Resident director requirement (Section 149 (3) of the Companies Act, 2013) is a form of local representation; some of the countries refer it as nominee director. In India, even foreign nationals who meet the criteria of having stayed in India for a certain period (182 days during the financial year) also can be appointed as resident director. The eligibility is not dependent on the citizenship of the proposed director but on the period he / she has stayed in India.
Non-resident clients have varied outlook and expectations from a resident director and therefore, their need varies. Companies having presence in various countries have established systems and procedures. They prefer a no-conflict, safe and conservative arrangement, a clear segregation of the board and the employees. A resident director is an experienced professional and is familiar with Indian laws who can provide or add value to the Indian company.
In many other cases, the businesses just need an entity in India to begin with, a kind of presence that doesn’t require any long term binds. These Companies do not hire any employee in India. They avoid taking any physical space as well, just a virtual address is enough. Everything is managed from outside and consulting firms provide all the necessary support including resident director services. The bank account is operated by the promoters from outside.
We have also seen some clients who prefer to have one of their prospective employees in India to take the position of directorship and save some cost during their initial period while navigating the new territory. This strategy may very well work for them and the need may not arise for appointing one from an outside consulting firm.
It is recommended that the company should have majority on the board through which they exercise control. Though the Indian law permits holding board meeting through video conference, it may just be a little convenient to hold physical board meetings outside India where the resident director is not attending. A director is required to attend at least one board meeting in a year to stay on the board and not to attract disqualification. Company is required to convene and hold a minimum of four board meetings in a year.
Even if a resident director position is akin to independent and non-executive (not an employee), he has powers and duties prescribed under the law. While all the powers can be exercised only through the board and not independently, some safeguards may be helpful to meet certain eventualities like misrepresentation, etc.
Requiring the nominated director to execute any document, financials, agreement, or representations can be avoided unless circumstances necessitate otherwise. Similarly, since resident director in most cases is an outside person, it would be quite unnecessary to include him as a signatory to a bank account.
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