A. Resignation of Foreign Director in Private Limited Company

1. Resignee director to do the following:

Step 1: The Director intending to resign shall send notice in writing to the Company. They are to intimate the Registrar, about their resignation, by way of filing form DIR-11. However, MCA vide its notification dated 07.05.2018, have made Filling of DIR-11 optional in the hands of the Resigning director, but for disputed matters it is recommended that Directors should file DIR-11.

Step 2: Non-Resident (NR) Directors: A NR Director can authorize specified persons to execute and file DIR-11 (form for informing the Regulator about his resignation). He need not file (and sign) himself. A NR director may authorize a Company Secretary in practice or any other Resident director of the company to sign Form DIR-11 and file the form on his behalf (Rule 16 of Appointment & Qualifications of Directors Rules).

Checklist

2. Companies to do the following (after having received the resignation):

Step 1: Take note of the resignation:

The Board to take note of the resignation. However, there is no prescribed timeline for taking note of the resignation.   The company can take note the resignation in its ensuing meeting. It is necessary to hold a board meeting to approve the same.

Step 2: The law has caste duty upon the Company to intimate the Registrar about the said resignation by way of filing form DIR-12. The following supporting documents shall be attached to the form DIR-12:

    • Notice of resignation
    • Evidence of cessation
    • Board Resolution (Optional)

The company shall file the said form within 30 days of the date of resignation along with the prescribed filing fees.

B. Appointment of Foreign Director in Private Limited Company

A foreigner or Non Resident Indian (NRI) can be appointed as executive or a non-executive/independent director in a Private Limited Company provided that there shall be at least one Director who is resident of India. The Companies Act 2013 gave permission for foreign nationals NRI to become director in Indian Companies. NRI can become an executive or a non-executive/independent director of Indian companies whether public or private.

1. Conditions to Appoint NRI as Director

Companies Act 2013 makes it mandatory that following conditions must be followed to appoint NRI as director in Company registered in India.

Every person shall hold DIN (Director Identification Number)

Persons is not disqualified from becoming a Director

Need to give consent to act as director in DIR 2

2. Procedure for Appointment  of Foreign Director in Private Limited Company

Step 1: Apply DSC

To become director in Private Limited Company first step is to apply for Digital Signature of Director. For making necessary filing at MCA DSC is mandatory. List of documents required for DSC:-

1. Notarised and Apostilled copy of the passport,

2. Notarised and Apostilled copy of residence proof,

3. Passport size photo (Recent)

4. Mobile & Email ID

5. Video-verification to be done by the applicant only.

Step 2: Apply DIN for Foreign Director

Director Identification Number is mandatory for becoming director in company. NRI Director need to apply for DIN, by DIR-3 filing.

Step 3 : Conduct Board Meeting

Board of directors takes collective decisions in favor of company. After receiving request letter from NRI Director to as director board shall conduct a meeting. In meeting board need to pass board resolution to add NRI as director. This documents need to be signed by board and stamp of company required.

Step 4:  Filing of form DIR-12 for Appointment on MCA portal

Form DIR-12 form is required to be filed for appointment of foreign director in Private Limited Company with requisites attachments.

Checklist for change in shareholding-Chinese (NRI)-Transfer of shares

S. No. NRI to NRI NRI to Indian
1.       

 

The transaction of transfer of shares between two NRIs attracts the provisions of certain acts, such as-

As per Foreign Exchange Management Act, 1999 (FEMA)

Regulation 9(2)(ii) of FEMA (Transfer or issue of security by a person resident outside India) Regulations, 2000 read along with Regulation 8(B)(I)(b) of the Master Circular on FDI in India (2015-2016)  grants a  general permission for transfer of shares of an Indian company from one NRI to another.

However, it is to be ensured that the FDI sectoral cap as prescribed by the FDI policy is not breached. Also, there are no reporting guidelines specified by RBI in this regard.

