On this page:.
Types of Business Entities in India
Typical Steps Required to Establish Business in India
Director Identification Number - DIN
Digital Signature Certificate - DSC
Requirements of a Private Limited Company in India
Corporate Documents & Registration of a Company
Advantages of Incorporating in India
Applicable Laws for Forming a Company in India
Where to Incorporate in India?
New Companies Act of 2013 - Major changes
Sweat equity for a company incorporated 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 Office, and 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 be 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 Foreign Investment 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 required. The sectors where RBI Approval for foreign investors is available under automatic route can be found at FDI in India Sector wise Guide.
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.
Also see Annual Corporate Filings in India for corporate maintenance requirements in India.
A private company is a company which has the following characteristics:
A Private Limited Company is the most popular form of business entity used for Foreign Investors in India, including USA investors in India. There are various requirements for forming a private limited company in India. There are various steps required to establish a business in India, before and after incorporation, as mentioned hereinafter.
For more details See: Private Limited Company 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:
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 collaborations.
Liaison office cannot undertake any commercial activity directly or indirectly.
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 specified conditions.
Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:
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).
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
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 India
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:
|Nature of Procedure in India||Procedure Number||Duration (days)|
STEPS FOR COMPANY FORMATION IN INDIA
|Obtain Director Identification Number DIN for proposed Directors of the new Company||1||1*|
|Obtaiinf Digtal Signature Certificate DSC for proposed Directors of the Company||2||2*|
|Filing the proposed name of company for approval to the Registrar of Companies (ROC)||3||2|
|Get the Memorandum of Asociation and Articles of Association printed||4||1|
|Pay stamp duties online||5||1|
|File all incorporation forms and documents online, including the Memorandum of Association and the Articles of Association.||6||2|
|Obtain the certificate of incorporation||7||2|
|Request and obtain Certificate to Commence Operation, if required||8||5|
OTHER STEPS FOR SETTING UP BUSINESS IN INDIA
|Obtain a company seal||9||3|
|Obtain a Permanent Account Number (PAN) from an authorized franchise or agent appointed by National Securities Depository Services Limited (NSDL) or Unit Trust of India (UTI)||10||7*|
|Obtain a Tax Account Number (TAN) for income taxes deducted at source from the Assessing Office in the Income Tax Department||11||7*|
|Register under Shops and Establishment Act||12||4*|
|Register for value added tax (VAT) before the Sales Tax Officer of the ward in which the company is located||13||12*|
|Register for Profession tax||14||2*|
|Register with Employees' Provident Fund Organization||15||12*|
|Register with ESIC (medical insurance)||16||9*|
|Filing for Government Approval before RBI/FIPB for Foreigners and NRI's||17||15*|
Note: 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 be followed.
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.
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 DSC.
The laws applicable for incorporating a company in India include the India Companies Act 2013, read with Companies (Central Governments') General Rules and Forms, the Indian Income Tax Act, and other laws & regulations. The previous law was India Companies Act of 1956.
The Foreign Exchange Management Act of 1999 is applicable for foreign investments and transactions.
A company incorporated in any state of India can do business in all the states of India. The following are the locations of Registrars of Companies (ROC's) in India:
|States & U.T.'s of India||ROC Locations|
|Delhi & Haryana||Registrar of Companies Delhi & Haryana,
|Karnataka||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,
|Tamil Nadu||Registrar of Companies Tamil Nadu,
CHENNAI ( Madras )
|Coimbatore, Nilgiris, Periyar Salem, Dharmapuri & Dindigul, Quaid-e-Milleth districts in Tamil Nadu||Registrar of Companies Coimbatore
|Gujarat||Registrar of Companies Gujarat,
|Andhra Pradesh||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,
|Orissa||Registrar of Companies Orissa
|Pondicherry||Registrar of Companies
|Punjab, Himachal Pradesh & Chandigarh||Registrar of Companies Punjab, Himachal Pradesh & Chandigarh,
|Rajasthan||Registrar of Companies Rajasthan ,
|Uttar Pradesh & Uttaranchal||Registrar of Companies Uttar Pradesh,
|West Bengal||Registrar of Companies West Bengal
|Andaman||The Registrar of Companies Andaman
The New Companies Act of 2013, has made major changes in the corporate laws of India. Among the major changes introduced by the new Act are the followings:
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.
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 fulfilled:
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.
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.
Foreign Investors Establishing Business in India
Foreign investors, including USA businesses, planning to incorporate in India are required to seek governmental approval before incorporating in India or opening a branch office or establishing subsidiary in India.
Some approvals for foreign businesses are automatic - RBI Approvals - if they are below the regular percentage allowed for various Sectors. See our FDI in India Sector wise Guide for more information. Application for Permission is required for those approvals.
Services Offered by Us
Madaan & Co. has helped foreign companies, including USA Companies, in setting up their operations in India. A careful tax planning is required before opening a subsidiary, branch, joint venture, project office or liaison office in India. Click here to Contact us for setting up company in India
Our lawyers include those admitted to bar in the United States of America and India. They have undertaken legal maters in the USA, India and Europe. They understand the multi-cultural and the multi-jurisdictional aspects of international business in this age of globalization. They include those educated at Harvard Law School, Harvard University in the USA and premier universities in India. They believe in high moral and legal ethics.
Contact us for:
- 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
- Drafting Agreements
- Negotiating Agreements
- Setting up Outsourcing in India
- Dispute Resolution