Indian Company Registration
India as one of the fastest growing economies in the world attracts plenty of Foreign Direct Investment (FDI) and Private Equity capital. According to a recent report by Nomura, a Japanese Brokerage firm, FDI into India is likely to have hit high of $34.9 billion in financial year 2015, a massive 61.6 per cent jump from $21.6 billion in the previous fiscal. With the world’s second largest population and a large talent pool of skilled IT professionals, India continues to be an attractive destination for investment amongst Foreign Companies and Foreign Nationals. In this article, we provide a comprehensive guide to Indian Private Limited Company and India entry strategy for foreign nationals and foreign companies.
Overview of India Entry Strategies for Foreign Companies / Foreign Nationals
Following are the available types of entry strategies into India:
Incorporation of a Private Limited Company or Limited Company
Incorporation of a private limited company is the easiest and fastest type of India entry strategy for foreign nationals and foreign companies. Foreign direct investment of upto 100% into a private limited company or limited company is under the automatic route, wherein no Central Government permission is required. Hence, incorporation of a private limited company as a wholly owned subsidiary of a foreign company or joint venture is the cheapest, easiest and fastest entry strategy for foreign companies and foreign nationals into India.
Incorporation of a Limited Liability Partnership
Incorporation of a Limited Liability Partnership (LLP) is also an India entry strategy for foreign nationals or foreign citizens as 100% FDI in LLP is now allowed. An LLP, however, cannot have shareholders and must be represented by Partners – thereby making it an ideal choice for investment vehicles and professional firms.
Through Proprietorship Firms or Partnership Firms
Proprietorship firms or Partnership firms are the most basic types of business entities mostly used by very small businesses or unorganised players. Foreign investment into a proprietorship firm or partnership firm requires prior RBI approval. Hence, proprietorship firms or partnership firms are not suitable for a foreign company or foreign national investment into India.
Registration of Branch Office, Liaison Office or Project Office
Registration of Branch Office, Liaison Office or Project Office requires RBI and/or Government approval. Therefore, the cost and time taken for registration of branch office, liaison office or project office for a foreign company is higher than the cost and time associated with incorporation of a private limited company. Further, foreign nationals cannot open branch office, liaison office or project office. Hence, this option is limited to being an India entry strategy only for foreign companies.
FDI in Private Limited Company
Foreign Direct Investment (FDI) into an Indian Private Limited Company or Limited Company is allowed upto 100% in most sectors. Only a very few sectors require prior Central Government approval for investment by foreign company or foreign national. The following sectors require Government Approval for investment by Foreign Company or Foreign National:
- Petroleum sector (except for private sector oil refining), Natural gas / LNG pipelines.
- Investing in companies in Infrastructure
- Defence and strategic industries
- Atomic minerals
- Print Media
- Postal Services
- Courier Services
- Establishment and operation of Satellite
- Development of Integrated township
- Tea Sector
- Asset Reconstruction Companies
Incorporation of Private Limited Company for Foreign Companies and Foreign Nationals
The following are the steps involved in the incorporation of a Indian Private Limited Company for foreign nationals or foreign companies:
Management and Shareholding Structure
A private limited company must have a minimum of two Shareholders and two Directors. A shareholder can be a person or a corporate entity. However, a Director has to be a person. Foreign nationals are allowed to become Directors of an Indian Private Limited Company.
The Board of Directors of the Indian Private Limited Company must have one Director who is both an Indian Citizen and Indian Resident. However, there is no requirement for the Indian Director to be a shareholder in the Company. Hence, most foreign companies or foreign nationals prefer to incorporate a company in India with three Directors – two Foreign National Directors and one Indian National Director.
The 100% shares of the Indian Company can be held by a combination of Foreign Companies and/or Foreign Nationals. Indian private limited companies require a minimum of two shareholders mandatorily. Hence, one corporate entity or person cannot hold all the shares of an Indian Private Limited Company.
Obtaining Digital Signature for Foreign National Directors
A digital signature is required for filing the incorporation documents and continued compliance documents for a company. Hence, Digital Signatures must be obtained for one or more Director(s) of the company. The following video is a guide to submitting Digital Signature application:
The following are the documents and information required for obtaining Digital Signature for a foreign national:
- 1. Foreign national is residing in native country
- If native country is a signatory of Hague Convention: For attestation, proof of identity, address proof and photo on DSC application should be notarized by the Public Notary of that foreign country and apostil led by the competent authority of that foreign country.
- If native country is not a signatory of Hague Convention: For attestation, proof of identity, address proof and photo on DSC application should be notarized by the Public Notary of that foreign country and consularized by the competent authority of that foreign country . Documents required: Passport, Application form with Photo (all attested).
- 2. Foreign national residing in India
- The following documents should be certified by Individual’s Embassy
- Resident Permit certificate issued by Assistant Foreigner Regional Registration Officer, an officer of Bureau of Immigration India.
- Application form with Photo(attested)
- 3. Foreign national neither in India nor in the native country
- The following documents should be certified by the local embassy of the country to which the person belongs:
- Application form with Photo(attested)
In parallel to the digital signature application process, name approval can be obtained for the proposed company. The name of the Indian Company must be unique and should end with the words “Private Limited”. Click here to know more about Naming an Indian Private Limited Company.
Filing for Incorporation of a Private Limited Company
Once name approval is obtained, incorporation documents can be filed with the Ministry of Corporate Affairs to incorporate the Company. The incorporation documents to be filed includes affidavits & declarations from Directors, Memorandum of Association, Articles of Association Subscriber Sheet and Registered Office Address proof.
