Updated as on 26 June 2021
It is mandatory to appoint a Managing Director in case of Listed Companies and the Public limited companies having paid up share capital of INR 100 million (~1.55 m USD). Many Indian subsidiaries of foreign companies follow the general practice of appointing Non-Residents on their Board of Directors. Though it is not mandatory to appoint a Managing Director for a Private Limited Company, it may, sometimes out of its own requirement, may decide to appoint one. In case it does and the proposed appointee is a Non Resident, it may be wise decision to go through this note where we have summarized all the important provisions relating to appointment, duties, Board procedures and disclosures to be done, for informed decision and easy reference.
For appointment of a Managing Director, provisions of Section 196 of the Companies Act, 2013 is to be followed. While provisions relating to appointment as given in Section 196 read with Schedule V are all applicable, limits and provisions relating to remuneration (payable to a Managing Director) is not applicable to a Private Limited company.
|1.||Appointment and Remuneration||Appointment and remuneration of Managing Director is prescribed in Section 196 and Schedule V. The eligibility criteria to be appointed as MD is as follows:
With effect from exemption notification issued on 5th June, 2015, the criteria of residential status has been done away with for private companies. Also provisions w.r.t. managerial remuneration are exempt on private companies.
To read more on Disqualification of Directors, please visit Disqualifications of Directors : Non-filing of B/s and Annual Returns
|3.||Attendance in at least one Board Meeting||S 167 (1) (b) requires every Director of the company to be present in at least one Board Meeting during a span of 12 months. A NR-Director can either participate through Video Conferencing or the Company can hold Board Meetings abroad. There is no restriction in the Companies Act, 2013 w.r.t. to holding of Board Meetings outside India.|
|4.||Board Meeting through Video Conferencing (VC)||With the omission of Rule 4 of the Companies (Meeting of Board and its Powers) Rules with effect from 15 June 2021, there are no restricted items which cannot be transacted through VC. Hence, a non-resident Director can now participate in all Board meetings through Electronic mode.
Please visit Board Meeting through Video Conferencing or other Audio Visual Means, for more information on conducting a Board Meeting through Video Conferencing
|5.||Signing of Financials and Board’s Report||If the company has appointed a MD, it is mandatory for him to sign the financials of the Company and the Board’s Report.|
|6.||Annual Report on CSR Activities (Section 135 of the Companies Act, 2013)||The Companies on whom CSR or Corporate Social Responsibility is mandatory have to get their Annual Report on CSR Activities signed by the MD of the Company. This Annual Return forms a part of the Board’s Report.|
|7.||Procedure for Appointment||For the appointment as Director, NR is required to obtain
Since the proposed Director is a NR, his documents pertaining to obtaining the DSC and DIN will be apostilled / notarized / concularised as the case may be.
Note: please note that the provisions elaborated are in terms of their applicability on private companies