"We'll just appoint our CFO in Singapore as director": what the Companies Act actually requires of an Indian subsidiary's board

Most foreign parents design the Indian subsidiary's board in the same meeting where they decide the shareholding. The instinct is to keep control tight: two directors from the parent's leadership team, both non-resident, both already sitting on group boards elsewhere. Then the incorporation filing bounces, or worse, it goes through with a "friend of the consultant" listed as the second director, and nobody at the parent understands what that person can now legally do with the company. The resident director requirement is not a formality that a good law firm can drafting-language around. It is a hard eligibility condition in Section 149(3) of the Companies Act 2013, and the person you use to satisfy it acquires real statutory authority the moment they are appointed.

What the regulation actually says

The residency test — Section 149(3), Companies Act 2013. Every company incorporated in India must have at least one director who has stayed in India for a total of not less than 182 days during the financial year. The threshold itself was not changed: the Companies (Amendment) Act 2017 (Act 1 of 2018, with effect from 7 May 2018) changed only the period it is measured over, from 182 days in the previous calendar year to 182 days in the financial year. For a newly incorporated company, the requirement applies proportionately at the end of the financial year in which it is incorporated (proviso to Section 149(3)). This is a company-level obligation, not a shareholder preference. An established private limited company with no resident director is in breach for that financial year; a new company is tested proportionately at the end of its first financial year, but the board should be designed to meet the test from day one.

Note what the test is not. It is not citizenship, and it is not tax residency under Section 6 of the Income-tax Act. A foreign national who genuinely spends 182+ days in India during the financial year satisfies Section 149(3). An Indian citizen living in London does not. The test is physical presence, and it is measured per financial year — meaning a director who satisfied it last year and has since relocated abroad puts the company back into breach without anyone filing anything.

Minimum board composition — Section 149(1). A private limited company needs a minimum of two directors; a public limited company needs three. Since a wholly owned subsidiary of a foreign parent is almost always a private limited company, the practical floor is two directors, at least one of whom must be resident. That single sentence is where most India-entry board designs quietly fail: the parent wants both seats, but only one of the two can be a non-resident group executive unless the parent is willing to station someone in India.

DIN for foreign nationals — Section 153 and Rule 9, Companies (Appointment and Qualification of Directors) Rules 2014. Every individual intending to be appointed a director must obtain a Director Identification Number. For a first-time director being appointed at incorporation, DIN is allotted through the SPICe+ (INC-32) incorporation form itself — up to three directors can receive DIN this way without a separate application. For an appointment after incorporation, the individual files Form DIR-3, signed with their own digital signature and attaching the board resolution proposing their appointment; the form is verified digitally by a company secretary in full-time employment of the company, or by the managing director, a director, the CEO or the CFO of the company where they are to be appointed (Rule 9(3)(a)(iiia) and (b)). The company then files DIR-12 within 30 days of the appointment.

For a foreign national, the DIR-3 documentation is where timelines slip. The passport is mandatory (it is optional only for Indian nationals). If the person is a national of a country that shares a land border with India, security clearance from the Ministry of Home Affairs must be attached to the consent and to the DIN application — without it, no DIN application number is generated (Rule 8, second proviso, and Rule 10(1), proviso). For incorporation documents signed by a foreign national subscriber residing outside India, Rule 13(5) of the Companies (Incorporation) Rules 2014 sets three routes: in a Commonwealth country, the signatures, address and proof of identity are notarised by a Notary Public there; in a country that is a party to the Hague Apostille Convention 1961, they are notarised and apostilled; in any other country, they are notarised and the notary's certificate is authenticated by an Indian diplomatic or consular officer. A foreign national who is visiting India and signs here can incorporate only with a valid Business Visa (not required for persons of Indian origin or OCI cardholders). Budget three to four weeks for this, not three days. A foreign national also needs a Digital Signature Certificate from an Indian certifying authority; identity verification for foreign nationals follows the CCA's Identity Verification Guidelines and, for most certifying authorities, includes a video verification.

Disqualifications — Section 164. A person is disqualified from directorship if, among other grounds, they have been convicted by a court of any offence — whether involving moral turpitude or otherwise — and sentenced to imprisonment of six months or more, until five years have passed from the end of the sentence; if the sentence was seven years or more, they can never be appointed a director of any company (Section 164(1)(d)). They are also disqualified if they are an undischarged insolvent, or — the one that catches people — have served as a director of a company that failed to file financial statements or annual returns for three continuous financial years. That last ground disqualifies the person for five years across all companies, not just the defaulting one. If your proposed resident director already sits on other Indian boards, this is worth checking before you appoint, because their disqualification becomes your company's problem.

Nominee directors — Section 161(3) and Section 166. A "nominee director" in Indian law is a director appointed by a specific party — an investor, a lender, or the government — under a contract or statute. What the term is colloquially used for in India entry is something else entirely: a local individual, often introduced by a service provider, who is appointed purely to satisfy Section 149(3) while having no operational role. Indian law does not recognise this distinction. Once appointed, that person is a director under Section 2(34) with the full fiduciary duty set in Section 166 — to act in good faith in the interests of the company, to exercise independent judgement, and not to achieve undue gain. They can be held liable as an "officer in default" under Section 2(60). Critically, the duty in Section 166(2) runs to the company — and to its employees, shareholders, the community and the environment — not to whoever nominated them.

