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Establishing a Corporation in India

31.01.2017
GUIDE TO SETTING UP A BUSINESS IN INDIA
 
Selecting the right business structure

If you are looking to start or expand your business in India, one of the key decisions to be made is whether the business will be run through a foreign entity or a local (Indian) entity. From a taxation, operational, compliance and employment perspective, quite often it is beneficial to use a local entity to operate the business as opposed to an off-shore entity, which is generally subject to additional legal requirements.

In order to set up a business in India, one of the following structures may be used depending on the requirements and objectives of your business:

Ø  Proprietorship
Ø  Private Limited Company (Pvt. Ltd)
Ø  Partnership
Ø  Public limited company
Ø  Limited liability partnership

Like Australian companies, Indian corporations may be either limited by shares, limited by guarantee or an unlimited company. The most common entity used by new entrants to the Indian Market is a private company limited by shares.

Prerequisites to incorporate Private Limited Company in India

If you have decided to incorporate a Private Limited Company, below are the requirements you will need to satisfy:
  1. Number of Shareholders - minimum two (2) shareholders but not more than 50 shareholders.
  2. Number of Directors - minimum two (2) directors (director and shareholder can be the same person). Provided one of the directors is a local director (who resides in India), the company may appoint a foreign director. There are no restrictions in regard to foreign directors provided required criteria is met.
  3. Minimum paid up share capital – for a private limited company, minimum paid-up share capital of INR 100,000.00 (approx. $2000 AUD) is required.

STEPS INVOLVED IN SETTING UP A PRIVATE LIMITED COMPANY  

I.    Applying for Director Identification Number (DIN)
The first step is to obtain the DIN.  The DIN is a unique identification number allocated by the Ministry of Corporate Affairs (MCA) to an individual who intends to be appointed as a director of a company.  It is mandatory to obtain DIN pursuant to s153 of the Companies Act 2013.

II.    Obtaining Digital Signature Certificate (DSC)
All the electronic documents (e-forms) must be signed and lodged using digital signatures. Therefore, at least one of the directors of a company must obtain a DSC.  It can be issued by any one of the licensed Certifying Authority (CA) which is approved by the Ministry of Corporate Affairs. The DSC is normally issued with validity for a period of one or two-years.
DIN is not a pre-requisite for DSC, therefore, both can be applied simultaneously.

III.    Company Name Search and Obtaining Name Approval
The next step of the process is to select the company name and obtain approval from the Registrar of Companies (ROC), where the registered office of the company will be located. A minimum of one and maximum of six proposed company names in order of preference must be submitted to the ROC for approval.
When selecting names, one must ensure that the proposed company name:–
  1. does not resemble any other existing company;
  2. does not violate the provisions of Emblems and Names (Prevention of Improper Use) Act 1950.
  3. contains the phrase “Private Limited” as its last words.
If the name is approved by ROC, it is valid for 60 days which means Memorandum and Articles of Association of the Company and other forms for incorporation must be filed within this period. Failure to do so will require an application for renewal of name to be filed along with additional fees.

IV.    Prepare Memorandum and Articles of Association and other documents.
In accordance with section 7(1) of the Companies Act 2013, below is a list of necessary documents to be submitted to the Registrar of Companies (ROC) -
  1. Memorandum of Association (MOA): is a document that sets out all the necessary information required for the company registration. In addition, it outlines the objectives and the scope of activities of the company.
  2. Articles of Association (AOA): contains the rules and regulations for the management of the company. While the MOA specifies the purposes for which the company has been formed, the AOA outlines the rules and regulations for achieving those objectives. It also states the authorized share capital of the proposed company and the names of its directors.
  3. Form 1: application for incorporation of a company.
  4. Form 18: provide details of the registered office of the company.
  5. Form 32: contains details of the directors, managers and company secretary of the company.
  6. Declaration of Compliance: signed by either a lawyer, chartered accountant, company secretary, director or manager of the company.

V.    Obtaining Certificate of Incorporation
After reviewing documents if the Registrar of Companies is satisfied that all the requirements are met, the Certificate of Incorporation is issued. Section 34(1) of the Companies Act 2013 requires the Registrar to issue a Certificate of Incorporation, normally within 7 days of the receipt of completed documents.
 
Please contact us if you wish to discuss this, or any commercial legal matter, in further detail.
Mona Chaudhary
mchaudhary@hopeearle.com.au
Ph: +61 3 9600 3330
Lawyer, Hope Earle Lawyers

Important Disclaimer – This publication is general in nature and is not intended to be, nor should be, considered as legal advice.  For legal advice please contact Hope Earle Lawyers on +61 3 9600 3330. 

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