Appointment of Nominee Director in India

04 Oct 2023 17:54:28 Comment(s) By TAXAJ

Appointment of Nominee Director in India

A Nominee Director is a director in a company who has been appointed by financial institutions, banks or investors to form part of the Board of Directors. Appointment of nominee directors is governed by and subject to the provisions of the articles of association of the company. In this article, we briefly discuss the concept of the Appointment of a Nominee Director.

As per the rules laid out in Section 149 (3) of India's 2013 Companies Act, all Indian businesses will need to have a resident director. To be considered a resident, this candidate must reside in India for a minimum of 182 days per year.
A nominee director then refers to a qualified person who is appointed as your Indian entity's resident director. The appointment of a nominee director by a Board for an Indian business is authorized under Section 161(3) of the Companies Act.
Although the Ministry of Corporate Affairs waved the resident director requirement for the financial years of 2019 to 2021 given the difficulties in acquiring a resident director during the COVID-19 pandemic, the Ministry did not extend this to the financial year of 2021 to 2022, hence new entities incorporated in 2021 onwards would still have to appoint a resident director to fill the role.
As finding a suitable candidate to take up the position of nominee director in India is time-consuming and challenging, TAXAJ serves to bridge this gap by providing a cost-effective nominee and resident director service in India, ensuring that all our clients can fulfil the India minimum officeholder

Purpose of Nominee Director

A nominee director is nominated to ensure that the interests of the financial institution in question are adequately safeguarded. Also, the nominee director is appointed to perform the duty towards the borrower company and its stakeholders. The nominee director will be liable for the institution or investor and also monitors the activities of the borrower company or investee.

Conditions for Appointing the Nominee Director

The following are the conditions for appointing the nominee director under companies act:

When a financial institution contemplates the appointment of or decides to appoint a nominee director, the appointment should be made in pursuance of any law or terms of an agreement entered into by the company.
The appointment of the director can be made by the Central/ State Government or by any other person in whom the authority is vested according to the relevant legal provisions.
The person appointed as a Nominee director should represent the interests of the organisation or institution in which he is appointed.

Under what conditions can company appoint a nominee director in India?

	• There are certain conditions that must be met before the nominee director can be appointed. These are:
	• The appointment must comply with the conditions of any applicable legal contract the company is a part of, as well as applicable corporate laws.
	• Parties who can appoint a director can be natural persons who possess the legal authority to do so, or a State or Central government in India.
	• The nominee must represent the company or institutions' best interests at all times.
	• The appointment must comply with the clauses of the business' Articles of Association, otherwise, the Articles of Association will need to first be amended to include provisions for the appointment of such a

Legal Duties of Indian Nominee Director

Section 116 of the Companies Act makes provisions for the duties of the nominee director and terms that he or she must abide by. These include:
To act in the best interests of the company and in good faith for the company's and company members' wellbeing.
To avoid any conflict of interest.
To carry out duties with skill, care and diligence.
To monitor the company's activities to ensure compliance with all regulations and laws.
Will be held personally liable towards the company and nominator.
Must participate actively in board meetings and non-executive decisions.
To comply with the articles of association.
Must not attempt to gain any inappropriate advantage to self or to external parties associated with the director, and will have to pay compensation to the company if found guilty of such acts.

Advantages of Having Indian Nominee Director

Meet residency requirements while saving overhead costs

• Appointing a representative director in India will not only allow your business to remain compliant with local corporate regulations, but also enable you to save overhead expenses. This will prevent your business from incurring additional costs during the incorporation process.

Possesses relevant knowledge of local regulations to ensure compliance

• The India representative director will possess knowledge and experience of local regulations, including annual accounting and tax obligations, to ensure your entity's compliance. Our nominees will all possess the relevant qualifications and expertise to be able to monitor your corporate activities strictly to ensure full compliance with legal regulations.

Navigate Language Barrier

• The resident director India is also able to bridge language barriers and act as a local representative. As corporate and copyright legal documents in India may be written in the official language of Hindi, and business meetings and communication within the country may also be in Hindi, engaging our nominee director service India will allow you to more easily navigate and circumvent the language barriers. The local nominee will be able to assist you in translating documents to and from Hindi, speeding up the paperwork procedures greatly.

