Types of Business Entities in India
Types of Companies in India - Types of
Corporate Entities in India - Types of Legal Entities in India - Options for
Foreign Investors Doing Business in India
In India, the following types
of business entities are available:
Both the Indian promoters and
the foreign promoters can form the following business entities:
Private Limited Company,
Public Limited Company, Limited Liability Partnership, Unlimited Company, Partnership and
Sole Proprietorship. The foreign companies also have the options
of forming the following type of business entities:
Liaison Office/Representative Office,
Project Office, Branch
Joint Venture Company. It must be noted that a Joint
Venture Company is not a separate type of legal entity; it could
be either a Private Limited Company, a Public Limited Company,
or an Unlimited Company. Similarly a wholly owned
Subsidiary of a foreign company in India could
either a Private Limited Company, a
Public Limited Company, an Unlimited Company,
or a Branch Office.
For a foreign Investor in
India it is very important to choose a right kind of business or
corporate entity which best suits its purposes and takes care of
liability issues and tax planning issues. Foreign Companies
planning to do business in India should pay special attention to
Entry Strategies in India for Foreign
Investors and corporate structuring to save taxes to the best extent allowed
by laws and international tax treaties.
It is also mandatory for
foreign investors or foreign shareholders, both individuals and
corporate shareholders, to seek
Government Approvals for Investing in India In some special cases
Promotion Board, FIPB Approval for Foreign Investment in India
is required. In other cases
Reserve Bank of India, RBI Approvals for Foreign Investment in India is
The sectors where RBI Approval for foreign investors is available under automatic
route can be found at
FDI in India Sector wise Guide.
There are various
steps required to establish a business
in India, before and after incorporation, as mentioned
hereinafter. See also the
Procedure for Formation of Company in India.
A Company in India can have
foreign directors provided some conditions are fulfilled. The
directors of an Indian company, both Indian and foreigner
directors, are required to obtain Director
Identification Number - DIN and Digital
Signature Certificate - DSC
There are some restrictions
regarding issuing sweat equity for a
company incorporated in India.
Filings in India for corporate maintenance
requirements in India.
is mandatory for foreign investors to obtain governmental approval for
incorporating in India or forming a joint venture in India. In some sectors
certain restrictions apply.
A private company is a company which has the following
shareholders right to transfer shares is restricted;
the number of shareholders is limited to fifty; and
an invitation to the public to subscribe to any shares or debentures is
A Private Limited Company is the most popular form of business entity used
for Foreign Investors in India, including USA investors in India. It takes
some time to incorporate in India as there are various
steps required in forming a private limited company
in India. There are various steps required to
establish a business in India, before and after incorporation, as
Partnership now available in India India
A law to allow "Limited Liability
Partnership" (LLP) in India has been enacted by the Parliament of
India recently. (Limited Liability Partnership (LLP) Act of 2008)
LLP is an alternative corporate
business entity that provides the benefits of limited liability of a
company but allows its members the flexibility of organizing their
internal management on the basis of a mutually-arrived agreement, as
is the case in a partnership firm.
This format would be quite useful for
small and medium enterprises in general and for the enterprises in
services sector in particular, including professionals and knowledge
For more details visit
LLP in India
A public company is defined as a company which is not a private company. The
following conditions apply only to a public company:
It must have at least seven shareholders.
A public company is not authorized to start business upon the grant of
the certificate of incorporation. In order to be eligible to commence
business as a corporation, it must obtain another document called
It must publish a prospectus or file a statement in lieu of a prospectus
before it can start transacting business.
A public company is required to have at least three directors.
It must hold statutory meetings and obtain government approval for the
appointment of the management.
There are several other provisions contained in the Companies Act 1956 which
are applicable only to public companies and should be consulted.
A Liaison Office could be established with the approval of the government of
India. The role of Liaison Office is limited to collection of information,
promotion of exports/imports and facilitate technical/financial
Liaison office cannot undertake any commercial activity directly or
Foreign companies planning to execute specific projects in India can set up
a temporary project/site offices in India for carrying out activities only
relating to that project. The Government of India has now granted general
permission to foreign entities to establish project offices subject to
engaged in manufacturing and trading activities abroad are
allowed to set up Branch Offices in India for the following purposes:
Export/Import of goods
Rendering professional or consultancy services
Carrying out research work, in which the parent
company is engaged.
Promoting technical or financial collaborations
between Indian companies and parent or overseas group company.
Representing the parent company in India and
acting as buying/selling agents in India.
Rendering services in Information Technology and
development of software in India.
