Modified on 20 January 2015 www.indialegalhelp.com Slide 2
Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com2
Slide No. Preface3 Who is a Foreign Resident4 AThree Important
Points5 A1Need for a Resident Director 6 A2Appointment of Managing
Director 8 A3Board Meetings by video conferencing 10 BPoints of
Interest / Concern 12 B1One-Person Company 13 B2Financial Year 15
B3Promoter 17 B4Officer in Default 19 B5Control of Company 21
B6Resignation by all Directors 23 B7B7Associate Company 25
B8B8Subsidiary Company 27 Slide No. B9B9Public Company29
B10Authorized Capital31 CPoints For Collaboration33 C1 Additional
Matters in Articles of Association 34 C2Merger of Indian Co. with
Foreign Co.36 DKey Procedural Requirements38 D1Digital Signature39
D2Director Identification No. (DIN)41 D3PAN under Income Tax Act44
EVisa to India A Quick Glance45 E1Visa-on Arrival 46 E2Business
Visa 48 E3Employment Visa 50 Slide 3 Preface Copyright - Anil
Chawla Law Associates LLP www.indialegalhelp.com3 Indian economy
has been growing at >5% for over a decade. A large economy
growing at such a high rate combined with Indias stable political
system, free economy and dynamic spirit of the people is attracting
interest from business houses and individuals across the globe.
This Presentation is part of the on-going efforts of Anil Chawla
Law Associates LLP to help the world get a better understanding of
India and her legal system. Companies Act, 2013 replaced Companies
Act, 1956. There are many confusions even among Indian
professionals about the new law. There are many points on which
Indian industry is pleading with Government of India for change. It
may be said that the law relating to companies is in a state of
flux in India. At the time of writing this, The Companies
(Amendment) Bill, 2014 has been passed by the lower house of the
Parliament and is awaiting clearance from the upper house. Some
observers feel that there may be many more amendments in the
pipeline. As the law goes through changes, we shall endeavor to
modify this Presentation. This Presentation is for Indian citizens
resident abroad as well as for foreign nationals. A word of caution
this Presentation is not intended to replace professional advice.
Please do consult a legal professional / company secretary. In this
Presentation, key points related to a topic are given in one slide
and the relevant extract from Companies Act, 2013 is given verbatim
in the next slide. The Presentation also gives a quick overview of
the type of visas that a foreign citizen may avail of for doing
business in India. Slide 4 Who is a Foreign Resident? The Companies
Act, 2013 (the Act) does not define a foreign resident / foreigner
Any one (including an Indian citizen) may be treated like a foreign
resident if he / she has not been staying in India for continuous
period of 12 months immediately preceding the date of his
appointment as a managerial person (Schedule V) Anyone (including
an Indian citizen) who has stayed in India for a total period of
less than 182 days in the previous calendar year will be treated as
a foreign resident (Sec. 149(3)) A foreign citizen staying in India
for 12 months may enjoy all rights under the Act while the same
rights are not available to a Non-resident Indian citizen.
Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com4
Slide 5 A1.Need for a Resident Director A2.Appointment of Managing
Director A3.Board Meetings by video conferencing Copyright - Anil
Chawla Law Associates LLP www.indialegalhelp.com5 Slide 6
A1.Resident Director Every company (whether private or public)
needs a resident director Even a one-person company needs a
resident director, so a foreign individual wanting to set up a
one-person company must necessarily partner with an Indian resident
If a NRI couple (Indian citizens) move to India anytime during 4 th
July 31 st December 2014 and wish to form a company owned by two of
them anytime during 2015, they shall need a third person as a
resident director. Resident Director condition 182 days Resident
director need not be Indian citizen Copyright - Anil Chawla Law
Associates LLP www.indialegalhelp.com6 Slide 7 A1.Resident Director
(Continued) 7 Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com Section 149(3) Total Stay; not continuous
days Minimum 182 days in previous CALENDAR year Necessary from the
day of incorporation of the company No relaxations / exceptions
Slide 8 A2.Appointment of Managing Director Must be a resident of
India. If not a resident, Central Government approval necessary
Resident not defined; Explanation I lists two categories which are
included (a) staying in India for a continuous period of not less
than 12 months immediately preceding the date of his appointment
(b) has come to India for taking up employment in India or for
carrying on business or vacation in India. (The word vacation is an
obvious mistake. It should have been vocation.) An Indian citizen
who has gone to visit his son in USA and stayed there for, say, two
months will need Central Government approval for appointment as MD.
