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Introduction
A private company refers to an association which is formed by an association of two or more persons. However, it cannot have members, more than 200 in numbers. As soon as a private company has members more than 200, it either has to reduce the members or it has to convert itself into a public company. The difference between a public company and private company is that private companies cannot raise capital by making a public issue of shares. However, both enjoy the benefits of a separate legal entity and the limited liability concept. A private company needs to have at least two directors. it is possible that the director might be a foreign national or a non-resident Indian. This article answers the questions of whether a non-resident Indian can also become a director in a private limited company. For addressing the issue, the article will discuss in detail the legal provisions which answer the same and the conditions imposed by law.
Who is a director?
He is a person who is responsible for managing the functions and affairs of the company. The purpose behind appointing a director is to ensure that the duties in respect of managing functions of the company in accordance with the provisions under the Companies Act, 2013 are duly performed. The directors of a company, collectively, are known as the board of directors, and they have to take decisions on matters that are extremely crucial and important for the company and its shareholders. The growth of a company, to a great extent, depends on the competency of its directors. They are the ones who directly control the policymaking and decision making of the company. They hold the top administrative positions in the company, and the company fully operates through its directors. They have the power of entering into contracts with the third party in the name of company. They can make allotment of the company’s shares, make forfeiture and transfer of the company’s shares. They supervise and control the work of their subordinates in the company’s structures. They have to issue the instructions to ensure the efficient functioning of company’s business.[1]
Non-Resident Indian As Per Company Law, 2013
The company law, 2013 has not clearly and explicitly defined a non-resident Indian, but as per the legal provisions relating to the issue, it can be said that an Indian citizen can be treated as a non-resident Indian if that person has not stayed in India for a continuous period of twelve months before his appointment as a director of a private company.
If a person stays in India for a period of 182 days in India, in the immediately preceding financial year, then he can be called a resident of India. The law does not impose any such restriction on a person who is a Non-Resident India from being the director of a private company. However, the only condition that has to be satisfied in this case is to ensure that at least one of the directors in the company is a national and a resident of India. It is mandatory that at least one of the directors should be resident of India. The Company may also choose to increase this number.[2]
Conditions for being a Director
A person to become a director needs to have attained the age of majority, i.e. 18 years and he must be a natural person entrusted with legal rights and duties. There are no restrictions imposed by law in respect of citizenship or residential status. This implies that a Non-Resident Indian can become a director. However, the company needs to have at least one director who is a resident and national of India, i.e. he has stayed in India for a period of more than 182 days, in the immediately preceding financial year. The procedural requirements that have to be fulfilled by such non-resident Indian are the same, as an Indian citizen have to follow in order to become a director of the private limited company. A non-resident Indian can become an executive or a non-executive director of the company as per his preference. Non-executive and executive directors differ from each other in terms of part-time and full-time employment, respectively. [3]
The appointment of such director will be governed by section 269 of the Companies Act along with the rules laid down under Schedule XIII of the Act. [4]
Mandatory Requirements of Director
He has to obtain a Digital Signature certificate along with Director Identification number. The non-resident Indian also needs to submit his Permanent Account Number and make a declaration that is competent to be a director and does not have any disqualifications. Such person also needs to submit his consent stating his wish to hold the office of director in the concerned company and this consent also needs to be submitted to the Registrar of companies within a period of 30 days from the date of appointment of director. [5]
Obtaining the Digital Signature Certificate
The registration process to be followed by NRI is the same that would be followed by an Indian citizen. If all the documents are complete then the Digital signature certificate will be received within a period of 2 to 3 working days, such person also needs to make submission of his identity and address proof for the same.[6]
Director Identification Number
