Resident Director Requirement Goes Into Effect Under Updated Companies Act

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DELHI – Subsidiaries of foreign companies in India will be required to have at least on resident director on its board by 1st April, 2015, in accordance with the updated Companies Act 2013.

Section 149(3) of the Companies Act 2013 is as follows:

“Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year.”

Effective April 1, 2014, foreign companies are given one year to comply with the new rule. The first compliance year will be calculated from April 1, 2014 to December 31, 2014. The requirement will thus be pro-rated to at least 136 days of residence in the country for the first year, according to General Circular No. 25/2014 released by the Ministry of Corporate Affairs.

Newly incorporated companies between 1 April, 2014 and 31 September, 2014 should have a resident director either on the date of incorporation or within six months of that.

RELATED: Appointment of a Director in Casual Vacancy

Companies incorporated after September 2014 will need to have a resident director immediately upon the date of incorporation.

Firms that fail to comply will face a fine of up to INR 10,000 on the company and every officer of the company. An additional INR 1,000 per day may also be imposed until the date the company begins to comply.

According to Section 149(5), existing companies (those incorporated before 31 March, 2014) are given one year to comply with the new rule (i.e. by 31 March, 2015).

The new rule is the government’s bid to raise the efficiency of company compliance with local statutes and procedures, by ensuring that an individual familiar with India sits on the board. In practice, however, analysts have noted that the requirement for one resident director is unlikely to influence or change board decisions.

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