Incorporating a Company in India

Foreign companies and investors may choose to do business in India as a ‘Private Limited Company’ or as a ‘Public Limited Company’. The Companies Act, 2013 and the rules framed under it govern and regulate all companies incorporated in India, irrespective of the place of incorporation of the foreign-parent company. The authority that oversees companies and their compliances in India is the Registrar of Companies (RoC). 

As per Section 2(42) of the Companies Act, 2013 a ‘foreign company’ means any company or body corporate incorporated outside India which (i) has a place of business in India whether by itself or through an agent, physically or through electronic modes; and (ii) conducts any business activities in India in any manner. 

Furthermore, Section 379 of the Act states that “where not less than 50% of the paid up share capital, whether equity, or preference or partly equity or partly preference, of foreign company is held by: (i) one or more citizens of India, or (ii) by one or more companies of bodies corporate incorporated in India, or (iii) by one of more citizen of India and one or more bodies corporate incorporated in India, whether singly or in the aggregate, such company shall comply with the provisions of the Chapter XII and such other provisions of the Act as may be prescribed with regard to the business carried on by it in India as if it were a company incorporated in India.”

All the requirements for incorporation of a ‘Private Limited Company’ are also applicable to a ‘Public Limited Company’, except that in case of a Public Limited Company there is a requirement of minimum seven shareholders and minimum three directors, one of whom should be a resident director who stays in India for a period of not less than 182 days during each financial year. A Public Limited Company requires a minimum of two initial subscribers and two directors.

Process of Incorporation

Step 1: Application for name approval: A prior name and trademark search is required for the proposed names to be sure that another company with the same name does not exist. In case of a subsidiary, a foreign company may propose a coin word or trademark of it’s existing name. A ‘No Objection Certificate’ (NOC) from the foreign company which owns the coin word or trademark and documents relating to trademark registration shall be required.

A ‘main division’ code for the industrial activity and ‘main object’ of the proposed company is required. Once approved, a name is valid for a period of 20 days from the date of approval.

Step 2: In case of a subsidiary or a wholly owned subsidiary, the foreign company must provide: Notarized copies of (i) resolution of foreign company which specifies the name of an authorized representative and number of subscription shares; (ii) ID proof of the authorized representative; (iii) charter of foreign company, and (iv) the name of at least one resident Indian director and nominee.

Step 3: After the proposed name is approved, the following documents and declarations are required to be furnished:

• • • Memorandum of Association (MoA) and Articles of Association (AoA) along with appropriate stamp duty. 
    • Form DIR-2 declaration from first directors (minimum two). Form DIR-2 is required for consent to act as director, which is to be filed along with a self-executed copy of proof of identity and residential address. Note that at least one director should be a resident of India. 
    • Declaration from foreign subscriber in respect of not having Permanent Account Number (PAN). PAN is a ten-digit alphanumeric number issued by the Indian Income Tax Department.
    • Proof of registered office address and copy of utility bills not older than 2 months, including NOC from owner of property. 
    • Proposed company email ID and phone number.
    • Form INC-9 declaration by first subscribers and directors (minimum two).
    • Finalize the Authorized Share Capital and the Paid-up Share Capital requirement of the company. 
    • Obtain Digital Signature Certificate (DSC) for proposed directors and Indian resident subscribers of the company.

Step 4: Filing all incorporation forms and documents online: Once all the documents mentioned above have been gathered, the details are to be filled in on SPICe+. “SPICe” stands for “Simplified Proforma for Incorporating Company Electronically” which is a single window form for incorporating companies available on the Ministry of Corporate Affairs website.

Step 5: Certificate of Incorporation: Once e-form SPICe+ is completed and processed, the Registrar of Companies will issue a Certificate of Incorporation (COI) along with the company’s PAN and Tax Deduction & Collection Account Number (TAN). Corporate Identification Number (CIN), appointment of first directors, allotment of Director Identification Numbers (DINs), and registered office of the company are taken on record.

The COI and CIN are permanent and remain valid until the company winds up its affairs on its own or it’s registration is cancelled by the RoC.

Laws Applicable

As mentioned previously, the Companies Act, 2013 and the rules framed under it govern and regulate all companies incorporated in India. Some other legislations that are applicable include:

• • • Foreign Exchange Management Act, 1999: Foreign Direct Investment (FDI) in Indian business entities is regulated by the Foreign Exchange Management Act and the rules framed under it. The extent and mode of approval of foreign direct investment in a company depends upon the nature of its business activities, which are notified by the Reserve Bank of India from time to time.
    • Income Tax Act, 1961: While investing in an Indian business entity, various direct and indirect taxes are levied and collected by the Central and State Governments. Both domestic and foreign companies have to pay taxes in India under the Income Tax Act. The various taxes applicable include:

– Corporate taxes levied on the profits of both domestic and foreign companies as per the applicable tax rate;

– Dividend distribution tax paid on the dividends distributed to shareholders;

– Capital gains tax on the transfer of capital assets;

– Indirect Taxes such as Goods & Services Tax, Excise & Customs Duty or any other applicable taxes.

With a view to avoid double taxation, anyone interested in investing in India should consider various tax treaties and regulations applicable to the country of origin and India. In some cases, this may be done by investing through an intermediary holding company. 

• Sector specific laws: Depending upon the business activity of the entity, various sector specific laws may become applicable. Accordingly, the entity will be required to obtain necessary local and business registrations from the sector specific regulator in addition to compliance with the afore-mentioned laws. Some examples include:

– Environmental permits under the Environment (Protection) Act, 1986; Water (Prevention and Control of Pollution) Act, 1974; and Air (Prevention and Control of Pollution) Act, 1981 among others.

– Labour laws such as the Workmen’s Compensation Act, 1923; Trade Unions Act, 1926; Code on Wages, 2019; Payment of Gratuity Act, 1972; Industrial Employment Standing Orders Act, 1946; Industrial Disputes Act, 1946; Employees’ State Insurance Act, 1948; and Factories Act, 1948.

– Other important laws requiring compliance include Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013; and Maternity Benefit Act, 1961. 

The author is Vidit Parmar.

Disclaimer: There are other forms of entities such as Limited Liability Partnerships (LLPs), branch offices, liaison offices, project offices which may also be considered for carrying out business operations in India. This primer is intended as a broad and basic guide to incorporation of private and public companies in India. Depending on the sector in which a particular entity operates, additional compliances may be required. We, therefore, advise our readers to take formal legal advice before making a decision as to formation of a business entity in India.

Clinch Legal provides end-to-end incorporation assistance as well as compliance services to companies on a retainer basis.