If an NRI wants to become a director in a private limited company then the 1st step he has to perform, as per section 266A of Companies Act, 2013, is to make an application for a Director Identification Number to the Registrar of Companies, in the prescribed format, i.e. DIN-III form, along with a government fee of Rs. 500. The person is required to submit a certified copy of the passport with the form or the application for obtaining the Director identification number. The application also needs to include a photograph of the person making an application that is certified by the Indian embassy, notary of the country to which NRI person belongs or photo certified by Managing Director/ CEO/ Company Secretary of the company in which such person seeks to be a director. The person is also required to submit his bank statement in order to make an address proof.[7]
Permanent Account Number for NRI
The Income Tax Act makes it mandatory for all the persons appointed as directors in the company, to possess a valid Permanent Account number card in India, even if such person is a non-resident Indian. However, it is mandatory in case if the company in which such person seeks to be director enters into financial transactions amounting to 2.5 lacs or more in a financial year. If the directors do not possess the PAN card, then they are liable to pay a fine of Rs. 10,000 as a penalty. Apart from a PAN card, it is not mandatory for the Non-Resident Indian director to obtain an Aadhar card, as Aadhar card is not necessary for Non-Resident Indian under the Tax laws. [8]
Appointment of the Director
Every private limited company needs to have at least two directors and at most fifteen directors. However, a company may increase the number of directors by passing a resolution to that effect. A board meeting needs to be conducted by the board of directors. They need to pass a board resolution to accept the NRI as their director in the company. Such a person can be appointed as a director of a private company in India in two ways, one way is through the board of directors, and the other way is through the approval of shareholders in a general meeting. However, in private companies, it is not mandatory to obtain the approval of shareholders.[9]
The directors, generally are appointed by the shareholders through a meeting held annually. All the interested persons have to make an application at least 14 days before the general meeting is conducted and the company serves a notice to all such individuals who have applied, at least 7 days before meeting either through the electronic mode or through post. However, this provision is not mandatory when a common declaration has been made in a newspaper, in local language as well as in English about the same, at least 7 days before the meeting. The candidate who is making an application is also require to submit a sum of Rs. 100000 or more as prescribed by the company. However, this amount will be refunded upon selection of such candidate or in case if he gets more than 25% of the votes.
Form DIR-12 for Appointment of Non-Resident Indian as Director
In respect of a Private Limited Company, it is required, for the appointment of a Non-Resident Indian director, that form DIR-12 be duly filed. The contents of the said form include the details relating to the company, date on which he is being appointed, the designation of such person, a declaration by the first and appointee director.[10]
Compliance of KYC
The directors, who hold a director Identification number have to comply with the annual know your customer requirement that is called KYC compliance. This has been recently enacted by the Ministry of Corporate Affairs. This compliance can be made by the director, by submission of the required documents such as the identity and address proof. In the case of Non-Resident Indian directors, the passport will be regarded as the identity proof and driving licence issued by the foreign government.[11]
Conclusion
Directors are very important for the smooth functioning of the company. There is no restriction on the private limited companies from appointing non-resident Indians as their directors. The requirements or procedural formalities that need to be completed by such NRI who wants to become a director are the same, like the requirements that are to be fulfilled by an Indian resident. There are many steps that need to be performed by such person to become a director. These procedural requirements in appointment ensure that the interests of the shareholders are protected by the company’s directors.
References:
[1]Avtar Singh, Company Law (17th ed. Eastern Book Company, 2018).
[2] Avtar Singh, supra, 215.
[3] B.K. Goyal, Company Law 200 (13th ed. Singhal Law Publications, 2018).
[4] Dr. G.K. Kapoor; Dr. Sanjay Dhamija, Company Law-A Comprehensive Text Book on Companies Act 2013 98 (22nd ed. Taxmann, 2019).
[5] Avtar Singh, Supra, 216.
[6] Sonam Jain, Process of obtain DIN and appointment of NRI as director, TaxGuru Complete Tax Solutions (30 April 2018), https://taxguru.in/company-law/process-obtain-din-appointment-nri-director.html.
[7] Vikas Vasal, NRIs and directorship in Indian firms, live mint (9 November 2018), https://www.livemint.com/Companies/4NYuDYiiSaMFBKVhXpZ9pK/NRIs-and-directorship-in-Indian-firms.html.
[8] P.P.S. Gogna, Textbook of Company Law 148 (11th ed. S. Chand & Co, 2015).
[9] Tanya Sharma, Foreign (NRI) Director in a Private Limited Company, Quick Company (1 February 2019), https://www.quickcompany.in/articles/foreign-nri-director-in-a-private-limited-company.
[10] A N Bhatuna& Company, Appointment of Foreign Director in Private Limited Company, A N Bhatuna& Company (1 August 2019), https://www.anbca.com/appointment-of-foreign-director-in-private-limited-company/.
[11] Vikas Vasal, NRIs and directorship in Indian firms, live mint (9 November 2018), https://www.livemint.com/Companies/4NYuDYiiSaMFBKVhXpZ9pK/NRIs-and-directorship-in-Indian-firms.html.