Legal duty to act in company's best interest

• In addition, as one of the directors, the nominee director is bound by law under the Companies Act 2013 to act in the best interests of your company, instead of in his or her own self-interest, hence you will not have to worry about a conflict of interest.

Act as local representative to banks and authorities

• When you are opening an India corporate bank account for your newly established entity, local banks may require a local representative to visit a local branch for an interview. At no additional fees, our qualified India representative director will attend the interview on your behalf.

Minimal role that will not undermine your authority over your company

• Engaging a resident director service will allow you to fulfil the required director residency requirements without interfering in the day-to-day operations of your company, so that you can maintain full control of your company. Unless specifically requested, nominee directors will not be a bank signatory nor have a significant role in your company's decision-making process.

Risk of Appointing a Nominee Director in India

As with all undertakings, there are some risks involved in the appointing of nominee directors. The risk is namely that the individual, as one of the company's directors, has the legal power to participate in the decision-making process and even veto certain decisions of the company, according to the Companies Act.
However, as nominee directors are also bound by law under Section 166 of the 2013 Companies Act to always act in the company' best interests instead of his or her own self-interest, you will not have to worry about him or her making decisions that threaten your company.
In addition, before the appointment, TAXAJ's legal team will lay out strict terms in the Nominee Director Agreement we will draft, that will prohibit the nominated person from interfering significantly in the day-to-day running of your business. The nominee director will mostly take a passive role and act on your instructions, and he or she will not have access to your corporate bank account. This will ensure that you are able to maintain full control over your company at all times.

Risks undertaken by a Nominee Director under Companies Act 2013

There are also some personal risks that will be undertaken by the representative director, in agreeing to play the role for your company.
Under Section 166 of the Companies Act, executive and non-executive directors are seen as the same in the eyes of the law, with the same authorities and duties. Consequently, under Section 149(2), nominee directors will also be held liable under the law in the case where the nominee director was aware of the offense or mistake or if it occurred due to his or her negligence.
In addition, under Section 167 of the Companies Act, in the event that a nominee director fails to uphold any legal duties or comply with any regulations, such as being found guilty of any criminal offence or not attending board meetings, he or she can be disqualified from office.
Under the agreement of the shareholder, the nominee director is also liable to uphold and represent the nominator's interests and rights.

Why Choose TAXAJ's Nominee Director Services?

Unlike other firms, we do not charge our international clients with deposits and there are no hidden costs. All payment information will be transparently and clearly stated in the appointment letter prior to the start of the engagement.
The nominee director appointed by TAXAJ will be subject to strict KYC checks and be knowledgeable of the local India regulations, such that he is able to assist your business in maintaining full compliance with all laws.
By engaging TAXAJ's nominee director service India, you will also be able to maintain full authority and control over your business, as the nominee director we appoint will not be able to interfere in the daily operations and running of your business as per the provisions of the Nominee Director Agreement.

Process to Appoint a Nominee Director in India

TAXAJ's compliance team will first provide a suitable candidate that has relevant experience in corporate governance and annual reporting or filing and has passed our enhanced due diligence checks. Our nominees are all either our in-house employees or long-term partners and are mostly professionals in the field of accounting or tax or law such that they will be equipped with the necessary skills for the role.
Once engaged, TAXAJ will provide you with the KYC documents of the India nominee director. This includes the nominee's latest resume, copy of his or her passport, proof of address and non-criminal records. We will also provide you with the nominee director's Director Identification Number (DIN) as well as any relevant forms.
Our legal team will also draft a nominee director agreement and statutory declaration to be signed by all parties involved. This is to guarantee that the company is completely and fully under your management and that you are indemnified as well. Unless requested specifically, the role of the nominee director appointed will not include playing an active part in your business, nor acting as a signatory to the bank.
After the settlement of the nominee director fee, TAXAJ will proceed to register the India company and appoint the India nominee director with the Ministry of Corporate Affairs.

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Appointment of Nominee Director in India