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Appointment of a Non Resident as Managing Director

May 29, 2017     by bsamrishindia.com

It is mandatory to appoint a Managing Director in case of Listed Companies and the Public limited companies having paid up share capital of INR 100 million (~1.55 m USD). Many Indian subsidiaries of foreign companies follow the general practice of appointing Non-Residents on their Board of Directors. Though it is not mandatory to appoint a Managing Director for a Private Limited Company, it may, sometimes out of its own requirement, may decide to appoint one. In case it does and the proposed appointee is a Non Resident, it may be wise decision to go through this note where we have summarized all the important provisions relating to appointment, duties, Board procedures and disclosures to be done, for informed decision and easy reference.

For appointment of a Managing Director, provisions of Section 196 of the Companies Act, 2013 is to be followed. While provisions relating to appointment as given in Section 196 read with Schedule V are all applicable, limits and provisions relating to remuneration (payable to a Managing Director) is not applicable to a Private Limited company.

 

S. No. Particulars Details
1. Appointment and Remuneration Appointment and remuneration of Managing Director is prescribed in Section 196 and Schedule V. The eligibility criteria to be appointed as MD is as follows:

  • MD should be aged between 21 years of age till 70 years of age.
  • He not be undischarged insolvent
  • He has not suspended any payment to creditors
  • He has not been a convict of an offence and sentenced for a period of more than six months
  • He should be a Resident of India

With effect from exemption notification issued on 5th June, 2015, the criteria of residential status has been done away with for private companies. Also provisions w.r.t. managerial remuneration are exempt on private companies.

 

2. Duties
  • He is required to disclose his interest (including his shareholding) in any other company or companies in the first Board Meeting in which he participates as a Director.
  • And other duties as prescribed under Section 166. Example: –
    • He shall act in good faith in order to promote the objects of the Company.
    • He shall exercise his duties with due and reasonable care, skill and diligence.
    • He shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives.
  • He shall not contravene the provisions of Section 164(2). Disqualification u/s 164(2)

To read more on Disqualification of Directors, please visit Disqualifications of Directors : Non-filing of B/s and Annual Returns

3. Attendance in at least one Board Meeting S 167 (1) (b) requires every Director of the company to be present in at least one Board Meeting during a span of 12 months. A NR-Director can either participate through Video Conferencing or the Company can hold Board Meetings abroad. There is no restriction in the Companies Act, 2013 w.r.t. to holding of Board Meetings outside India.

 

4. Board Meeting through Video Conferencing (VC) NR-Director can attend the Board Meeting through Video Conferencing or other Audio Visual Means. However, there are certain items which cannot be transacted through VC: –

  • Approval of financial statements
  • Approval of board’s report
  • Approval of prospectus
  • Approval of mergers, amalgamations etc

Quorum

Any Director, can participate through Electronic Mode in respect of restricted items with the express permission of Chairman, however, he neither be entitled to vote nor be counted for the purpose of Quorum in respect of such restricted items.

Please visit Board Meeting through Video Conferencing or other Audio Visual Means, for more information on conducting a Board Meeting through Video Conferencing

 

5. Signing of Financials and Board’s Report

 

If the company has appointed a MD, it is mandatory for him to sign the financials of the Company and the Board’s Report.

 

6. Annual Report on CSR Activities (Section 135 of the Companies Act, 2013)

 

The Companies on whom CSR or Corporate Social Responsibility is mandatory have to get their Annual Report on CSR Activities signed by the MD of the Company. This Annual Return forms a part of the Board’s Report.

 

7. Procedure for Appointment For the appointment as Director, NR is required to obtain

  • Digital Signature Certificate (DSC) and
  • Directors Identification Number (DIN).

Since the proposed Director is a NR, his documents pertaining to obtaining the DSC and DIN will be apostilled / notarized / concularised as the case may be.

 

 

Note: please note that the provisions elaborated are in terms of their applicability on private companies

 

 

One thought on “Appointment of a Non Resident as Managing Director

    1. There is no requirement for Central Government for appointment of a non-resident MD. However, the person being appointed as the MD of the Company shall possess a valid Employment Visa in conformity to Schedule V of Companies Act 2013.

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