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Company formation by Foreign director

Rajesh Poddar (Chartered Accountant) (321 Points)

24 November 2010

24/11/2010

Dear All

There is an enquiry from one of my client. Both Mr. A and Mr. B are Foreign nationals residing in singapore. They wish to form a private limited company in India. Both are going to be Directors and equal shareholders in the Pvt. Ltd. company

My query is that can they form a Pvt. Ltd company in India without any local director. Is this permissible under the companies act. They do not have any local proof but can provide all documents where they reside in Singapore.

Also if they make payment of my professional fees for formation of company by Wire Transfer - Is it permissible or any RBI permission is needed for that ?

Your expert views will be of Great help to me.

Thanks

CA Rajesh Poddar

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6 Replies

Ajay Mishra (Company Secretary) (74337 Points)
Replied 24 November 2010

NON-RESIDENT INDIAN AS SUBSCRIBER TO THE MOA/AOA

The Reserve Bank of India had given general permission under section 29(1)(b) of the former FERA, 1973 to NRI to subscribe to the MOA of an Indian company and to take shares as a subscriber .(Notification No. FERA 143/93-RB, dated 26-4-1993 issued by RBI, Mumbai in this regard is reproduced hereunder:

“The RBI has given general permission to NRI to subscribe to the MOA/AOA of Indian Company for the purpose of Incorporation of the company subject to the condition that:-

(a) the total face value of the shares to be taken by NRI does not exceed Rs. 10,000

(b) the company is being manly formed for undertaking industrial activities

(c) the MOA of such company does not permit the company to take up any agriculture/plantation activities and to deal in real estate business other than developing real estate, and

(d) such company shall file a declaration in the prescribed form with the RBI regarding particular of such shares issued within 900days from the date of incorporation of the company.

DCA Circular dated 16-2-1995 clarifies that there can not be any restriction for incorporation of a company whether all the subscriber to the MOA/AOA/ proposed directors are residing abroad, being either foreign nationals, or NRI subject to the approval of RBI, where necessary.

The RBI may issue such a general permission also under FEMA, 1999 also. The FEMA(Permissible Capital Account Transactions) Regulations, 2000 allow persons resident outside India to invest in an issue of security by body corporate or an entity in India.

Views of other experts solicited,

Best Regard

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CA. Anuj Gupta (Practices in NRI Int.Tax FEMA TP FDI/FIPB & FCRA) (7024 Points)
Replied 21 March 2011

My query is that can they form a Pvt. Ltd company in India without any local director. Is this permissible under the companies act.

Yes.

They do not have any local proof but can provide all documents where they reside in Singapore.

No issue for the same and that will neede for DIN and company incorporation.

Also if they make payment of my professional fees for formation of company by Wire Transfer - Is it permissible or any RBI permission is needed for that ?

No permission needed and even foreignparties are not required to deduct TDS, but you shall need to charge service tax.

RAVI GOYAL (Chartered Accountant) (48 Points)
Replied 13 February 2012

Respected Members,

My Query

In a private limted company two directors are NRI and one Indian resident. The Indian Resident director has resigned. My question is whether we have to introduce one Indian resident as director or the remaining NRI directors can run the show?

jeets (CS ) (461 Points)
Replied 13 February 2012

Hi,

In a private limited company there should be a minimum of 2 directors. The nationality of the directors is of no significance. There is no need to introduce new Indian director, just make sure the number of directors doesn't fall below 2.

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 13 February 2012

Agreed with Jeets. This is the position as per current CA 1956. But I think the proposed Companies Bill provide for some restrictions.

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RAVI GOYAL (Chartered Accountant) (48 Points)
Replied 15 February 2012

Thank You So much Members for your kind help and guidance.

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