Rendering technical support to the products supplied
by the parent/ group companies.
Foreign airline/shipping company.
A branch office is not allowed to carry out manufacturing activities on
its own but is permitted to subcontract these to an Indian manufacturer.
Branch Offices established with the approval of RBI, may remit outside
India profit of the branch, net of applicable Indian taxes and subject to
RBI guidelines Permission for setting up branch offices is granted by the
Reserve Bank of India (RBI).
Procedure for Formation of Company in
A law to allow "Limited Liability Partnership" (LLP) in India has been
enacted by the Parliament of India recently. (Limited Liability Partnership
(LLP) Act of 2008).
LLP is an alternative corporate business entity that provides the benefits
of limited liability of a company but allows its members the flexibility of
organizing their internal management on the basis of a mutually-arrived
agreement, as is the case in a partnership firm.
This format would be quite useful for small and medium enterprises in
general and for the enterprises in services sector in particular, including
professionals and knowledge based enterprises.
As proposed in the Bill, LLP shall be a body corporate and a legal entity
separate from its partners. It will have perpetual succession. While the LLP
will be a separate legal entity, liable to the full extent of its assets,
the liability of the partners would be limited to their agreed contribution
in the LLP.
Further, no partner would be liable on account of the independent or
unauthorized actions of other partners, thus allowing individual partners to
be shielded from joint liability created by another partner’s wrongful
business decisions or misconduct.
For more details visit LLP in
In India establishing a business takes some
time. Besides incorporation there are many other formalities in establishing a
business in India. The following chart contains typical formalities including
incorporating a private limited company in India:
Obtain DIN for proposed
Directors of the new Company
Obtain DSC for proposed
Directors of the Company
Filing the proposed name of company for
approval to the Registrar of Companies (ROC); Get the Memorandum and
Articles of Association vetted by the ROC and printed
Make an application to the Superintendent
of Stamps or an authorized bank requesting for stamping of the
Memorandum of Association and Articles of Association.
Present the required documents along with
the registration fee to the Registrar of Companies to get the
certificate of incorporation
Obtain a company seal
Apply for UTI Investors Services
Limited/National Securities Depository Ltd. to obtain a Permanent
Account Number (PAN)
Obtain a Tax Account Number (TAN) for
income taxes deducted at source from the Assessing Office in the
Income Tax Department
Register under Shops and Establishment Act
Register for value added tax (VAT) before
the Sales Tax Officer of the ward in which the company is located
Register for Profession tax
Register with Employees' Provident Fund
Register with ESIC (medical insurance)
Filing for Government Approval before
RBI/FIPB for Foreigners and NRI's
Procedures sometimes take place simultaneously. Instances of this are
marked with an asterisk (*). The above procedures and timings are
indicative for a typical big city in India where all the required
documents are ready with the promoters. The actual time and procedure may
vary with city and state and the nature of business.
All the procedures must
NEW DIRECTOR REGISTRATION REQUIREMENTS IN INDIA
Director Identification Number
Directors for an Indian company, both Indian and foreigners, must
register and get and identification number under the new requirements.
It is called Director Identification Number- DIN.
DSC - Digital
Signature Certificate for Directors
Directors for an Indian company, both Indian and foreigners, are
also required to get Digital Signature Certificate - DSC - under the new
requirements. Digital Signature Certificate (DSC) is required for all
Directors or authorized representatives of any company and professional
who will require to sign ROC forms or documents. A DSC, like hand
written signature, establishes the identity of the sender filing the
documents through internet which sender can not revoke or deny. A DSC is
not only a digital equivalent of a hand written signature it adds extra
data electronically to any message or a document where it is used to
make it more authentic and more secured. There are various classes of
Click here to Contact us for Obtaining DIN and DSC in India
A Registered Business Name: This must be followed by the
word ‘Limited' or ‘Ltd'. The Companies Registration Office exercises
some control over the choice of name, it cannot be identical (or very
similar to) the name of an existing company. It won't be considered if
it is offensive or illegal and the use of certain words in a company
(for example, `Institute', `National') can only be used in certain
circumstances. The company name must be displayed in a conspicuous place
at every office, or other premises where the company carries out
A Registered Office: This need not necessarily be the
same address as the business is conducted from. Quite frequently the
address used for the registered office is that of the firm's solicitor
or accountant. This is the address, through, where all official
correspondence will go.
Shareholders: There must be a minimum of two
shareholders (also described as `members' or `subscribers'). A private
company can have up to fifty shareholders.