Practical implications — what happens if you get this wrong

No resident director. Non-compliance with Section 149 attracts a penalty on the company and every officer in default under Section 172 — ₹50,000, plus ₹500 per day for a continuing default, capped at ₹3 lakh for the company and ₹1 lakh for each officer. The larger practical damage is upstream: your AD Category-I bank may raise questions on FEMA filings for a company whose MCA master data shows a board defect, and due diligence on any future round or exit will surface it immediately.

The nominee director you don't control. This is the exposure that founders underestimate. A director appointed to your board can, depending on your articles and board composition, sign banking mandates, be recorded as an authorised signatory, participate in — or block — board resolutions, and, in a two-director board, deadlock every decision. Removing them requires a shareholder resolution under Section 169 with special notice and an opportunity for the director to be heard; if they simply stop cooperating and refuse to sign a resignation (DIR-11), you are managing a governance dispute rather than a filing. A convertible-instrument or downstream-investment timeline does not pause while you do that.

Directors as officers in default. Under Section 2(60), the resident director sitting in India is typically the first person a regulator serves notice on — for GST, for a missed ROC filing, for a labour compliance lapse. If that person has no visibility into operations, they will either resign at the first notice (leaving you non-compliant again) or fail to act, escalating the matter. Neither outcome is a governance strategy.

Vacation of office. Section 167 provides that a director's office is vacated automatically on certain events — including absence from all board meetings held over twelve months. A non-resident director who never attends is not a passive seat; it is a seat that can vacate itself and drop the company below the Section 149(1) minimum.

Step-by-step: what to do

• Decide the residency strategy before name reservation, not after. Choose one of three: (a) relocate a group employee to India for the qualifying period, (b) appoint a genuine India-based hire — a country manager or finance head — as the resident director, or (c) engage a professional resident director under a documented mandate. Option (b) is the only one that scales; option (c) is acceptable as a bridge but should have an exit plan written into the engagement.
• Screen the proposed resident director against Section 164 before appointment. Pull their DIN from the MCA21 portal and check the associated companies' filing status, and confirm they have no conviction with a sentence of six months or more (Section 164(1)(d)). A five-year disqualification carried in from another board is not curable.
• Start foreign-national DIN documentation four weeks before you need it. Passport, proof of address, and photograph — notarised (Commonwealth states), notarised and apostilled (Hague states), or notarised and consularised (other states) under Rule 13(5) of the Incorporation Rules — plus a DSC from an Indian certifying authority, and MHA security clearance if the director is a national of a country sharing a land border with India. Run this in parallel with name reservation via RUN or SPICe+ Part A, not sequentially.
• Use SPICe+ (INC-32) to allot DIN at incorporation where you can. Up to three directors get DIN through the incorporation form itself. Appointing a fourth director later means DIR-3, DIR-12, and a separate 30-day clock — avoid it if the board is knowable at incorporation.
• Draft the Articles of Association to constrain the resident director explicitly. Reserve specified matters — banking mandates, borrowing, related-party transactions, issue of shares, change of registered office — to shareholder approval or to a board resolution requiring the parent's nominee's affirmative vote. The AoA is where control lives; the shareholder register alone does not deliver it.
• Agree the exit mechanics in writing where a professional resident director is used. Some groups ask for a signed resignation letter to be held by counsel; whether that actually shortens a removal that would otherwise run through Section 169 is not settled by the statute, so take advice before relying on it. Under Section 168(2), a resignation takes effect from the date the company receives the notice, or a later date specified in it, and filing DIR-11 with the Registrar is optional for the director. None of this is a substitute for a proper appointment agreement covering scope, indemnity, D&O cover, and confidentiality.
• File DIR-12 within 30 days of any appointment, resignation, or change in designation, and update the register of directors under Section 170. Track the resident director's day count each financial year — if they are relocating, appoint the replacement before the incumbent's presence falls below 182 days, not after.
• Reconcile board changes with your FEMA filings. A change in authorised signatory affects your AD bank mandate; check with the bank whether anything in your FEMA reporting, such as FC-GPR and FC-TRS submissions, needs to be updated. Notify the AD bank in the same cycle as the MCA filing.

FAQ

Can a foreign national be the resident director?
Yes. Section 149(3) tests physical presence in India for 182 days in the financial year, not citizenship. A seconded expatriate on an employment visa who genuinely meets the day count qualifies. An OCI cardholder or NRI who does not spend the days does not.

Does the resident director need to hold shares in the Indian company?
No. There is no shareholding qualification for directors of a private limited company unless the Articles of Association impose one. Keep the AoA silent on this — a share qualification only complicates removal.

What is the fastest realistic timeline from decision to an incorporated company with a compliant board?
Roughly four to six weeks where a foreign national is on the board, driven almost entirely by notarisation, apostille or consular authentication of the foreign director's documents (Rule 13(5), Companies (Incorporation) Rules 2014), any MHA security clearance needed for nationals of countries sharing a land border with India, and the DSC issuance. If both incorporation-stage directors are already India-resident with existing DINs and DSCs, SPICe+ approval can come through in one to two weeks.

---

Planning India entry? Get in touch with us at makeitlegit.in

---

See Also

• "We'll just use DCF": What FEMA actually requires for FDI valuation, and the pricing floor that blocks your allotment
• Any bank will do for your India subsidiary: What FEMA actually requires of your AD Category-I bank
• "Our structure is already approved, so the new rules don't affect us": What the draft FEMA (Foreign Investment) Rules 2026 actually change for existing FDI structures