Proviso does not mention Business Visa A badly drafted Schedule
apparently with a typographical error. Copyright - Anil Chawla Law
Associates LLP www.indialegalhelp.com8 Slide 9 A2.Appointment of
Managing Director (Continued) 9 Copyright - Anil Chawla Law
Associates LLP www.indialegalhelp.com Section 196(4) & Schedule
V Slide 10 A3.Attending Meeting of Board of Directors Necessary for
a Director to attend at least one meeting in a year. Participation
may be in person or by video conference. Physical meetings can be
held anywhere in the world. Video conference meetings will not be
able to take up all issues. The issues that need physical meetings
not yet specified. Video meetings will need to be recorded (The
requirement is not for physical meetings). Telephonic conferences
(audio only) not recognized A small company can hold only one
physical meeting (anywhere in the world) and one video meeting in a
year. So, practically possible to own a company in India without
ever coming to India. Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com10 Slide 11 A3.Attending Meeting of Board of
Directors (Continued) 11 Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com Section 173(2) & 167(1)(b) Slide 12
B1.One-Person Company B2.Financial Year B3.Promoter B4.Officer in
Default B5.Control of Company Copyright - Anil Chawla Law
Associates LLP www.indialegalhelp.com12 B6.Resignation by all
Directors B7.Associate Company B8.Subsidiary Company B9.Public
Company Slide 13 B1.One Person Company Very useful for persons who
find it difficult to find trustworthy persons to act as
shareholders Also useful for foreign professionals like doctors,
lawyers, engineers etc. who want to operate with limited liability
Foreign citizen will need a resident director till he / she becomes
resident of India Necessary to define line of inheritance A
One-Person Company with only one director still needs to hold
meetings of Board (exception under 173(5) strangely relates to only
the sub-section and not the whole section) Copyright - Anil Chawla
Law Associates LLP www.indialegalhelp.com13 Slide 14 B1.One Person
Company (Continued) 14 Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com Section 2(62) & 3(1) Slide 15
B2.Financial Year Financial Year in India is 1 April to 31 March An
Indian company, which is holding company or subsidiary of a foreign
company may apply for adopting a different financial year if needed
to consolidate its accounts with the foreign company. Application
to be made to the Tribunal Corresponding change not made in Income
Tax. Section 2(9) of IT Act states - "assessment year" means the
period of twelve months commencing on the 1st day of April every
year Companies adopting a different F.Y. under Companies Act will
still need to prepare accounts for April-March to comply with IT
Act. Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com15 Slide 16 B2.Financial Year (Continued) 16
Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com
Section 2(41) Slide 17 B3.Promoter A new concept under Indias
Companies Act A foreign company / individual getting into a Joint
Venture (JV) with an Indian partner must decide if they want to be
known as the Promoter of the Indian company If the foreigner does
not want to be a Promoter, care should be taken in drafting the JV
Agreement regarding their powers in relation to control over the
affairs of the Indian company and about powers to give directions
to the Board. On the other hand, there are clear advantages in
becoming a Promoter and the foreigner may be advised to get the
status. Power of the Promoter to give directions to the Board may
be cast in stone in the JV Agreement. Copyright - Anil Chawla Law
Associates LLP www.indialegalhelp.com17 Slide 18 B3.Promoter
(Continued) 18 Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com Section 2(69) Slide 19 B4.Officer in Default
Promoter shall always be the first to be caught as an Officer in
Default, if the company makes some mistakes. Officer in Default
need not be an individual since the word used is person and not an
individual. So a foreign company may become Officer in Default.
