New Law for U.S. Companies Doing Business in India
Kegler Brown Global Business News April 23, 2014
U.S. companies who have subsidiaries and are undertaking operations through an entity in India should be aware that the Indian Ministry of Corporate Affairs (MCA) has notified 183 new sections of the Companies Act 2013 (Act), in addition to 13 sub-sections that were already notified on September 12, 2013. The newly notified sections came into effect on April 1, 2014. The notified sections require companies in India to immediately comply with the new Act.
Several urgent issues under the Act that require immediate attention are as follows:
Under the new Act, every company in India shall have at least one director who has resided in India for a total period of more than 182 days in the previous calendar year. This provision came into effect on April 1, 2014; however, the grace period has not yet been determined by the Ministry.
Therefore, we recommend that U.S. companies identify the individual who can act as a director of its company in India as soon as possible.
Disclosure of Company Information on Official Documents
Pursuant to section 12(3)(c) of the Act, every company in India shall have the following information printed on its business letterhead, billhead, and letter paper and on all notices and other official publications:
- Name of the company
- Registered office address
- Corporate Identity Number (CIN)
- Telephone number
- Fax number
- E-mail and website address, if any
Further, any official communication in which the authorized share capital is mentioned should also, in the same manner, mention the subscribed and paid-up share capital of the company.
We recommend an Indian company implement these changes as soon as possible in order to avoid any penalties.
Official Communication for Conducting Board Meetings
Under the Act, e-mail is now also regarded as an official way to communicate. A director is therefore liable for any information that he might have received during the course of his board participation, including agenda, notice, etc. In order to make the final notice, agenda and board minutes an official communication, it is recommended that each company creates a separate group e-mail ID of its board of directors.
In addition, the Indian company must approve the policy of communicating to its board members through this official e-mail ID, which should only be an official communication for all purposes and for the knowledge of the board.
Board Meetings Through Video
Conferencing Facility (VCF)
The Act now allows meetings to be held through video conferencing. Directors attending meetings using VCF are now considered toward a quorum.
In order to conduct a meeting using VCF, the company, the chairman of the meeting, and the board of directors are required to follow a certain process for drafting and sending notice of the meetings, conducting board meetings, and signing and approving minutes of such meetings conducted via VCF. Therefore, if you plan to conduct board meetings using VCF, it is important to plan in advance and the follow the process noted under the Act, or otherwise such meeting will be considered invalid.
Other Issues in Regard to Board Meetings
Every company in India shall hold a minimum of four board meetings every year in such a manner that not more than 120 days shall intervene between two consecutive board meetings. A board meeting needs to be called by giving no less than seven days' advance written notice to every director.
Every company in India is required to align its financial year-to-year ending on March 31, within two years from April 1, 2014.
Corporate Action Related to Loans / Investments / Purchase and Sale of Goods / Services with Companies with Interested Directors or with Holding and Subsidiary Companies
If a company in India intends to undertake a transaction, including, but not limited to, any loan, investment or any transaction with any related party, directors or their relatives, the Act now provides for stringent requirements to be fulfilled before such a transaction can be undertaken by an Indian company.
Every company listed as public in India with paid capital of Rs 100 Crores (approximately $16.5 million) or more, or a public company with turnover of Rs 300 Crores (approximately $49 million) or more shall have at least one woman director.
Disqualification of Director
All existing directors of an Indian company must have Director Identification Number (DIN) allotted by central government. Directors who already have DIN do not need to take any action. Directors that do not have a DIN should initiate the process of getting one allotted to them. The company, in turn, has to inform the Registrar of Companies.
Corporate Social Responsibilities
The Act mandates that all Indian companies that satisfy any one of the following criteria: (i) a turnover of 1000 Crores (approximately $164 million), (ii) a net worth of 500 Crores (approximately $82 million), or (iii) a profit of 5 Crore (approximately $800,000.00) and above need to spend 2 percent of their profit on its corporate social responsibility policy.
If you’d like more information about the implications and for putting in place a compliance program for your company in India under the Act,, please contact Vinita Mehra.