What are the type of Business
Entities Available in India?
The following types of
Business entitles are available in India:
Limited
Liability Partnership, LLP in India
A law to allow "Limited Liability
Partnership" (LLP) in India has been enacted by the Parliament of
India recently.
For more details visit
LLP in India |
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Private Limited Company
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Public Limited Company
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Unlimited Company
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Partnership
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Sole Proprietorship
In addition to the above legal
entities, the following types of entities are available for
foreign investors/foreign companies doing business in India:
What is a Private Limited
Company?
A Private Limited Company is
a Company limited by shares in which there can be maximum 50
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.
What is a Public Limited
Company?
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.
What are the advantages of a
Limited Company?
A limited company has following advantages:
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Members' (the directors and shareholders)
financial liability is limited to the amount of money they have
paid for shares.
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The management structure is clearly defined,
which makes it easy to appoint, retire or remove directors.
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If extra capital is needed, it can be raised
by selling more shares privately.
It is simple to admit more members.
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The death, bankruptcy or withdrawal of
capital by one member does not affect the company's ability to
trade.
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The disposal of the whole or part of the
business is easily arranged.
High status.
What are the disadvantages of
a Limited Company?
A limited company has following
disadvantages:
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Requirement to register the company with the
registrar of companies and provide annual returns and audited
statement of accounts. All details of the company are available
for public inspection so there can be no secrecy. There are
penalties for failing to make returns.
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Can be more expensive to set up.
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May need professional help to form.
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As a director, you are treated as an employee
and must pay tax.
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The advantages of limited liability status
are increasingly being undermined by banks, finance house,
landlords and suppliers who require personal guarantees from the
directors before they will do business.
What entity is best suited?
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.
What is the minimum paid-up
capital of a Private Limited Company?
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 2,250). 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.
What is the difference
between authorized capital and paid up capital?
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.
What is the procedure in
obtaining a name approval for the proposed Company?
An application in Form No. 1A
needs to be filed with the Registrar of Companies (ROC) of the
state in which the Registered Office of the proposed Company is
to be situated. The application is required to be signed
by one of the promoters. The details to be state in the said
application are as follows:1. Four alternative names for the
proposed company. (The name can be coined names from the objects
of the proposed company or the names of the directors, etc. but
should definitely be indicative of the main object of the
company. Justification for the name needs to be specified along
with the application)2. Names and addresses of the promoters
(Minimum 7 for a public company while 2 for private company).3.
Authorized Capital of the proposed company.4. Main objects of
the proposed company.5. Names of other group companies. On
submitting the application, the ROC scrutinizes the same and
sends the approval / objections in about 10 days to the
applicant. On fulfilling of the objections a formal letter of
name approval is issued.
What is the Memorandum of
Association (MOA) and the Articles of Association (AOA) of a
company and what is the procedure in their regard?
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.
What are the documents
required to be executed for incorporation?
The following documents are required to be executed (signed)
before they are submitted to the ROC:
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MOA and AOA - These are
required to be executed by the promoters in their own hand in
the presence of a witness in quadruplicate stating their full
name, father's name, residential address, occupation, number of
shares subscribed for, etc.
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Form No. 1 - This is a
declaration to be executed on a non-judicial stamp paper of INR
20 by one of the directors of the proposed company or other
specified persons such as Attorneys or Advocates, etc.
stating that all the requirements of the incorporation have been
complied with.
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Form No. 18 - This is a form
to be filed by one of the directors of the company informing the
ROC the registered office of the proposed company.
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Form No. 29 - This is a
consent obtained from all the proposed directors of the proposed
company to act as directors of the proposed company. (Not
required in case of private company).
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Form No. 32 - This is a form
stating the fact of appointment of the proposed directors on the
board of directors from the date of incorporation of the
proposed company and is signed by one of the proposed directors.
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Name approval letter in
original.
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Power of Attorney signed by
all the subscribers of MOA authorizing one of the subscribers or
any other person to act on their behalf for the purpose of
incorporation and accepting the certificate of incorporation.
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Power of Attorney in case of
a subscriber who has appointed another person to sign the MOA on
his behalf.9. Filing fees as may be applicable.
How is the certificate of
incorporation issued?
After the documents in
FAQ 5 are filed, the ROC calls the attorney on a specific date
for scrutiny and making the corrections in the MOA and AOA
filed. On complying with the same, the certificate of
incorporation is granted to the attorney.
When can the newly formed
company start its business operations?