The affidavit and declarations from the Directors contain certain declaration from the Directors. Affidavit and Declaration would have to be executed independently for each of the Director and notarized (For Indian Director & Foreign Director).
Subscribing to the Memorandum of Association (MOA) & Articles of Association (AOA)
By subscribing to the MOA & AOA, the shareholders (either foreign companies or foreign nationals or Indian companies or Indian national) show their intention for becoming a shareholder in the company to be incorporated.
In case a Foreign Company is a subscriber to the MOA & AOA of the proposed Indian Company:
The following documents pertaining to the foreign entity subscribing to the shares of the Indian Company must be submitted:
- Board resolution of the Foreign Entity authorising investment in shares of the Indian Company.
- Copy of the certificate of incorporation of the foreign entity.
- Copy of address proof for the foreign company.
On submitting the above documents along with the application for incorporation of a company, the Registrar would issue a Certificate of Incorporation for the Indian Private Limited Company, if the documents submitted are acceptable.
After obtaining the incorporation certificate, the Indian Company can apply for a PAN Card and take the necessary steps for opening a bank account for the company in India.
Documents Required For Indian Subsidiary
Recent Utility Bill
Aadhaar is mandatory for Indian Directors.
Indian Subsidiary FAQ’s
1. How many people are required to incorporate a Private Limited Company?
To incorporate a private limited company, a minimum of two people are required. A private limited company must have a minimum of two Directors and can have up to a maximum of fifteen Directors. A minimum of two shareholders and a maximum of up to 200 shareholders are allowed in a private limited company.
2. What are the requirements to be a Director?
The Director needs to be over 18 years of age and must be a natural person. There are no limitations in terms of citizenship or residency. Therefore, even foreign nationals can be Directors in an Indian Private Limited Company.
3. What is the capital required to start a Private Limited Company?
You can start a Private Limited Company with any amount of capital. However, the fee must be paid to the Government for issuing a minimum of shares worth Rs.1 lakh [Authorized Capital Fee] during the incorporation of the Company. There is no requirement to show proof of capital invested during the incorporation process.
4. Is an office required for starting a Private Limited Company?
An address in India where the registered office of the Company will be situated is required. The premises can be commercial/industrial/residential where communication from the MCA will be received.
5. Do I have to be present in person while incorporating a Private Limited Company?
No, you will not have to be present at our office or appear at any office for the incorporation of a Private Limited Company. All the documents can be scanned and sent through email to our office. Some documents will also have to be couriered to our office.
6. What are the documents required for Incorporation?
Identity proof and address proof are mandatory for all the proposed Directors of the Company. PAN Card is mandatory for Indian Nationals. In addition, the landlord of the registered office premises must provide a No Objection Certificate for having the registered office in his/her premises and must submit his/her identity proof and address proof.
7. How long will it take to incorporate a Company?
IndiaBizFiling.com can incorporate a Private Limited Company in 7-15 days. The time taken for incorporation will depend on the submission of relevant documents by the client and the speed of Government Approvals. To ensure speedy incorporation, please choose a unique name for your Company and ensure you have all the required documents prior to starting the incorporation process.
8. What do I need to quickly incorporate into a Company?
To incorporate a Company quickly, make sure the proposed name of the Private Limited Company is very unique. Names that are similar to an existing private limited company / limited liability partnership / trademark can be rejected and additional time will be required for resubmission of names.
9. How long is the incorporation of the company valid?
Once a Company is incorporated, it will be active and in existence as long as the annual compliances are met with regularly. In case, annual compliances are not complied with, the Company will become a Dormant Company and may be struck off from the register after a period of time. A struck-off Company can be revived for a period of up to 20 years.
10. What is a Digital Signature Certificate?
A Digital Signature establishes the identity of the sender or signee electronically while filing documents through the Internet. The Ministry of Corporate Affairs (MCA) mandates that the Directors sign some of the application documents using their Digital Signature. Hence, a Digital Signature is required for all Directors of a proposed Company.
11. What is Director Identification Number?
Director Identification Number is a unique identification number assigned to all existing and proposed Directors of a Company. It is mandatory for all present or proposed Directors to have a Director Identification Number. Director Identification Number never expires and a person can have only one Director Identification Number.
12. What is the authorized capital fee?
The authorized capital of a Company is the number of shares a company can issue to its shareholders. Companies have to pay the Government an authorized capital fee to issue shares in a Company. Companies have to pay an authorized capital fee of a minimum of Rs.1 lakh.
13. What are the statutory compliances required for a Private Limited Company?
A private limited company must hold a Board Meeting at least once every 3 months. In addition to the Board Meetings, an Annual General Meeting must be conducted by the Private Limited Company, at least once every year.
14. Can NRIs/ Foreign Nationals be Director in a Private Limited Company?
Yes, a NRI or Foreign National can be a Director in a Private Limited Company after obtaining Director Identification Number. However, at least one Director on the Board of Directors must be a Resident India.
15. Can NRIs/ Foreigners hold shares in a Private Limited Company?
Yes, NRIs / Foreign Nationals / Foreign Companies can hold shares of a Private Limited Company subject to Foreign Direct Investment (FDI) Guidelines.
16. What are the FDI guidelines for Foreigners in a Private Limited Company?
100% Foreign Direct Investment is allowed in India in many of the industries under the Automatic Route. Under the Automatic Route, only a post-investment filing is necessary with the RBI indicating the nature of investment made. There are a few industries that require prior approval from the RBI, in such cases, approval must first be obtained from RBI prior to investment.