Share Capital: The company must be formed with a stated,
nominal share capital divided into shares of fixed amounts. Small
companies are frequently formed with a nominal share capital of Rs.100.
Memorandum of Association: The memorandum is the
company's charter. It states the company's name; the situation of its
registered office; its share capital; the fact that liability is limited
and, most importantly, the object for which the company has been formed.
In theory, the company can only operate in the areas mentioned in the
objects clause but in practice the clause is drawn to cover as wide an
area as possible, and anyway a 75 per cent majority of the members of
the company can change the objects whenever they like. Nevertheless, it
is worth bearing in mind that directors of the company will incur
personal liability if the company engages in a type of business which is
not authorized by the objects clause. The memorandum must be signed by
at least three shareholders.
Articles of Association: The document contains the
internal regulations of the company, the relationship of the company to
its shareholders and the relationship between the individual
shareholders. Many companies don't bother to draw up their own articles
but adopt (sometimes with some modifications) articles set out in the
Certificate of Incorporation: This is the document,
which the registrar of companies issues to you once he has approved your
choice of name and your memorandum. When you receive this document your
company legally exists and is ready to trade.
Auditors: Every company must appoint a qualified
auditor. The auditor's duty is to report to the treasurer whether or not
the books of the company have been properly kept, and that the balance
sheet and profit and loss account presents (or doesn't present) a true
and fair view of the company's affairs and complies with the Companies
Act. Auditors are appointed or re-appointed at general meetings at which
annual accounts are presented, and they hold office from the conclusion
of the meeting until the next general meeting.
Accounts: The Companies Act lays down strict rules on
accounting. Every company must maintain a set of records, which show the
financial position at any one time with reasonable accuracy. The
accounts comprise a profit and loss account and balance sheet with the
auditors' and directors' reports appended. A new company's accounting
reference period begins on its incorporation and runs until the
following 31st March - unless the company notifies the registrar of
companies otherwise. Within ten months of the end of an accounting
reference period, an audited set of accounts must be laid before the
shareholders at a general meeting and a set delivered to the registrar
Registers, etc.: In addition to the accounts books,
companies are required to have: a register of members and share ledger;
a register of directors and secretaries; a register of share transfers;
a register of charges; a register of debenture holders; a book can be
purchased to hold all of the above. This will be provided automatically
if you buy a running concern.
Company Seal: All companies must have an engraved seal.
This must be impressed on share certificates and must be used whenever
the company has to execute a deed. Again, this is included in the
ready-made company package.
Corporate Documents & Registration of a Company
For incorporating a company in India, an application for registration should
be submitted to the registrar of companies with the following documents:
1. Memorandum of Association;
2. Articles of Association;
3. a declaration signed by a person named in the articles of the proposed
company as a director, manager, or secretary of the company, or by an
advocate of the Supreme Court or High Court, or by an attorney entitled to
appear before the High Court, or by a chartered accountant practicing in
India stating that all the requirements of the Companies Act 1956 and the
applicable rules with respect to the registration and other matters have
been complied with;
4. a list of persons who have consented to act as directors of the company.
5. if the proposed company is a public company, consent of very person
prepared to act as a director must be submitted in a prescribed form;
6. information about directors, managing directors and managers and
secretary must be submitted in a prescribed form;
7. information about the registered office in a prescribed form;
8. power of attorney in favor of one of the promoters or any other person,
authorizing him/her to make corrections in the documents submitted to the
registrar of the companies, if it becomes necessary; and
9. applicable registration fee payable to the registrar of the companies.
Advantages of Incorporating in India
Many tax exemptions available to the company set up in
Special Economic Zone;
Many tax incentives available to IT companies;
India has got double taxation treaties with many
Minimum authorized capital of only INR 100,000 (US $
2250 approximately) is required to form a private company in India;
Skilled and intelligent employees available at nominal
With its large base of English speaking skilled human
resource, it is most sought after destination for business process
outsourcing, Knowledge processing etc.
Applicable Laws for Forming a Company in India
The laws applicable for incorporating a company in India include the Indian
Companies Act of 1956, read with Companies (Central Governments') General
Rules and Forms,1956, the Indian Income Tax Act, and other laws &
regulations. The Foreign Exchange Management Act of 1999 is applicable for
foreign investments and transactions.