Officer need not be an employee of the company. Officer need not
even receive any remuneration / benefit from the company. The key
is any person in accordance with whose directions or instructions,
the Board of Directors or any one or more of the Directors is or
are accustomed to act. If a foreigner wishes to avoid being Officer
in Default, care should be taken in drafting the JV Agreement.
Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com19
Slide 20 B4.Officer in Default - (Continued) 20 Copyright - Anil
Chawla Law Associates LLP www.indialegalhelp.com Section 2(60) and
2(59) Slide 21 B5.Control of the Company A much wider term than
Promoter since many possibilities are covered including due to
either of (a) shareholding (b) management rights (c) shareholders
agreement (d) voting agreement (e) any other manner Key is right to
(a) appoint majority of the Directors or (b) control management or
policy decisions. Existence of right will establish control. One
may have never exercised the right. Adverse effects of being in
control are not clear. All punishments and penalties are for
officers and not for person in control. So, there need not be any
fear of becoming in control. Copyright - Anil Chawla Law Associates
LLP www.indialegalhelp.com 21 Slide 22 B5.Control of the Company
(Continued) 22 Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com Section 2(27) Slide 23 B6.Resignation by all
Directors A special situation that gives power to Promoter Now it
is possible for a Promoter to manage a private company with all
dummy directors who will hold office at the pleasure of the
Promoter. Articles of a private co. may provide Directors shall
hold office at the pleasure of the Promoter and displeasure of the
Promoter will be a disqualification under 164 of the Act. Foreign
Investors / Entrepreneurs may take advantage of this to remote
control Indian company promoted by them. Copyright - Anil Chawla
Law Associates LLP www.indialegalhelp.com23 Section 164(3) Slide 24
B6.Resignation by all Directors (Continued) 24 Copyright - Anil
Chawla Law Associates LLP www.indialegalhelp.com Section 167(3-4),
168(3) Slide 25 B7.Associate Company A new concept in Indian law
(Was earlier in Accounting Standards) A foreign company (FC) owns
20% or more share capital of Indian company (IC) or has control of
business decisions. IC is associate of FC but FC is not associate
of IC. Associate is a one-way relation and not a two-way
relationship. Often the Indian Joint Venture of a Foreign Company
is an Associate Company of the Foreign Company under the Act Need
to check from the view of home law of the Foreign Company whether
the Indian Company is an Associate. This is important from the view
of accounting of the Foreign Company. Copyright - Anil Chawla Law
Associates LLP www.indialegalhelp.com25 Slide 26 B7.Associate
Company (Continued) 26 Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com Section 2(6) Slide 27 B8.Subsidiary Company
One of two criteria (a) control composition of Board of Directors
or (b) exercise or control more than half of the total share
capital Restriction on number of layers Controlling composition
means one can appoint or remove all or majority of the directors.
There is a view that if holding company is a foreign company, the
Indian subsidiary will be deemed to be a public limited company
ref. definition of public company, sec. 2(71). Any JV agreement
involving a foreign company must mull whether the foreign company
wants to create a subsidiary. Copyright - Anil Chawla Law
Associates LLP www.indialegalhelp.com27 Slide 28 B8.Subsidiary
Company (Continued) 28 Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com Section 2(87) - Notified except for proviso
Slide 29 B9.Public Company A subsidiary of any company (which is
not a private company) is a deemed public company. Definition of
private company refers to a company fulfilling some conditions.
Definition of company refers only to company registered in India By
joining up all definitions, it emerges that any Indian subsidiary
of a foreign company will be a deemed public company. Legal
position on this point is in the process of debate and
deliberations. Will take some time before legal view in the matter
is settled. Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com29 Slide 30 B9.Public Company (Continued) 30
Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com
Section 2(71); 2(20) and 2(68) Slide 31 B10.Authorized Capital
Companies (Amendment) Bill, 2014 has removed the need for a minimum
authorized capital for a company. The Bill has not yet become law.
