Company Registration

Appointment of Foreign Director in Existing Private Limited Companies

India is one of the most desirable countries in the world for foreign investors, due to which foreign nationals aim to penetrate the mighty Indian Markets in any way possible. India also offers foreign investors a variety of business options and a large consumer market for their services, which helps develop good exposure over the vast Asian Market. Being the second largest population in the world, India provides companies with a skilled workforce in different areas of their business at a reasonable cost. Companies Law 2013 is the spearheading legislation that covers all the essential factors with regard to the formation and running of any business in the country. Appointment of Foreign Director in an existing Private Limited Company not only provides exposure to the Foreign Individual to the Indian Market but also provides the business with an opportunity to expand their business globally. This piece of writing is a directive of the appointment of a foreign director in an existing Private Limited Company; this includes all the benefits, documentation and Compliances necessary for the business proceeding with adding a foreign national in their business.

What is a Director of a Company?

A company is an ‘Artificial Person’ it can sue and can be sued and has perpetual existence, but it cannot manage all its functions by itself. Hence, various key personnel are involved in all the company’s decision-making. The company’s board of directors comprises individual officeholders responsible for managing all the operations and business of the company. Directors are key officeholders who are responsible for managing all the operational and regulatory requirements of the company. The company director is responsible for administering the business’s day-to-day activities and managing the compliance set by the regulatory and statutory authorities. The following is an indicative list of posts that a director can occupy;

• Additional Director
• Alternative Director
• Managing Director
• Independent Director
• Nominee Director
• Small Share Director
• Whole-Time Director

According to the Companies Act 2013, appointment of Foreign Director in a Private Limited Company already established in India is legal. Foreigners can hold executive positions, and non-executive/ independent positions in different business setups are permitted in the country. The obligations and responsibilities of the foreign directors are the same as the resident directors of the business.

Advantages in Appointment of Foreign Director

Appointment of a Foreign Director in an existing company has the following benefits;

• Developing operations and expanding g the business to multiple foreign jurisdictions
• The experience carried by a foreign national helps in developing and strengthening the core operations of the business.
• The company’s internal policies are polished as the foreign national brings about the required changes in the current procedure of the organization.
• The clientele of the business increases many folds due to the expansion of operations and change in culture.

Eligibility Criteria for appointment of Foreign Director

Any foreign individual that is looking to become a director of an Indian Company must comply with the provisions, including:

• They should have been staying in India for a period of 12 months before their appointment
• He/she should be at least 21 years on the day of such an appointment
• Should not be bankrupt or convicted of any crime
• Should not have received a jail term of more than 6 months
• The company’s board should have an Indian resident
• If the Foreign national has experience in any skill that is the company’s core operation, then they can be appointed as an independent director.
• The potential director must have a current work Visa

Documentation Required

The documentation required for the appointment of Foreign Director are as follows:

1. If the foreign national is residing in their home country
   • Suppose the native country of the foreigner is a signatory to The Hague Convention. In that case, the address proof and identification of the individual shall be notarised and apostilled by the nation’s responsible authority.
   • If the country is not a signatory of The Hague convention, then the documents shall be notarised by the county along with consular by its competent authority.
2. When a foreigner is a resident of India
   • Resident Permit signed by the Asst. Foreigner Regional Registration officer
   • Passport of the individual duly attested by the concerned Embassy
   • Visa and Application Form with a recent photograph attested by the concerned Embassy
3. In case the foreign national doesn’t reside in the home country or India

The individual needs to certify the following papers from the local Embassy of the country in which he is residing

1. Passport
2. Application form with a Photo
3. Visa

Documents required for Grant of Business/ Work Visa

1. Valid travel document and a re-entry permit
2. Proof regarding the financial standing of the business, along with a certificate of expertise/ experience in the field of business
3. Documents regarding the business activity that the foreigner, including all the registration certificates of the business

Conditions for a Work Visa

• The foreigner should be a person assured of financial standing. The business shall study the proof of his financial standing and expertise in detail.
• The purpose of business shall not be money laundering or involvement with petty businesses.
• The foreigner must comply with all the requirements like payments of tax and liabilities etc.

Process for Appointment of Foreign Director

The following process is required to appoint a Foreign Director in a Private Company in India.

Step 1: Digital Signature Certificate Application

Applying for a DSC of the director is the first step for instating a foreign director in a private limited company in India. All the paperwork and the applicant’s identity proof shall be submitted to MCA.

Step 2: Director Identification Number for Foreign Directors

For requesting a DIN form, DIR3 is required to be filled by the NRIs. The foreign national must get the form attested by all the company’s existing directors for a successful application.

Step 3: Board Meeting

In the board meeting, the directors will make decisions on behalf of the firm and approve a resolution for the appointment of a Foreign director to the firm. The board will convene such a meeting after receiving the paperwork and request letter from the foreigner requesting a seat on the firm’s board.

Step 4: DIR 12 Filing

The appointment of the Foreign Director is finalized after filing Form DIR 12 by the company. The form contains information such as the date of appointment, designation, first director’s declaration and declaration of the new director, along with basic details of the foreigner.

Rules and Compliance for Appointment of Foreign Director

There are several rules and compliance to be necessarily adhered to by the appointed foreign director, some of which are listed below;

FEMA rules and regulations:

Foreigners appointed as directors in existing private limited companies in India are entitled to the same benefits, compensation, commissions and sitting fees as their Indian counterparts. The foreign directors must also comply with the provisions put forth in the Foreign Exchange Management Act 1999 for operating seamlessly in Indian jurisdiction.

The Foreign national wishing to be appointed as director must have a valid, current work Visa and can operate a foreign currency account with a bank situated outside the limits of India. The individual or authorized agent can receive the entire remuneration the foreigner earns.

Indian companies must submit a request for remittance for their compensation to the authorized dealer with an undertaking and declaration confirming the payment of income tax on the remittance to the foreign director.

Tax Compliance of a Private Limited Company in India with a Foreigner Director

The Income Tax Act of 1961 makes the income generated by a foreign national whilst serving as a director of an Indian company taxable. According to the rules put forth in the Income Tax Act, the necessary TDS will be subtracted from the compensation or Commission earned by the individual.

Any foreign director involved in any transaction over ₹2,50,000 in a Fiscal year must furnish a valid Permanent Account Number.

Foreign directors are required to compulsorily adhere to all the rules and regulations mentioned in the Companies Act, Income Tax Act and FEMA.

Conclusion

A company has perpetual existence in the eyes of the law, but the people managing the company are mortals hence the addition and removal of directors is an essential procedure. Adding a Foreign director to a company is a great prospect for expanding your business. It is not prohibited in India, but there are certain statutory ad regulatory requirements that the companies necessarily meet. The appointment of a Foreign Director opens up the scope of the business and provides a stable platform to the business through which it can reach certain heights. The procedure, though, may sound the same. Still, additional paperwork such as notarization and attestation by Embassy may be tricky for the businesses, which is why businesses seek expert consultation for a hassle-free appointment of Foreign Director.

Read Our Article: Private Limited Company Registration in India and Requirements