number (DIN)?
If you are a company director or aspire to become one, the central government will assign you an eight-digit, unique identification number called a Director Identification Number. Think of it as an Aadhar number for company directors. Even when you change or are a part of multiple companies, the Director Identification Number remains the same.
The Director Identification Number has lifetime validity unless the government revokes it. Under some specific circumstances, you can voluntarily surrender the Director Identification Number.
What is the importance of DIN?
The main purpose of introducing the Director Identification Number is to increase transparency and accountability in the corporate sector. Some key benefits of a Director Identification Number are:
1. Fraud prevention
Since the director of a company is a significant and critical post, having a unique identification number like DIN prevents several frauds, including identity fraud. With a DIN, the company or government stakeholders can perform adequate checks when required and stop potential small- and large-scale frauds from occurring.
2. Conflict of interest prevention
Another benefit of the DIN is preventing conflict of interest situations and the problems that come with it. For example, consider two companies. One company takes out a tender, and the other company applies for it and gets it. If the director of both companies is the same, this is a severe conflict of interest. Similarly, you can imagine multiple conflict of interest scenarios without DIN, including insider trading.
With DIN, the identity of the company director is transparent and helps avoid conflict of interest.
3. Streamlining of processes
With the availability of DIN, several corporate and government processes have been streamlined. These processes include incorporating new companies, registering director change, etc. With streamlined processes, the application and processing times are reduced significantly, benefitting the government, the company and the economy.
4. Enabling public disclosure
The Director Identification Numbers are publicly available on the Ministry of Corporate Affairs website. This ensures complete transparency for the public and the stakeholders. Additionally, it makes it easier for investors and creditors to perform relevant background checks.
Who needs a DIN?
Primarily, a Director Identification Number is required by:
- Existing director: If you are a director of a registered company, you must have a Director Identification Number.
- Aspiring director: If you aspire to be a company director, you must obtain a DIN before being appointed.
Where is a DIN required?
We previously discussed the benefits of the DIN number. You might be wondering where the DIN is actually used. Applications of DIN in corporate affairs include:
1. Company incorporation:
A new company has to be registered to be legally recognised. At the time of company registration, all company directors must possess a valid DIN.
2. Director appointment:
A DIN is required during the official appointment of a new company director.
3. Filling company forms:
The Company Act of 2003 makes it mandatory for the Director Identification Number to be present on various company forms.
4. KYC procedures:
KYC stands for ‘Know Your Customer’. Companies need to go through various KYC procedures when dealing with financial institutions. Furnishing DIN information for all company directors is mandatory for KYC.
How to obtain a Direction Identification Number?
Let’s go over the process you must follow to obtain a Director Identification Number.
1. Asses your eligibility
First, you must assess your eligibility for DIN. You are eligible for a DIN if you are over 18 years old and have a sound mind. No specific educational qualifications are necessary for obtaining a DIN.
2. Choose the relevant application form
You can choose from three different application forms when applying for a DIN. These include:
- SPICe form: This form is for DIN allotment to the proposed first directors of a new company.
- DIR-3 form: If you want to become a director in an existing company, you must fill out the DIR-3 form.
- DIR-6 form: If you wish to change some particulars in your DIN record, you must fill out this application form.
3. Collect the required documents
Some standard documents required for a DIN application are:
- Identity proof
- Photograph
- Residence proof
- Verification, which includes your name, father’s name, address, text of declaration and your physical signature
Remember to get your photograph, identity, and residence proof attested by a chartered accountant or a company secretary.
4. Submit the application form
Once you have all the necessary documents, you can fill out and submit the form online at the MCA21 portal. You will also be required to pay an application fee electronically (not offline).
5. Obtain the DIN
After you submit the form, the government will verify the information and decide whether to approve your application. Once the application is approved, the government will send you your Director Identification Number meaning you will have a valid DIN. The entire process can typically take up to a month.
Concluding thoughts
We hope you understand the meaning of the director identification number and when and how to obtain it. The director identification number presents several benefits for the corporate sector and the government.
As a company director, you also have to decide on business funding. If you’re looking for a reliable financial institution with a proven track record in business loans, look no further than Tata Capital.
Tata Capital believes in a hassle-free business loan experience. Hence, the documents required for business loan with Tata Capital are minimal. Apply for Tata Capital’s business loan and benefit from one of the best business loan interest rates in the market now!
11 October 2024
6 mins read
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