India has had a... new corporate law introduced. The “Companies Act 1956” was replaced by the new “Companies Act 2013replaced. In recent months it has been unclear how exactly the impact on foreign companies will be. These ambiguities are gradually clearing up and the Indian Ministry of Corporate Affairs (MCA) is gradually publishing new guidelines and instructions.
Today we would like to inform you about three important changes that we believe should be taken into account.
Resident Director
The MCA has directed that under the Companies Act 2013, every company in India must have a director (member of the board of directors) who is present in India for at least 182 days in a year and must have already spent 182 days in India in the previous calendar year. For the “special case” of 2014, the unique rule is that the resident director must have spent more than 136 days in India. This means for many foreign companies that have previously only filled the board of directors with directors living abroad, they now have to quickly add a new director living in India to the board. This can, for example, be your own Indian managing director or employee, provided they have already lived in India in the last year. If no one is available or the company deliberately does not want to appoint its own Indian employee (for the time being), an external person must be appointed (e.g. a notary).
In a recent circular, the MCA clarifies that the applicability of the “Resident Director Clause” retroactively from April 01, 2014 with the following regulation applies:
(a) companies, those in the period April 1, 2014 to September 30, 2014 were founded: “Resident Director” should be appointed directly from the date of founding, although a transition period of six months from the date of founding is granted.
(b) companies that after September 30, 2014 be established: “Resident Director” must be appointed on the date of incorporation.
(c) companies that before April 1, 2014 were founded should have implemented the new requirements within a transition period of one year.
Shareholders' Meeting
At least once a year, the shareholders of an Indian company must meet formally in the form of the “Annual General Meeting (AGM)”. The AGM is used, for example, to approve the annual financial statements and commission the auditors. But there are also other topics (such as increasing the share capital) that must be decided by the shareholders in the form of so-called “Extraordinary General Meetings (EGM)”.
What is new is that these meetings (AGM and EGM) will only be allowed to take place in India in the future!
It is important here that shareholders are in the form of a legal person (GmbH etc.) can have a local representative represent them at these meetings. However, this does not apply to shareholders in the form of a natural person! Here the individual is actually obliged to be present in India.
In practice, there are numerous foreign companies that have distributed the shares of the Indian company as follows: 99% a German GmbH and 1%, for example, the German company owner or managing director (as a natural person). For all of these companies (where a natural person holds shares in India), this means that this natural person will have to travel to India at least once a year to participate in the AGM. If this is not possible or undesirable, the shares would have to be transferred from the natural person to a legal entity.
[Important note: In order to avoid misunderstandings, it should be made clear that this regulation only applies to “Shareholers' Meetings” and explicitly does not apply to meetings of the “Board of Directors” (regular “Board Meetings”) that will continue to take place outside India ( or in Europe).]
New requirements for Indian business letters
Under the old Companies Act 1956, when drafting business letters, companies were only required to state a) the name and b) the address of their registered office. From now on Companies are now obliged to incorporate the following components into business letters etc.:
a. Name and legal form (as before)
b. Address of the registered office (as before)
c. New: Company identification number: Corporate Identity Number (CIN)
d. New: phone number
e. New: Fax number, if available
f. New: Email address (info@….)
G. New: Website addresses, if any
H. New: Former names if a name change has occurred within the last two years
More information about the topic “Legal compliance” can be found on our blog.
