Directors and their Role in a Company
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 means a Director appointed to the Board of a company. The Directors are the head of a company. They are the supreme 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.
Their Roles in a company are :
Head of the Company:
- Directors hold the highest positions in a company and are considered the head of the organization.
- They have the authority and responsibility to make decisions and govern the company.
Board of Directors (BOD):
- Directors collectively form the Board of Directors (BOD) of a company.
- The BOD is responsible for overseeing and directing the management activities of the company.
Managerial and Other Affairs:
- Directors have the power to control and manage the company's affairs, including strategic decisions, operations, and financial matters.
- They play a vital role in formulating policies and setting the direction of the company.
Protection of Shareholders' Interests:
- Directors have a fiduciary duty to act in the best interests of the company and its shareholders.
- They safeguard the long-term interests of the shareholders by making informed decisions and ensuring corporate governance.
Overall Governance:
- Directors are involved in key governance functions, such as appointing senior executives, setting executive compensation, and ensuring compliance with laws and regulations.
Responsibilities and Liabilities:
- Directors have legal and ethical responsibilities towards the company, shareholders, employees, and other stakeholders.
- They may be held personally liable for any breach of duties or negligence.
Foreign National As Director in an India Company
The company’s law in India does not bar foreign nationals to become 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 Companies Act, 2013
Appointment of directors under Companies Act, 2013
Under Indian Companies Act, 2013, six types of Directors are 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 to be appointed as any of the above-mentioned directors in Indian Companies by complying with the Companies Act, 2013 (hereinafter referred as “The Act”) read along with the Companies (Appointment and Qualifications of Directors) Rules, 2014 (hereinafter referred as “The Rules”)
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 with a Director Identification Number (DIN) before appointed as a director;
- Every person (including a foreign national) to be appointed as a Director shall furnish his DIN and shall declare that he is 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 he gives his 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)
An applicant (including a foreign national), shall make an application for obtaining DIN in electronic Form DIR-3 to the Central Government along with fees of Rs. 500 as provided under The Rules. The Central Government will provide an electronic system to facilitate submission of the application for allotment of DIN through the portal on the MCA (Ministry of Corporate Affairs) website.
The Form DIR-3 has to be downloaded from the portal. It has to be filled and signed by the applicant using his/her own Digital Signature Certificate and shall be submitted electronically. Following are the documents required to be attached to the application:
- Photograph;
- Proof of identity;
- Proof of residence;
- Copy of Resolution regarding Proposal to appoint Director (Including Foreign National/ NRI)
In the case of foreign national applying for DIN to become a director in an Indian company, details of a valid passport should be filled in Form DIR-3, and a certified copy of same should be attached with DIN application. All supporting documents including photograph 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 applicant is a director.
The DIN so obtained by the applicant shall be valid till 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 pecuniary relationship with the company, its holding or subsidiary or associate company; neither himself nor his relative is a key managerial personnel or any employee in the company.
A foreign national can be an independent Director of a company if he possesses 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 company’s business.
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 his appointment. He should not be less than twenty-one years of age nor more than seventy years of age.
Foreign National as a Director under Foreign Exchange Management Act (FEMA), 1999
As per Companies Act and FEMA, there are no restrictions for a foreign national to become a director in an Indian Company. He is eligible for sitting fees, remuneration, commission, travel expenses just like any other director.
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 him for his 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 director in an Indian company shall hold a valid employment visa.
My views: If the Foreign National is appointed as Non-Executive Directors, then he needs to hold Employment Visa otherwise he can be appointed as Non Executive Director even without any visa thereon.
Foreign National as a Director under Income Tax Act, 1961
Any income earned in India is subjected to Income Tax. Similarly, in the case where a foreign national earns as a director of an Indian company is subjected to income tax under Income Tax, 1961. The required TDS shall be deducted from their remuneration or commission as per the provisions of Income Tax Act.
The information provided herein is of general nature and not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and updated insight, we do not guarantee that such information is accurate as on date. The author can be however contacted for further clarification at 99145-58709 or via mail at csmohitsaluja@gmail.com
The author can be reached at csmohitsaluja@gmail.com
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