At present, a private limited company must have an authorized
capital of Rs. 100,000- and a public limited capital of Rs.
500,000-. The Bill follows the practice followed by many countries
A very low (almost zero) capital company will be most convenient
for foreign citizens who wish to own an Indian entity without
committing investments. Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com31 Slide 32 B10.Authorized Capital
(Continued) 32 Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com Bill not yet passed by Parliament Slide 33
C1.Additional Matters in Articles of Association C2.Merger of
Indian Company with Foreign Company Copyright - Anil Chawla Law
Associates LLP www.indialegalhelp.com33 Slide 34 C1.Additional
Matters in Articles of Association Articles can include all types
of restrictive clauses that JV partners want to safeguard their
interests. For example, we recently included a provision in the
Articles of a new company that all decisions of Board shall be by
consensus. For example, we included a provision that a Special
Resolution / Extra Ordinary General Meeting will need approval of
all directors without any absentees. Use of standard Articles of
Association should be avoided in case of Joint Venture involving
foreigners. A Shareholders Agreement / JV Agreement has limited
enforceability. Articles of Association is a stronger document and
higher care should be taken. Entrenchment a new word in Indian law
needs careful attention. Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com34 Slide 35 C1.Additional Matters in Articles
(Continued) 35 Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com Section 5(2-5) Slide 36 C2.Merger of Indian
Company with Foreign Co. It is only an enabling provision in law.
Details have yet to emerge. Likely to be permitted with only
companies of a few friendly countries. Nevertheless, it may be
worthwhile for Joint Venture Agreements to provide for the merger
of either Indian company with the foreign company or vice versa,
subject to such terms as may be provided in the Agreement and also
subject to the rules / restrictions under section 234 of the Act.
Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com36
Slide 37 C2.Merger with a Foreign Company (Continued) 37 Copyright
- Anil Chawla Law Associates LLP www.indialegalhelp.com Section 234
- Not yet Notified Slide 38 D1.Digital Signature (DS) D2. Director
Identification No. (DIN) D3. PAN under Income Tax Act Copyright -
Anil Chawla Law Associates LLP www.indialegalhelp.com38 Getting a
PAN is a simple matter and a foreign resident individual can do it
oneself without need of a legal professionals assistance. For DIN
and DS it is best to let the Company Secretary who is going to
handle company incorporation take care of the formalities. Here, we
give only the documents required to be given to the Company
Secretary for getting DIN and DS. Please note that it is possible
to get DS, DIN and PAN without visiting India. Similarly, it is
possible for a foreign resident to incorporate an Indian company
without visiting India. Slide 39 D1.Digital Signature At least one
of the promoters must have a digital signature. A digital signature
is given on a pen drive. Typically, your company secretary will
keep it with him and use it for completing all formalities with
Ministry of Company Affairs. Documents required for a digital
signature: One proof of identity and One proof of address +
passport size photograph. In case passport has address, passport
serves both as proof of identity and address. Copy of above
document(s) for foreign nationals to be attested by public notary /
Indian embassy in the country where residing. Copyright - Anil
Chawla Law Associates LLP www.indialegalhelp.com39 Slide 40
D1.Digital Signature (Continued) Copyright - Anil Chawla Law
Associates LLP www.indialegalhelp.com40 Slide 41 D1.Director
Identification Number (DIN) DIN is necessary for everyone who
wishes to become a Director or promoter of a company A person has
to take only one DIN. The same DIN works for all companies that the
person is associated with. Taking more than one DIN is an offence.
DIN application has to be signed by digital signature. Hence,
digital signature essential for getting DIN. Copyright - Anil
Chawla Law Associates LLP www.indialegalhelp.com41 Slide 42 D1.DIN
(Continued) PAN (Permanent Account Number) under Indian Income Tax
Act necessary for Indian citizens whether they are resident in
India or abroad. For foreign nationals, PAN is not necessary;
passport number and copy is essential. DIN application (DIR 3) has
to be accompanied by copy of identity proof, copy of address proof
and a photograph in jpg / gif / png format. For foreign residents,
documents to be attested by foreign public notary / Indian embassy.
