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Corporate Compliance Requirements

Every company, whether Indian or foreign, is required to comply with certain formalities under the Companies Act. For Indian companies (including 100% subsidiaries of foreign companies), the following aspects are important:

Appointment of Directors

	A public company should have a minimum of three, and a private company at least two, directors
	A director need not own any qualifying shares unless specified by the Articles of Association.
	Public companies are required to retire at least one-third of the directors every year, with their reappointment or replacement at an Annual General Meeting.

Foreign nationals can be appointed non-executive directors without prior Government approval and they are not required to have any shareholding.

Appointment of expatriate as Director
Special conditions govern the appointment of a foreign national as the Managing Director or whole time Director of a company. Company Law Board approval is necessary in case of a public limited company or a private company which is a subsidiary of a public company, in the following cases:

	Where the remuneration exceeds Rs. 2,00,000 (Euro 3420) per month, which would often be the case for expatriates;
	Where a person who has not resided in India for a period of twelve months preceding the appointment as a managing or whole time Director

Because of these regulations, expatriates are often designated as CEO or Country Manager, rather than Director, at least for the first year, to qualify for residential criterion.

Every public and private company, which is a subsidiary of a public company, with a paid-up capital of Rs. 50 million (Euro 0.85 million) or more, is required to appoint a full-time Director or Managing Director. In addition, every company with a paid-up share capital of Rs.5 million (Euro 0.08 million) or more has to appoint a full-time qualified Company Secretary.

The new Corporate Governance guidelines also require all publicly traded companies to have at least half the strength of the Board of Directors comprised by non-executive Directors and independent Directors, and the constitution of an Audit Committee of Directors to report on the correctness of the financial statements of the company.

Managerial Remuneration
Managerial remuneration (compensation paid to the Managing and full time Directors of a company) is linked to the authorised capital of a company as well as its profits. It is restricted to 10% of net profit, collectively, and 5% in case of a sole beneficiary. Higher remuneration requires approval of the Company Law Board (and is normally given for a limited duration). Start up operations, especially when they involve expatriates, do not earn sufficient profits to meet the requirement and therefore must invariably refer the employment terms of the Director for the Company Law Board’s approval.

Meetings

	Statutory Meetings are required to be held by all public companies, and private companies in certain circumstances, on commencement of business.
	Annual General Meetings are to be held by all companies at least once every fifteen months.
	Extraordinary General Meetings may be held at the request of members holding at least 10% of voting power.
	A Board of Directors Meeting should be held once every quarter and additional meetings should be held as necessary.

Board Resolutions

The two kinds of resolutions passed at General Meetings are:

	Ordinary resolutions, for which a simple majority is required.
	Special resolutions, where a three-fourths majority is required.

Crucial issues like further issue of capital, preferential allotment of shares, conversion from a private to a public company, an amendment to the Memorandum & Articles of Association or conversion of debt to equity require special resolutions.

Dividends
Companies are allowed to pay dividends only after providing for depreciation on fixed assets in the manner prescribed by the Act. In addition, the Act prescribes a minimum retention of profits into Reserves before payment of dividend, unless dividends are paid out of company’s reserves. Dividends can be recommended only by the Board of Directors and require approval at the Shareholders’ meeting. Dividends must be paid out within 42 days of being declared.

Accounting and Reporting
Statutory registers, records and books of account need to be maintained at the registered office.

The following statements are required to be furnished at every Annual General Meeting (AGM), with the Profit and Loss Account and Balance Sheets required being presented/published in a prescribed format:

	The company’s financial statements comprising a balance sheet and a profit and account (income statement) for the accounting period.
	The Auditors’ and the Board of Directors’ reports.

Filing of Returns
The fiscal year in India is from 1st April to 31st March. All Companies are required to file the annual return, balance sheet and profit and loss account, the auditor’s and Board of Director’s reports and charges, to the Registrar of Companies.

All listed companies have to publish half-yearly financial statements - at the end of September and end of March.

strong class="black_heading">Audit
Every company has to get its accounts audited by a member of the Association of Chartered Accountants of India. The auditor of a company reports to the shareholders on every balance sheet and profit and loss account and that is presented before the company in the Annual General Meeting during his tenure of office. Besides internal audit, tax audits are mandatory for companies exceeding a prescribed turnover.

Corporate Governance
The Companies Act specifies obligatory Corporate Governance guidelines for all public listed companies, with the following important provisions:

	Composition of the Board of Directors: At least 50% of the board strength shall consist of non- Executive Directors. Independent Directors – who have no pecuniary interest outside their director’s remuneration or material transactions with the company or its subsidiaries or its promoters that may influence their judgement- must form at least one-third of a Board’s strength where the Chairman is a non-Executive Director, and half its strength where the Chairman is an Executive Director.
	Audit Committee: Every company shall have an audit committee of at least three members, all being non-executive Directors, at least two being independent and at least one possessing financial and accounting knowledge. The committee must meet at least thrice a year and perform its role (specified in detail in the guidelines) to overview the company’s financial reporting process and ensure the correctness and credibility of its financial statement.
	The company must attach a Management Discussion & Analysis Report with the Annual Report to the shareholders covering important matters on the sector outlook, risks and other internal aspects of the company.
	The Annual Report shall contain a corporate governance section with a detailed compliance report on the guidelines. And also obtain a compliance certificate from statutory auditors.

Competition Regulations
Under India’s competition legislation, companies may not resort to the following practices:

Agreements that may restrict competition: Agreements may be horizontal (agreements of collusion amongst competitors), or vertical (agreements between buyer/seller firms).

Abuse of dominance: practices like quantity restrictions, predatory pricing to eliminate competitors and marketing below costs to drive out competitors in order to recover market shares, etc. In this regard, predatory pricing will be considered adverse only if used by a dominant undertaking and dealt with on the basis of rule of reason.

Mergers and combinations among enterprises without prior notification for mergers beyond a threshold limit: asset values exceeding Rs 5 billion (Euro 85 million) for the merged entity, and/ or Rs 20 billion (Euro 0.3 billion) for the parent group holding the merged entity.

Repatriation/Remittance of Profits and Capital
The repatriation of capital and profits of foreign shareholders is possible after deduction of applicable withholding taxes and other deductions, if any. The following procedures apply in this regard:

	Application for repatriation of capital invested in India should be made to the Reserve Bank through an authorised dealer, together with following information/documents
	Whether any undertaking was given at any time to the Government of India/Reserve Bank not to seek repatriation facilities
	Documentary evidence in support of the investment proceeds
	Whether the investor (in case of individual) was ever resident in India; if so, particulars of foreign exchange availed of at the time of leaving India and thereafter
	No Objection certificate/Clearance certificate from the Indian Income Tax Authorities
	A certificate from a chartered accountant or the concerned company’s secretary confirming that necessary share transfer forms duly completed have been received by the transferee or his agent and/or lodged with the company for registration in favour of the transfers of bulk holdings.

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