As per Companies Act, 2013

Although no reporting requirements have been laid down by RBI, Section 56 of the Act has to be complied with. Either the transferor or the transferee must, in order to effectuate the share transfer, deliver the Share transfer form (SH-4) duly stamped, dated and executed within 60 days of the date of execution along with the share certificate to enable the Company to do the needful and update the Register of Members.

As per Stamp Act, 1899

Section 21 of the Indian Stamp Act provides for payment of duty in accordance with Article 62 of Schedule 1, on the transfer of shares (with or without consideration) in an incorporated company or other body corporate at a rate of 25 paise for every Rs.100 or part thereof of the value of the share.

As per Income Tax Act, 1961

As per Sec. section 9(1)(i)(d) of the Act, any income accruing or arising, whether directly or indirectly, through the transfer of a capital asset situated in India is deemed to accrue or arise in India.

Hence, capital gains from sale of shares of an Indian company are taxable in the hands of an NRI.

The tax to be deducted at source by NRI shall be treated as Withholding tax and a certificate has to be obtained from the Assessing officer.

NRIs are not eligible for Indexation benefits and deductions, however, they can avail the benefits from DTAA (Double Taxation Avoidance Agreement).

Under DTAA, there are two methods to claim tax relief – exemption method and tax credit method.

In exemption method, NRIs are taxed in only one country and exempted in another. In tax credit method, where the income is taxed in both countries, tax relief can be claimed in the country of residence.

A special provision exempts NRIs from filing a tax return, if their sources of income from India only include investment income and LTCG (Long Term Capital Gains).

(Note: In case of transfer of shares from NRI (Non-Resident Indian) to NR(Non-Resident), prior approval of RBI is required)

Following is the procedure:

Form foreign currency-transfer of shares (FC-TRS)

Form FC-TRS is required to be filed for transfer of Equity Shares.

Who is to file form FC-TRS

The onus of reporting FC-TRS shall be on the resident transferor/ transferee or the person resident outside India holding capital instruments on a non-repatriable basis.

Time Limit for filing FC-TRS

The form FCTRS shall be filed with the Authorised Dealer bank within sixty days of transfer of capital instruments or receipt/ remittance of funds whichever is earlier.

Procedure for filing FC-TRS

The following steps are included in filing of FC-TRS form:

1. Execution of Share Transfer Deed and Payment of Stamp Duty: The parties should execute the following documents for transferring their shares:

  • Share Transfer Deed as per SH-4
  • Duly signed Consent letters from the buyers and seller.

(Note: While executing the share transfer deed, stamp duty @ 0.25 % on the consideration amount is to be paid by purchasing the share transfer stamps, affixing those on the SH-4 and then crossing the same)

2. Transfer of Funds: The funds should be transferred through proper Banking channels. Copy of FIRC and copy of KYC of person resident outside India should be obtained from Authorised Dealer Bank.

3. Registration on Flair portal: it is mandatory to register the details of the person filing form along with his/her digital signatures (DSC) on portal.

4. Filing of form on Flair portal with the required attachments: The form is filled online on Flair portal along with the name of attachments given below. The DSC of the concerned person is affixed while submitting form.

5. Scrutiny from AD Bank: Post submitting form on Flair portal, AD bank scrutinize each and every application and it may send the form for re-submission if any documents/information is incorrect or missing.

6. Sanction letter/ Certificate issued by AD Bank: AD Bank provides you with a sanction letter or certificate if all the documents and information are satisfactory to them. This is a documentary evidence which states that FDI compliances are duly taken care off by the applicant.

7. Take on record by the Indian Company: The sanction letter/certificate issued by AD bank is attached with the share transfer form and share certificate and submitted to the Company so that company may take the transfer on its record.

Additional Step may be required in delay submission of FC-TRS: In case the applicant fails to file FC-TRS within 60 days of transfer, then the AD Bank will forward the application to RBI for its approval.

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