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Foreign director

Chirag (Entrepreneur ) (26 Points)

16 August 2017

I am an Indian, about to incorporate a Pvt Ltd Co with Chinese national (2nd Director). Since, the paperwork for Notary in China is taking time, he has advised to start PLC without him for now, with my father as 2nd Director. Once Chinese docs are ready we will have to add him as Director. My Query is : Will this be complicated and need RBI approval, since we will be transferring 99.9% shares to him after adding him ? ( Pls Note : Chinese is 100% investor)

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upasana gupta (Finance Professional) (3931 Points)
Replied 16 August 2017

Restrictions on right of the shareholders to transfer shares are usually in two forms:

Rights of pre-emption: If a shareholder wishes to sell some or all of his shares, such shares must first be offered to other existing members of the private limited company at a price determined by the Directors or the Auditor of the Company. The value of the shares can be determined based on the formula / method prescribed in the Articles of Association. In no existing shareholder is interested, then shares of the Company can be freely transferred to an outsider.
Powers of Directors to refuse: The Director may have the powers to refuse registration of transfer of shares under certain circumstances – prescribed in the Articles of Association.

To initiate the share transfer procedure, the following steps must be followed:

Step 1: Review the AOA: Articles of Association of the Private Limited Company must be reviewed and restrictions, if any must be addressed.
Step 2: Shareholder must give notice in writing to the Director of the Company about intention to transfer share of the company.
Step 3: Determine the price as per Articles of Association at which the shares of the Company will first be offered to present shareholders of the Company. (Usually this price is determined by the Directors of the Company or an Auditor of the Company.)
Step 4: The company must then give notice to the other shareholders about the availability of share, the last date to purchase the shares and the price at which the share are available.

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Chirag (Entrepreneur ) (26 Points)
Replied 16 August 2017

Thank you, Upasana. We are in total agreement to transfer all shares (except nominal share ) to the foreign director. My concern was if this will become a case of FDI and involve RBI approvals ?