Who is a Foreign Director?
Legal Framework for Foreign Director in Indian Company
Requirement of Director Identification Number (Section 153)
Eligibility Criteria For Foreign Directorship (Section 149)
Disqualifications for Directors (Section 164)
Security Clearance for Directors from Bordering Nations
Compliance with Foreign Exchange Management Act (FEMA)
Other Regulatory Considerations
Procedure for Appointment of Foreign Director in Indian Company
![Procedure for Appointment of Foreign Director in Indian Company](https://www.setindiabiz.com/wp-content/uploads/2024/02/procedure-for-appointment-of-foreign-director-in-indian-company.jpg)
- Director Identification Number (DIN): Every individual proposed to be appointed as a director must obtain a Director Identification Number (DIN) as per Section 154 of the Companies Act.
- For foreign nationals, obtaining a DIN involves submitting the DIN application, along with legalised copies of Passport, proof of Indian residence, and DIN application.
- Authentication of documents can be done by the Indian Embassy, a notary in the foreign national’s home country, or specific authorities within India, ensuring the legitimacy of the identification process.
- If the foreign national belongs to a country that shares a land border with India, prior security clearance will be required from the Central Government. The security clearance letter so obtained will have to be attached with the DIN application as well.
- Once the DIN is obtained, the director shall intimate the company of the same, within 30 days. Following this intimation, the company shall, in the next 15 days, intimate the ROC of the same.
- Eligibility Declaration: Before appointment, the proposed director must furnish their Director Identification Number (DIN) and a declaration confirming their eligibility to serve as a director at the general meeting of the company. This declaration typically affirms that the individual is not disqualified from serving as a director under section 164 and meets the necessary eligibility criteria outlined in Section 149.
- Intimation of Consent: The proposed director must provide consent to hold office as a director (DIR-2), indicating their willingness to assume the duties and responsibilities associated with the position. This consent must be filed with the Registrar of Companies within thirty days of the director’s appointment, ensuring that the appointment process is officially documented and recorded.
- Appointment at the General Meeting: Directors are appointed in the general meeting of the company’s shareholders, as per Section 149(2) of the Companies Act. Shareholders typically approve the appointment by passing a resolution to the effect, ensuring that the process is carried out in transparency and with the consent of the company’s owners. The crucial documents that must be placed in this meeting include the Director’s DIN, eligibility declaration, and consent.
- Receipt of Official Appointment Letter:Following the approval of the director’s appointment at the general meeting, the individual is issued an official appointment letter by the company. This letter formally notifies the director of their appointment, outlining their roles, responsibilities, and any specific terms or conditions associated with the directorship. The appointment letter serves as a formal acknowledgment of the director’s position within the company and establishes the commencement of their duties as per the terms agreed upon. Additionally, the appointment letter may include details regarding remuneration, tenure, and other matters pertinent to the director’s role.
Role of the Foreign Director in Indian Company
- Compliance with Company Articles: As per the provisions of the Companies Act, a director is required to act in accordance with the articles of the company, ensuring alignment with its governing rules and regulations.
- Fiduciary Duties: Foreign directors are obligated to act in good faith, promoting the company’s objectives for the benefit of its members as a whole, and in the best interests of the company, its employees, shareholders, the community, and the environment.
- Exercise of Due Care and Diligence: Directors are required to exercise their duties with due and reasonable care, skill, and diligence, exercising independent judgment in decision-making processes to safeguard the interests of the company.
- Avoidance of Conflict of Interest: Directors must refrain from situations where their interests may conflict with those of the company, whether directly or indirectly. Any such conflict must be disclosed and managed appropriately to prevent any detriment to the company.
- Prohibition of Undue Gain: Directors are prohibited from seeking undue gain or advantage for themselves, their relatives, partners, or associates at the expense of the company. Any undue gain obtained by a director shall be liable to be repaid to the company.
- Non-assignability of Office: Directors are not permitted to assign their office, and any such attempt to do so shall be deemed void under the law.
- Consequences of Contravention: Directors who contravene the provisions outlined in this section are subject to penalties, including fines ranging from one to five lakh rupees, ensuring accountability and adherence to legal obligations.
The role of foreign director in Indian Company is pivotal in enhancing global perspectives, fostering cross-cultural collaboration, and driving strategic decision-making. By adhering to legal provisions, maintaining compliance with regulatory frameworks, and embracing best practices in corporate governance, foreign directors contribute significantly to the growth and success of Indian companies. Despite the complexities and considerations involved, navigating the landscape of Indian corporate governance offers opportunities for foreign directors to make meaningful contributions and shape the future trajectory of businesses in the dynamic Indian market.
FAQs
Q1: Can a foreign national be appointed as a director in an Indian company?
Q2: What are the eligibility criteria for a foreign director in Indian company?
Eligibility of Foreign Director in India Company:
- Minimum 18 years of age
- Must obtain DIN
- Must not be disqualified u/s 164 of Companies Act
- Must provide consent to appointment
- Must have security clearance from Central Government, if belonging to a bordering nation
Q3: What are the tax implications for foreign director in Indian Company?
Q4: What are the documents required for DIN of foreign directors?
Q5: How is a foreign director appointed in an Indian company?
To appoint a foreign director in Indian Company, you must follow the steps below:
- Obtain Security Clearance from Central Government, if Director belongs to a bordering nation
- Obtain DIN using legalised documents
- Obtain Director’s Consent
- Obtain Director’s Declaration of Non-disqualification
- Pass Resolution in the General Meeting
- Intimate Director’s Consent & Declaration to the ROC
- Issue Official Appointment Letter
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