An Indian company can have foreign directors on its board. However, if there is a foreign director some process involved in incorporation and running the company differs.
Registration Of Company With Foreign Directors: Overview
A company, being an artificial person, is managed and controlled by its officers, called the directors of the company. According to the inclusive definition under the Companies Act, 2013, a director is defined as a person appointed to the Board of a company. The Directors are the heads of a company. Know more about Registration Of Company With Foreign Directors.
They are the authority controlling the managerial and other affairs of the company. They are jointly known as the Board of Directors (BOD) of a company under Section 2(10) of the Companies Act, 2013. The BOD oversees the management activities of the company as well as protects the long-term interests of the shareholders of the company.
The company law in India does not bar foreign nationals from becoming directors in Indian companies. A foreigner or a non-resident Indian can become an executive or a non-executive/independent director of Indian companies whether public or private. Following are the relevant laws applicable to a foreign national as a director in an Indian company.
Foreign National As a Director Under the Companies Act, 2013
Under the Indian Companies Act, 2013, six types of directors can be appointed in a company, i.e., Women Director, Independent Director, Small Shareholders Director, Additional Director, Alternative and Nominee Director. The Act does not bar a foreign national from being appointed as any of the above-mentioned directors in Indian Companies.
The following are the criteria that are to be fulfilled by a person (including a foreign national) to become a director of a company under the Act:
- Every person (including a foreign national) shall be allotted a Director Identification Number (DIN) before being appointed as a director;
- Every person (including a foreign national) who is appointed as a director shall furnish their DIN and shall declare that they are not disqualified from becoming a director under this Act, and the person (including a foreign national) appointed as a director shall not act as a director unless they give their written consent to act as director in Form DIR-2. Such consent has to be filed with the Registrar within 30 days of his appointment.
Application & Allotment of Director Identification Number (DIN):
DIN is allotted by the central government to the person intending to become the director of a company. Every person intending to become a director of a company shall make an application to the central government for allotment of DIN under Section 153 of The Act.
The DIN is allotted to the applicant within one month from the receipt of the application. An applicant shall make an application for obtaining DIN in electronic Form DIR-3 to the central government along with fees of ₹500 as provided under The Rules. The central government will provide an electronic system to facilitate the submission of the application for the allotment of DIN through the portal on the MCA (Ministry of Corporate Affairs) website. The DIR-3 form has to be downloaded from the portal. It has to be filled and signed by the applicant using their Digital Signature Certificate and shall be submitted electronically.
Following are the documents required for a foreign director for company formation:
- Photograph
- Proof of identity
- Proof of residence
- Verification by the applicant for applying for allotment of DIN in Form DIR-4
- Specimen signature duly verified
In the case of a foreign national applying for DIN to become a foreign director in an Indian company, details of a valid passport should be filled in Form DIR-3, and a certified copy of the same should be attached with the DIN application. All supporting documents, including photographs, should be certified by the Indian Embassy or a notary in the home country of the applicant, or by the Managing Director/CEO/Company Secretary of the company registered in India, in which the applicant is a director.
If a foreign director has a valid multiple-entry Indian visa or Person of Indian Origin card or Overseas Citizen of India card, then the attestation could also be done by a Public Notary/Gazetted Officer in India or a practising chartered accountant/company secretary/cost accountant.
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The DIR-3 Form Shall be Digitally Verified By:
- A chartered accountant in practice, or a company secretary in practice, or a cost accountant in practice; or
- A company secretary in full-time employment of the company, or by the managing director, or director of the company in which the applicant is to be appointed as a director.
Immediately after submitting the DIN application online, a provisional DIN is generated automatically. Provisional DIN shall not be utilized until it is approved and confirmed by the central government. The central government processes the application so received and decides whether to accept or reject the DIN and communicates the same to the applicant within one month from the date of receiving the application after company registration.
If the central government finds any defect or incompleteness in the application, then it shall communicate the same by placing it on the website and by emailing it to the applicant, directing them to rectify the errors within 15 days from the date of such placing it on the website and email.
