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What are the Types of Business Entities in India?
What is a Private Limited Company?
What is a Public Limited Company?
What are the advantages of a Limited Company?
What are the disadvantages of a Limited Company?
What entity is best suited?
What is the minimum paid-up capital of a Private Limited Company?
What is the difference between authorized capital and paid up capital?
What is the procedure in obtaining a name approval for the proposed Company?
What is the Memorandum of Association (MOA) and the Articles of Association (AOA) of a company and what is the procedure in their regard?
What are the documents required to be executed for incorporation?
How is the certificate of incorporation issued?
When can the newly formed company start its business operations?
How do we comply with the legal formalities when we are not stationed in India?
Can a foreign company incorporate a company in India?
The following types of Business entitles are available in India:
In addition to the above legal entities, the following types of entities are available for foreign investors/foreign companies doing business in India:
See Types of Business Entities in India for more details.
A Private Limited Company is a Company limited by shares in which there can be maximum 200 shareholders, no invitation can be made to the public for subscription of shares or debentures, cannot make or accept deposits from Public and there are restriction on the transfer of shares. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager of such a Company can at times be unlimited. The minimum number of shareholders is 2. For Details see: Private Limited Company in India
A Public Limited Company is a Company limited by shares in which there is no restriction on the maximum number of shareholders, transfer of shares and acceptance of public deposits. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager of such a Company can at times be unlimited. The minimum number of shareholders is 7.
A limited company has following advantages:
A limited company has following disadvantages:
The choice of entity depends on circumstance of each case. Private Limited Company has lesser number of compliances requirements. Therefore, generally where there is no requirement of raising of finances through a public issue and the ownership is intended to be closely held by limited number of persons, Private Limited Company is the best choice.
The minimum paid up capital at the time of incorporation of a private limited company has to be Indian Rupees 1,00,000 (about United States Dollars 2,000). There is no upper limit on having the authorized capital and the paid up capital. It can be increased any time, by payment of additional stamp duty and registration fee.
The authorized capital is the capital limit authorized by the Registrar of Companies up to which the shares can be issued to the members / public, as the case may be. The paid up share capital is the paid portion of the capital subscribed by the shareholders.
An application for Reservation of proposed name of
the company is made to the Ministry of
Corporate
Affairs ("MCA"). The details to be stated in the
said application are as follows:
(1) The type of proposed business entity to be selected. (Note: An attorney must be consulted to pick up the right kind of business enetity. See Types of Business Entities in India for more details)
(2) Two alternative names for the proposed company. The proposed names must be unique and should not resemble to the names of existing companies or well known companies or trademarks of others.
(3) Must follow name guidelines and Rules prescribed by MCA while proposing a name of the company.
(4) The proposed names may consist of coined words from the name of promoters or directors but should definitely be indicative of the principal business of the proposed company. Justification for the name needs to be stated along with the application.
(5) The main objects for which the company is to be formed.
After submitting the application, MCA scrutinizes the application for uniqueness of the proposed name and either accepts or rejects the application. If there is no objection or there is objection and reply to objection is satisfactory, name approval letter is issued electronically in about a week. An opportunity of being heard is provided to the applicant before rejecting the Name Reservation Application. .
On receipt of the name approval
letter from the ROC the MOA and the AOA are required to be
drafted. The MOA states the main, ancillary / subsidiary and
other objects of the proposed company. The AOA contains the
rules and procedures for the routine conduct of the proposed
company. It also states the authorized share capital of the
proposed company and the names of its first / permanent
directors. After the MOA and AOA are required to be stamped.
A stamp duty is required to be paid on the MOA and on
the AOA. The stamp duty depends on the authorized share
capital.
The
following documents are required to be executed (signed)
by promoter(s) before they are submitted to the ROC:
1. Memorandum of Association ("MOA")
- MOA is like a Charter of a Company. Promoter(s) or
its/their Authorized Signatory(s) are required to sign
MOA in the presence of one or more witnesses stating
their full name, father's name, residential address,
occupation, number of shares subscribed for, etc.
2. Articles of Association ("AOA")
- AOA are byelaws of a company incorporated in India.
Promoter(s) or its/their Authorized Signatory(s) are
required to sign AOA in the presence of one or more
witnesses stating their full name, father's name,
residential address, occupation, etc.
3.
Corporate resolutions passed by parent Corporation or
LLC to form a new company in India as its subsidiary and
the amount of share apital to be inducted in the
subsidiary.
4. Authorization executed by all the
subscribers to MOA authorizing one of the subscribers or
an Attorney to act on their behalf to digitally sign the
incorporation documents to be filed with the ROC.
5. Special Power of Attorney
in favor of an Attorney for the purpose of incorporation
and accepting the certificate of incorporation on ehalf
of the parent Corporation or LLC.
6. A
Declaration, prescribed under the Companies Act, 2013,
by each subscriber/ proposed director to the effect that
the subscriber/director is not convicted of any offence
in connection with the promotion, formation or
management of any company during the preceding five
years or of fraud and misfeasance, if any.
7.
PAN Undertaking by a proposed director who is foreigner.
8. Form No.
DIR 2 - Consent Form by each proposed director to act as
director of the company to be formed in India.
7. PAN Undertaking by a proposed director who is
foreigner.
8. Form No. DIR 2 - Consent Form by each
proposed director to act as director of the company to be
formed in India.
9. Filing fees as may be applicable.
After filing the above mentioned incorporation documents online, the concerned Registrar of Companies ("ROC") examines all documents. In case the documents are found in order, the concerned ROC issues Certificate of Incorporation ("COI").
In case, the ROC raises any objections, the applicant or its Attorney is required to resubmit documents after making changes in the MOA and AOA as per the directions of the concerned ROC. On complying with the same, the ROC issues COI and the company gets incorporated with effect from the date of the COI..
On receipt of the certificate of incorporation, a private limited company can start business right away. However, certain local permits are required in most cases. (See Typical Steps Required to Establish Business in India for more details)
But a public company has to complete certain other legal formalities.
You can give Power of Attorney to an attorney to sign the documents on your behalf. After the Company is incorporated, you can appoint Alternate Directors, to function on your behalf while you are not in India. But at least one director should a resident of India.
There can be one meeting of Board of Directors during your stay in India and all other formalities including those of appointment of Alternate Directors can be complied with.
Yes a foriegn company can incorporate a company or corporation or subsidiary in India. You can give Power of Attorney to an attorney to sign the documents on your behalf. After the Company is incorporated, you can appoint Alternate Directors, to function on your behalf while you are not in India. But at least one director should a resident of India.
Foreign Investors Establishing Business in IndiaForeign investors planning to incorporate in India are required to seek governmental approval before investing in India. Some approvals are automatic, - RBI Approvals - though application is required for those approvals. Special Permission - FIPB Approvals - could be obtained to invest over and above the regular percentage allowed. See our FDI in India Sector wise Guide for more information on various conditions of investing in India. See also Can a foreign company incorporate a company in India? Also see Withholding Tax Rates For Foreign Companies Doing Business In India Under The Tax Treaties & the Joint Ventures in India *** Contact us for incorporating in India & setting up business in India |
Services Offered by UsMadaan & 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 |
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