Modified on 20 January 2015
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Slide No.
Slide No.
Preface
3
B9
Public Company
29
Who is a Foreign Resident
4
B10
Authorized Capital
31
A
Three Important Points
5
C
Points For Collaboration
33
A1
Need for a Resident Director
6 C1
Additional Matters in Articles of Association
34
C2
Merger of Indian Co. with Foreign Co.
36
D
Key Procedural Requirements
38
D1
Digital Signature
39
D2
Director Identification No. (DIN)
41
D3
PAN under Income Tax Act
44
8
A2
Appointment of Managing Director
A3
Board Meetings by video conferencing
10
B
Points of Interest / Concern
12
B1
One-Person Company
13
B2
Financial Year
15
B3
Promoter
17
B4
Officer in Default
19
B5
Control of Company
21
E
Visa to India – A Quick Glance
45
B6
Resignation by all Directors
23
E1
Visa-on Arrival
46
B7
Associate Company
25
E2
Business Visa
48
B8
Subsidiary Company
27
E3
Employment Visa
50
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Preface Indian economy has been growing at >5% for over a decade. A large economy growing at such a high rate combined with India’s 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. Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com
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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.com
4
A1.
Need for a Resident Director
A2.
Appointment of Managing Director
A3.
Board Meetings by video conferencing
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5
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 4th
July – 31st 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.com
6
A1.
Resident Director (Continued)
Total Stay; not continuous days Minimum 182 days in previous CALENDAR year Necessary from the day of incorporation of the company No relaxations / exceptions Section 149(3)
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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.com
8
A2.
Appointment of Managing Director (Continued)
Section 196(4) & Schedule V
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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.com
10
A3.
Attending Meeting of Board of Directors (Continued)
Section 173(2) & 167(1)(b)
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B1.
One-Person Company
B6.
Resignation by all Directors
B2.
Financial Year
B7.
Associate Company
B3.
Promoter
B8.
Subsidiary Company
B4.
Officer in Default
B9.
Public Company
B5.
Control of Company
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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.com
13
B1.
One Person Company (Continued)
Section 2(62) & 3(1) Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com
14
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.com
15
B2.
Financial Year (Continued)
Section 2(41)
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16
B3.
Promoter
A new concept under India’s 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.com
17
B3.
Promoter (Continued)
Section 2(69) Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com
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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.com
19
B4.
Officer in Default - (Continued)
Section 2(60) and 2(59)
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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
B5.
Control of the Company (Continued)
Section 2(27)
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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.
Section 164(3) Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com
23
B6.
Resignation by all Directors (Continued)
Section 167(3-4), 168(3) Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com
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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.com
25
B7.
Associate Company (Continued)
Section 2(6)
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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.com
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B8.
Subsidiary Company (Continued)
Section 2(87) - Notified except for proviso
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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.com
29
B9.
Public Company (Continued)
Section 2(71); 2(20) and 2(68) Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com
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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.
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B10. Authorized Capital (Continued)
Bill not yet passed by Parliament Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com
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C1.
Additional Matters in Articles of Association
C2.
Merger of Indian Company with Foreign Company
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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.com
34
C1.
Additional Matters in Articles (Continued)
Section 5(2-5) Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com
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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.
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C2.
Merger with a Foreign Company (Continued)
Section 234 - Not yet Notified Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com
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D1.
Digital Signature (DS)
D2.
Director Identification No. (DIN)
D3.
PAN under Income Tax Act
Getting a PAN is a simple matter and a foreign resident individual can do it oneself without need of a legal professional’s 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. Copyright - Anil Chawla Law Associates LLP www.indialegalhelp.com
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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.com
39
D1.
Digital Signature (Continued)
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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.
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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.com
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D2.
DIN (Continued)
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43
D3.
PAN under Income Tax Act
Visit the website https://tin.tin.nsdl.com/pan/ http://www.myutiitsl.com/PANONLINE/form49AA.jsp and fill the form 49A or 49AA online.
or
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.com
44
E1.
Visa-on-Arrival
E2.
Business Visa
E3.
Employment Visa
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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
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E1.
Visa-on-Arrival (Continued)
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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.com
48
E2.
Business Visa (Continued)
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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.com
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E3.
Employment Visa (Continued)
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Hope that it was useful!
Anil Chawla Law Associates LLP
[email protected] Tel. – 09425009280
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