DIN 3 has to be verified by a Company Secretary / Chartered
Accountant / Cost Accountant. Copyright - Anil Chawla Law
Associates LLP www.indialegalhelp.com42 Slide 43 D2.DIN (Continued)
Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com43
Slide 44 D3.PAN under Income Tax Act Visit the website
https://tin.tin.nsdl.com/pan/ or
http://www.myutiitsl.com/PANONLINE/form49AA.jsp and fill the form
49A or 49AA online. Documents required one for proof of identity
and one for proof of address. Proof of Identity Document Copy of
Passport attested by Indian Embassy / Consulate / High Commission /
Apostille or Person of Indian Origin (PIO) card issued by
Government of India or Copy of Overseas Citizen of India (OCI) card
issued by Government of India Proof of Address Document Copy of
Passport attested by Indian Embassy / Consulate /High Commission
/Apostille or Bank account statement in country of residence, duly
attested by Indian Embassy /High Commission / Consulate / Apostille
in the country where applicant is located or Person of Indian
Origin (PIO) card issued by Government of India or NRE bank account
statement Overseas Citizen of India (OCI) card issued by Government
of India Please note that Indian citizens need to fill Form 49 A,
while foreign citizens need to fill Form 49AA. There is no need to
have an address in India to get a PAN. Copyright - Anil Chawla Law
Associates LLP www.indialegalhelp.com44 Slide 45 E1.Visa-on-Arrival
E2.Business Visa E3.Employment Visa Copyright - Anil Chawla Law
Associates LLP www.indialegalhelp.com45 Slide 46 E1.Visa-on-Arrival
Useful for initial business meetings before India entry plans
finalized Only for nationals of Finland, Japan, Luxembourg, New
Zealand, Singapore, Cambodia, Vietnam, Philippines, Laos,
Indonesia, Myanmar and South Korea. Provided at international
airports of Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad,
Trivandrum and Cochin. Should be holding return ticket and money
for expenses during stay in India. Not granted to foreigners who
have permanent residence or occupation in India. Single entry;
duration of each visit limited to 30 days with maximum of two times
in a calendar year. Cannot be extended or converted to any other
type of visa Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com46 Slide 47 E1.Visa-on-Arrival (Continued) 47
Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com
Slide 48 E2.Business Visa Granted to Foreign citizens coming to
India to set up a business / industrial venture or to explore
possibility of doing so; also to Directors Must be a person of
assured financial standing Not granted for petty business or trade
(Business should achieve gross sales / turnover of Rs. 10 million
per annum within two years of setting up the business) Not granted
for employment Can be of up to five years duration (10 years, in
case of citizens of USA) Multiple entry; maximum duration of each
visit may be limited to six months at a stretch (In case of such a
restriction, the person may go out and revisit) Copyright - Anil
Chawla Law Associates LLP www.indialegalhelp.com48 Slide 49
E2.Business Visa (Continued) 49 Copyright - Anil Chawla Law
Associates LLP www.indialegalhelp.com Slide 50 E3.Employment Visa
India discourages employment visas Granted only to highly qualified
or skilled professional being engaged by a company in India Not
granted for jobs for which qualified Indians available Should draw
salary in excess of USD 25,000 p.a. Name of sponsoring organization
shall be specified in Visa sticker Duration 2/3/5 years or period
of Agreement, whichever is less Employment visa, generally, not
converted into any other category No change of employer, except
under special cases Copyright - Anil Chawla Law Associates LLP
www.indialegalhelp.com50 Slide 51 E3.Employment Visa (Continued) 51
Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com
Slide 52 Hope that it was useful! Copyright - Anil Chawla Law
Associates LLP www.indialegalhelp.com52 Anil Chawla Law Associates
LLP [email protected] [email protected] Tel.
09425009280