In case the errors are partially corrected, or the rectified information is still defective, then the central government shall reject the application and direct the applicant to file a fresh application for DIN.
In case the information is not rectified within a given time, then such an application shall be held invalid by the central government. On rejection of the application, the provisional DIN shall automatically lapse, and the fees paid shall neither be refunded nor adjusted with any other application. The DIN so obtained by the applicant shall be valid until the lifetime of the applicant.
Independent Director
An independent director of a company means a director who is not a promoter nor related to the promoter of the company or has no pecuniary relationship nor related to any person having a pecuniary relationship with the company, its holding or subsidiary or associate company. Neither themselves nor their relatives are key managerial personnel or any employee in the company.
A foreign national can be an independent director of a company if they possess skills, experience, and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations, or other disciplines related to the company’s business.
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Managing Director or Whole-Time Director
A foreign national, intending to become a managing or a full-time director, should be a resident of India i.e. who has been staying in India continuously, not less than twelve months, immediately preceding the date of their appointment. They should not be less than twenty-one years of age nor more than seventy years of age. If the person is seventy years of age, they can be appointed by bypassing a special resolution.
The person should not be insolvent; nor has, at any time, suspended payment to their creditors; or has, at any time been convicted of an offence and sentenced for more than a period of six months. Such an appointment is approved by the BOD at a meeting which shall be a subject of approval in the next general meeting by passing a resolution. Approval from the central government is needed if the person does not comply with the above-mentioned conditions.
Compliances Under FEMA For a Foreign Director
As per the Companies Act and FEMA, there are no restrictions for a foreign national to become a director in an Indian Company. They are eligible for sitting fees, remuneration, commission, and travel expenses just like any other director. But, according to FEMA, a foreign national cannot acquire a property situated in India.
A foreign national, as a director in an Indian company, can hold and maintain a foreign currency account with a bank outside India, and receive or remit the whole salary payable to them for their services. Where foreign nationals are engaged by Indian companies, the Indian companies shall make an application for remittance of remuneration to authorized dealers with a statement and undertaking certificate regarding payment of Income Tax. A foreign national, intending to become a foreign director in an Indian company, shall hold a valid employment visa.
Taxability of Income of a Foreign Director
Any income earned in India is subjected to Income Tax. Similarly, in the case where a foreign national earn as a director of an Indian company, is subjected to income tax returns under the Income Tax Act, of 1961. The required TDS shall be deducted from their remuneration or commission as per the provisions of the Income Tax Act.
The Act does not prohibit the appointment of a foreign national as the director of any Indian company. It does not give any immunity as such just because they are foreign nationals. They shall comply with the Companies Act 2013, Companies Rules 2014, FEMA 1999, and Income Tax Act 1961.
FAQ’s
How do I incorporate a company with a foreign director?
A foreign national can be appointed as a director in an Indian company by complying with the Companies Act, 2013, and the Companies (Appointment and Qualifications of Directors) Rules, 2014. The foreign national must obtain both (DSC) and (DIN) in addition to filing the necessary documents with the Registrar of Companies.
Is DIN mandatory for foreign directors?
Yes, a foreign director must obtain a DIN to be appointed as a director in an Indian company.
Is DIN mandatory for foreign directors?
Yes, a foreign director must obtain a DIN to be appointed as a director in an Indian company.
How many foreign directors can a company have?
There is no limit on the number of foreign directors a company can have. However, at least one director must be a resident of India.
Is PAN mandatory for foreign directors?
Yes, a PAN card is mandatory for foreign directors.
Can a foreigner be a director of an Indian company?
Yes, a foreign national can be appointed as a director in an Indian company.
What are the liabilities of foreign directors?
Foreign directors of Indian companies have the same legal and ethical responsibilities as Indian directors. They may be held personally liable for any breach of duties or negligence, and may even face civil and criminal liability in certain cases.
Who is a foreign director as per Companies Act 2013?
A foreign director is a director of an Indian company who is not a resident of India. The Companies Act of 2013, allows foreign nationals to serve as directors of Indian companies, subject to certain eligibility criteria and relevant regulations.