Doing Business with India Free Guide
FDI in India Sector wise Guide |
Formation of Subsidiary in India | Starting
a Business in India |
Incorporating company in India |
Procedure for Formation of Company in India |
Government Approvals for Investing in India |
Entry Strategies in India for Foreign Investors |
FIPB Approval for Foreign Investment in India |
RBI Approvals for FDI in India |
FDI in Small Scale Sector in India Further
Liberalized | Tax
Rates in India | Withholding
Tax Rates For Foreign Companies Doing Business In India Under
The Tax Treaties
Annual Corporate Filings in India
Joint Ventures in India |
Outsourcing to India |
Where to Incorporate in India?
A company incorporated in any state of India can do business in all the
states of India. The following are the locations of ROC's in India:
|States & U.T.'s of India
|Delhi & Haryana
||Registrar of Companies Delhi & Haryana,
||Registrar of Companies Karnataka
Maharashtra, Dadra & Nagar Haveli
||Registrar of Companies Maharashtra
MUMBAI ( Bombay )
|Pune, Kolhapur, Ratnagiri, Satara, Sindhudurga,
Sangli, Sholapur & Ahmednagar districts in Maharashtra
Registrar of Companies Pune,
||Registrar of Companies Tamil Nadu,
CHENNAI ( Madras )
|Coimbatore, Nilgiris, Periyar Salem, Dharmapuri &
Dindigul, Quaid-e-Milleth districts in Tamil Nadu
||Registrar of Companies Coimbatore
||Registrar of Companies Gujarat,
||Registrar of Companies Andhra Pradesh,
|Assam, Tripura, Manipur, Nagaland, Meghalaya,
Arunachal Pradesh, Mizoram & Shillong
||Registrar of Companies Assam, Tripura, Manipur,
Nagaland, Meghalaya, Arunachal Pradesh, Mizoram & Shillong
|Bihar & Jharkhand
||Registrar of Companies
|Goa, Daman & Diu
||Registrar of Companies Goa, Daman & Diu,
|Jammu & Kashmir
||Registrar of Companies Jammu & Kashmir
JAMMU & SRINAGAR
|Kerala, Amindivi, Minicoy & Lakshadweep Islands
||Registrar of Companies Kerala
|Madhya Pradesh & Chhattisgarh
||Registrar of Companies Madhya Pradesh,
||Registrar of Companies Orissa
||Registrar of Companies
|Punjab, Himachal Pradesh & Chandigarh
||Registrar of Companies Punjab, Himachal Pradesh &
||Registrar of Companies Rajasthan ,
|Uttar Pradesh & Uttaranchal
||Registrar of Companies Uttar Pradesh,
Registrar of Companies West Bengal
||The Registrar of Companies Andaman
The question is asked a lot, if an Indian company can issue sweat equity.
There are separate rules for sweat equity in a private company in India and
a public company in India.
Sweat Equity in a private company in India
The provisions for issue of Sweat Equity are covered under Section 79A of
the Companies Act. It provides that a company may issue sweat equity shares
of a class of shares already issued if the following conditions are
the issue of sweat equity shares in authorized by a special resolution
passed by the company in the general meeting.
The resolution specifies the number of shares, current market price,
consideration, if any, and the class or classes of directors or employees to
whom such equity shares are to be issued.
not less than one year has, at the issue elapsed since the date on which the
company was entitled to commence business.
The sweat equity shares of a company whose equity shares are listed on a
recognized stock exchange are issued in accordance with the regulations made
by the Securities and Exchange Board of India in this behalf.
In view of the above provisions, you can't issue Sweat Equity at the time of
incorporation of your Company as one year has not elapsed since the date on
which the company was entitled to commence business.
In addition to the above provision, other regulatory provisions are
applicable for issuing sweat equity shares for a private company in India.
Please feel free to Contact
us for further information about sweat equity in an Indian company.
Sweat Equity in a public company in India
The aforesaid provisions regarding issuing of Sweat Equity under Section 79A
of the Companies Act are applicable to a public company in India.
The sweat equity shares of a company whose equity shares are listed on a
recognized stock exchange are issued in accordance with the Securities and
Exchange Board of India (Issue of Sweat Equity) Regulations, 2002.
Please feel free to Contact
us for further information about sweat equity in an Indian company.
Services Offered by Us
Madaan & Co. has helped
foreign companies in setting up there operations in India and
other countries. A careful tax planning is required before
opening a subsidiary, branch, joint venture, project office or
liaison office in India. We can help you in corporate planning,
corporate structuring and setting up in India and other
countries. We have also helped US law firms in handling their
India related legal work. We can help your law firm or company
in setting up in India and other countries.
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Business in India
Incorporating in a company in India
Opening a Branch Office
Opening a Project Office
Setting up Joint Ventures in India
Setting up a subsidiary in India
Setting up Outsourcing in India
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