On receipt of the certificate
of incorporation, the public company has to complete certain
other legal formalities such as a statutory meeting (within 6
months), statutory report, etc. On completion of the said
formalities and on filing of the statutory report with the ROC
the ROC issues the certification of commencement of business to
the company. Thereafter, the Public Company can start the
business operations. The Private Company can start its business
immediately on incorporation.
How do we comply with the
legal formalities when we are not stationed in India?
You can give Power of
Attorney to a person 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 once, you should be in India within one
month of the incorporation of the Company. 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.
What other approvals are
required for foreign investor in India?
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IT
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. Proper legal advice must be obtained before
incorporating in India to ascertain the eligibility and applicable
restrictions.
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Generally, prior approval is
required from the RBI before investing in India. Some categories
of businesses are covered under automatic approval process.
However, one has to apply for the same. There are some
post-incorporation filing formalities after the remittance of
capital from overseas to India and on issue of shares.
What are other formalities
before or after incorporation?
For More Information on other
formalities in India
click here
What are the requirements for
issuing Sweat Equity in an India Company?
Can 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
fulfilled:
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.
What are the requirements for
a Foreign company forming a subsidiary in India?
A foreign company planning to form a subsidiary
in India, in addition to meeting all requirements of forming a
company, is 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. Also see
Withholding Tax Rates For Foreign Companies Doing Business In India Under
The Tax Treaties & the
Joint Ventures in India. Also see
Entry Strategies in India for Foreign
Investors
What are the requirements for
a Foreign company opening a branch in India?
Foreign investors 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. Also see
Withholding Tax Rates For Foreign Companies Doing Business In India Under
The Tax Treaties. Also see
Entry Strategies in India for Foreign
Investors
What are the requirements for
a Foreign company forming a joint venture in India?
Foreign investors planning to form a joint
venture 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
Joint Ventures in India. Also see
FDI in India Sector wise Guide
for more information on various conditions of investing in India. Also see
Withholding Tax Rates For Foreign Companies Doing Business In India Under
The Tax Treaties. Also see
Entry Strategies in India for Foreign
Investors
What are the requirements for
an American company planning to establish business in India?
An American or USA company planning to open
business in India - subsidiary, branch, or joint venture -
should meet all the requirements mentioned here. It is also
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. Also see
Withholding Tax Rates For Foreign Companies Doing Business In India Under
The Tax Treaties & the
Joint Ventures in India. Also see
Entry Strategies in India for Foreign
Investors
What are the compliance
requirements for Companies in India?
All the companies who are
related cyber business are required to comply with the
requirements of the law.
|
IT
is mandatory to set up corporate compliance programs including cyber law
compliance program. If you company does not have the compliance program,
then contact us to help you set up one for you.
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In addition, all the
Multinational Companies Doing Business in India and having cyber
involvement are required to comply
with the corporate and other laws of India including cyber
law compliance.
The cyber law mandates all
companies to have an information technology security policy.
This documents the architecture of the network, the roles and
responsibility of employees, security parameters and
authorization required for data access, among other things.
Other compliances that are required include relate to retention
and authentication of electronic records and security of data.
Moreover, Indian
Information Technology Act of 2000 provides for further
personal liabilities. For example, Section 85(1) of the IT Act
provides that where a person committing a contravention of any
of the provisions of this Act or of any rule, direction or order
made there under is a Company, every person who, at the time the
contravention was committed, was in charge of, and was
responsible to, the company for the conduct of business of the
company as well as the company, shall be guilty of the
contravention and shall be liable to be proceeded against and
punished accordingly.
All the Indian companies and all foreign companies doing business in India,
either directly or indirectly, should comply with this law.
For
Corporate Compliance Programs in India click here
For More Information on Incorporating company in India
click here
What are the
Requirements for a Private Limited Company?
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 business.
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
authorised 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 Companies Act.
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 of companies.
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.
For More Information on Incorporating company in India
click here
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
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.
Click here to learn more about Our Services.
Contact us for
setting up in India or other countries
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Contact us
for:
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All legal services regarding Doing
Business in India
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Incorporating in a company in India
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Opening a
Branch Office
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Opening a
Project Office
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Setting up
Joint Ventures in India
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Setting up a
subsidiary in India
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Drafting Agreements
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Negotiating
Agreements
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Setting up
Outsourcing in India
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Dispute Resolution
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Our lawyers include those admitted to bar in the United States of America. 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
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Contact Information:
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& Co.
Attorneys at law
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